KEY POINTS:
Is the property market awash with bargains? If you listen to real estate agents and others who make their money by selling property, you'd think so.
But scratch the surface and that isn't really the case. Yet, that is. While the numbers of sales halved in the first quarter of this year, other than small pockets of the market, there have been few real price falls. Vendors are holding out for their prices.
So anyone who thinks that the property cycle hit its peak a year ago, has had its correction and will be back on the upward trajectory this year is probably dreaming - or has a vested interest.
Full property market cycles take seven to 10 years on average. If you view that cycle as a clock face, as does Kieran Trass, property market analyst and author of Grow Rich With the Property Cycle, then we're nowhere near 3 o'clock, with the real drops still to come.
Most leading economists also expect house prices to fall: ANZ/National's economist Cameron Bagrie is predicting drops of 10 to 15 per cent over the next 12 to 15 months, with a flat period for three years after that.
ASB's chief economist, Nick Tuffley, is expecting about a 7.5 per cent drop this year, a small drop in the early part of next year, with prices beginning to rise - albeit no faster than inflation - in late 2009.
Gareth Kiernan, economist at forecasting company Infometrics, predicts the fall will be 10 per cent, unless we see an unexpected outside shock such as big job losses or a renewed impact of the credit crunch. He expects prices to begin rising again in 2009. Nonetheless, says Trass, it may not be worth waiting until the property clock hits 6 o'clock - which he estimates will be in 2011-12 - to get a bargain. Those investors and homeowners forced to sell will probably be shaken out in the next 12-15 months. "We have a chronic market at the moment," he says.
Hence, there may be more real bargains in that time, he says, although investors who buy in the next year will have to wait longer for prices to start rising again.
Current figures from Quotable Value suggest that prices haven't yet dropped. But Trass says those figures show annualised growth rates. "I believe that prices are collapsing as we speak."
Prices need to fall further than the economists predict, rents need to increase and interest rates fall before property yields become profitable again. With two-year fixed interest rates sitting above 9 per cent in most cases, even the magical 10 per cent that property investors view as a good gross yield wouldn't be high enough.
One spanner in the works - or bonus, depending on your view - is that the tax deductions on rental losses, which can amount to hundreds of dollars a month, have blurred how the returns on a property are viewed by investors.
Claiming losses against your personal taxation can make a loss-making property profitable. Investing for tax reasons, however, can often be a mistake. There is no guarantee that the tax breaks available now will always continue.
Finding a bargain requires an intimate knowledge of the market you're buying into. Many investors also look for the "Six Ds" of motivated vendors: death, divorce, de bank, dummies, deadlines or developers (who need to sell) in the hope that they can pick up a bargain. Other vendors can probably hold on for a better price.
A variety of methods can be used to shake these vendors out and create bargains. One, says Olly Newland in his book The Rascal's Guide to Real Estate, is to play cool and take your time in the negotiation.
Another approach cited by investor and author Dolf de Roos is the 100:10:3:1 rule. That involves viewing the details of 100 properties, shortlisting 10, putting offers on three and buying one.
An extension to this is to shortlist three and offer 20 per cent below valuation on one of those three at a time. If all three refuse, up your offer to 15 per cent below, one at a time, until you get a bite.
Developing good negotiation skills makes a lot of sense, and the book Supremacy Negotiation - Real Estate Deals, by David Bradley and Phil Jones, is packed full of useful tips.
Real estate agents are desperate to make a sale in this market. Many haven't sold a property for months and those who are on commission only will be hurting. It's all the more important to handle them carefully.
They play tricks such as advertising a home below its real value as a teaser to get you hooked, putting dummy bids in at auction and so on. Terry Ryder's book Real Estate Without Agents is a good read to understand how agents work.
Finally, just because a property is cheap, it's not necessarily a bargain. If prices are going to fall more, then you could find yourself in negative equity.
And if the property's a dog and hard to tenant, your "bargain" may turn out to be a mistake.
Diana Clement is an Auckland-based personal finance and investment writer
