KEY POINTS:
Canny, cashed-up property investors are already scooping the bargain buying while prospective homebuyers procrastinate, hoping for further price falls.
"The seasoned, cashed-up property investors are ready to re-enter the market and are seeing opportunity now," says Bayleys managing director, Mike Bayley, referring to the growing number of mortgagee sales coming on the market. "Often they are sold at a discount to market value," he says.
There are more now than for the past six years, says Bayley, and he expects this to continue, as people come under increasing pressure from finance sector issues and as the cost of living intensifies. "Mortgage payments are going to come under pressure and we're going to see a significant level of mortgagee sales."
Harcourts' chief executive Bryan Thompson agrees there are more mortgagee sales being advertised at the moment.
"It is a place where you can get some good value because you've certainly got a committed seller," says Thompson.
"By the time a property gets to a mortgagee-sale advertised situation, the owner and the mortgagee have exhausted every avenue they can see to rectify the situation. It's not a move lending institutions take lightly - they don't like being involved in them any more than the people who owe the mortgage."
Sue Tierney, president of the Auckland Property Investors Association, says sensible investors are out buying while everyone else is thinking "doom and gloom" because interest rates are going to drop.
"It's a matter of when," she says. "Rents have been rising, so everything is aligned to turn around. Why wouldn't you be buying when the market has dropped? Only the people who have to sell are selling."
Tierney is also a broker at Mortgages by Design and says she has been "flat tack" doing loan pre-approvals for investors.
"I've been doing huge dollar loans, so I know the market is quite active. The clients earning good incomes or who have got themselves into a good financial position are making the most of the opportunities."
Bayley says the amount of cash "sitting out there" in the country shouldn't be underestimated. This cycle differs from the early 1990s because "there's a lot of money out there just waiting to come back in".
"That is being illustrated by the amount of purchasers bidding at auction. When bidding at auction, you're bidding unconditionally, and these people have cash to do deals."
Offshore investor funds are starting to flow into the market as well.
Tierney has been approached to arrange finance for buyers from 11 different countries, including expats "earning fantastic money overseas".
Geoff Bawden, chairman of the Mortgage Brokers Association, says he's also "done a couple of deals for expats recently".
The buoyant rural sector is proving another source of investor purchasing power, says Bayley.
But Tierney says investors who began buying in the past seven years are too financially stretched. "It's people with good equity who are able to buy at the moment. A number of them have no personal mortgage, and even some freehold rental properties."
EXPAT INVESTORS STAGE COMEBACK
Kiwi expat Charlotte Cossar, an editor, and her husband Geoff Lush, a communications manager, have been living in Melbourne for two years and have been considering buying property there, but say it is too hard with stamp duty, tightening credit criteria and rising interest rates.
"So with the Aussie dollar increasing and property prices in Auckland dropping, we have decided to use the equity in our New Zealand property to buy another investment property," says Cossar.
Asia Pacific general manager of allrealestate.co.nz, Shaun Di Gregorio, says: "The yields are a lot stronger in Auckland than they are in Melbourne. Expats will probably get 6-7 per cent, whereas in Australia they would be lucky to get 4-5 per cent.
"Not having to pay taxes - and with the lending institutions happy to waive fees, offer interest-only loan terms and not charge a low-equity fee - makes it very attractive for expats to pick up a property for $500,000 in Auckland city," Di Gregorio says.
"Properties that would have been in the $600,000s are now coming on the market in the $500,000s, or even less."
Cossar says: "If we pick up one of these, sit on it for a few years and flick it when the market goes up, it should work well.
"Hopefully by this time, the New Zealand dollar would have picked up, interest rates here will have dropped and house prices might plateau.
"By timing the two markets, we could do very well and in the end be in a better position to pick up property in Melbourne - using the money made on one of our New Zealand properties as a deposit, while still sitting on our other Auckland property.
"A lot of our expat Kiwi friends are looking at doing the same thing, as well as some cashed-up Australians who are looking for a good investment."
MORTGAGEE SALE PITFALLS
Eva Ho, principal of Focus Law, explains that a mortgagee sale is "involuntary" and is conducted not by the owner but the bank, which needs to realise its security to cover outstanding mortgage repayments.
Mortgagee sale contracts usually contain special terms that are one-sided in favour of the bank.
Unlike in an arm's-length sale when the standard Law Society contract is used, there is usually no scope for negotiation by the purchaser on the terms of the contract.
The bank usually will not guarantee whether the purchaser will get vacant possession on settlement.
A tenant may "pop up" from nowhere, says Ho, and "will claim to be entitled to remain on the property on the strength of some shoddily-drafted tenancy agreement at some abhorrently low rental".
The purchaser will then be left to deal with the "mess" after the settlement, perhaps having to terminate the tenancy.
There is also no guarantee of the property's condition. Even if the buyer has the benefit of viewing the property before settlement, it may not be in the same state on the settlement day.
In the course of a regular transaction, the purchaser will get standard warranties from the vendor, for example that the construction or subsequent alteration of the dwelling meets council requirements.
A mortgagee auction contract will include no warranties from the bank.
If a bank is selling at a mortgagee sale, the buyer will have no recourse against it if unauthorised structures are later found on the property.
Even though the contract will specify a settlement date, this may not happen on time if there are claims from people alleging an interest in the mortgagee sale property.
This can happen when a spouse or partner of the owner comes out of the woodwork to claim a half share of the property under the Property (Relationships) Act 1976. They can lodge a caveat on the property's title, preventing the sale concluding.
Ho says purchasers should be careful when buying an apartment at a mortgagee auction if the minutes of the last annual general meeting of the body corporate are unavailable.
"If the property is a leaky building and there were resolutions passed at the last AGM for each apartment owner to contribute $50,000 toward the repair costs, the unsuspecting purchaser will be responsible for any extraordinary body corporate levies."
Mortgagee sale purchasers should try to find out as much as possible about the property before they take part in the auction.
Ho advises getting a land information memorandum and even talking to neighbours or caretakers.
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