Property slump hits small-time investors

Photo / Herald on Sunday

Buy-to-let landlords who invested in "cheap" areas are at the sharp end of a housing slump which has seen a record number of mortgagee sales.

Property consultant and investor Olly Newland told the Herald that most sellers had been caught out by rising interest rates and dropping values and had failed to gain the rents needed to cover their mortgages.

Figures released this week by property and land information company Terralink revealed a record 251 mortgagee sales in April, and experts said the trend showed no sign of slowing.

"An over-proportionate number of the people who are facing mortgagee sales are those with multiple investments and they've paid too much and they've got far too much borrowings for the immediate amount of rent," Mr Newland said.

"Most of them have bought cheap houses in South Auckland or West Auckland or out in the sticks somewhere ... they just can't get the rent out of people in these areas. The vast majority have got these cheaper houses where you just can't squeeze any more rent, the equity's gone because the values have dropped, the mortgage is still a high rate of interest and they've got nowhere to turn. If they'd bought properties in better areas they might have [demanded] higher rents."

Mr Newland, who has written several books on property investment and fronts the television programme Property Climbers, said many mortgagee sellers were struggling with debts to finance companies or banks who had tightened their lending conditions since lending agencies began collapsing in about March last year.

"Behind every one of those mortgagee sales there's another 10 or 20 people who are distressed sellers that don't actually get to mortgagee sale - they just bail out," he said.

"Whatever number you can see there, you can multiply by many times those who were forced to sell and get there before the bank makes them."

Mr Newland said if people spoke to their banks early, they had the greatest chance of making arrangements to keep their properties and, sometimes, it was better to sell at a loss early on.

"There's always losses of course, in the end, but it's a question of managing the least loss you can ... turning up at the bank at one minute to midnight is not a good idea."

BNZ chief economist Tony Alexander said most mortgagee sellers were "over-geared, inexperienced investors" who bought the properties hoping - and needing - values to rise.

"They were gambling, basically," he said.

"Those who bought cashflow positive properties with an intention of increasing the rent where they could and keeping their debt low, they're still there at the moment, they're fine."

While mortgagee sales were growing in New Zealand, the base figures had been low to begin with, he said.

And although statistics showed an increase, mortgagee sales represented only a small amount (4 per cent) of total house sales. In the United States, this figure was 45 per cent.

"There is no comparison at all."

He said he believed house prices had "bottomed out" in New Zealand and sales were improving.

"I don't think we're looking at a great escalation in these mortgagee sales.

"The economic fundamentals argue against it but there will still be some more over-geared people who have yet to be burnt off."