Blog 7
The article released by The Dominion
Post forecasts how people are being discouraged from buying there own homes as
renting prices are low (NZPIF).
Andrew King whom is an executive officer
for New Zealand Property Investors Federation states that owning an average
home is about $138 more expensive a week than the cost of renting a
similar property. "A lot of people will say they can save that
$138 by renting, that's cash in their hand right now, so most will think that's
a good thing to do," (King).
Rent was estimated to cost about $450 a
week which would total out to cost tenants around $23,400 to live in, to own a
house NZPIF estimated the the normal rate of an average house is a 20% deposit,
25 year mortgage with 5.75% interest so homeowners were looking at paying
anything over $25,655. For landlords and property investors a landlord
would be paying around $21,975 a year in mortgage payments, plus additional
cost such as insurance, maintenance etc which does not fall down
to the tenants responsibility. "That would take the owner-occupier's
total costs to $30,593 a year, which means they would be paying $7193 a year
($138 a week) more than a tenant" (King).
In 2013 a similar investigation was
taken out by NZPIF comparing homeownership to renting and the difference in
price was calculated at $108 more expensive to own a house than to rent
and this year has increased to $138 a week which is quite a difference which
means the gap is widening fast. This results in mortgage repayments and
additional costs to homeowners is increasingly widening and cost for property
owners is rising faster than rent.
Because interest rates are low this may
be the result of low rent prices as landlords cash flow is better. Due to the
gap continuously increasing between prices of homeownership and rent, this may
mean that in the near future rent prices have the opportunity to increase to
keep up with market prices and close the gap of the difference in
price. "King estimated that, using the NZPIF's cost example, the rent
would need to rise 10 per cent to $495 a week to provide a satisfactory
return". "Landlords should be looking at prevailing rents in the
areas in which they owned properties to see if they needed to increase their
rents, King said. “It may be easier to make smaller increases now than larger
increases in future when trying to keep up with cost increases,"
(King).
Main focus point featured in the
article: The increase in rental prices is not rising to be in balance with the
increase in property price sales.
The article released by the dominion
post relates to Welly Real-estate as it gives evidence towards the property
market continually increasing which is fleeing off potential buyers and pushing
willing buyers to be forced to settle with renting as opposed to buying. This
is a worry for Welly Real Estate.
Advise to Welly Real-Estate could be to
focus the business on property management as the market at present suggests
that many people are choosing to rent over homeownership and this could be
a niche in the market that Welly Real-estate could direct there business
and further generate income. Welly real estate could be in charge of taking on properties from
landlords and managing them whilst receiving a commission. In regards to the
article mentioning more people are choosing to rent this could be quite
beneficial to Welly Real-estate as they market for this is increasing and they
have the chance to expand the business in this way.
Works Cited:
King, A. "Low rents deters home
buyers". Web. March 25.2014. http://www.stuff.co.nz/dominion-post/business/residential-property/9780644/Low-rents-deter-home-buyers
Kiernan, G. “More people choosing to
rent”. Web. May 2. 2014. http://www.stuff.co.nz/dominion-post/business/residential-property/9844647/More-people-choosing-to-rent
Weir,J. “More people choosing to rent”. Web.
May 2. 2014. http://www.stuff.co.nz/dominion-post/business/residential-property/9844647/More-people-choosing-to-rent
McCrackin, H. "Property Values
Climb". Web. March 16. 2014.
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