Why property is the ultimate long-term investment | Genius Homes

by Sam Macfarlane

We are in very new territory due to the global event which very few people saw coming. It continues to disrupt our day-to-day in ways we couldn’t have imagined. You can’t turn on the news or go online without seeing something relating to COVID-19. It’s not just the daily disruption to our lives that we’re having to deal with, but the hit our savings are taking over the stock market crash - if you haven’t looked at your KiwiSaver recently now might not be a good time to sneak a peek!

Yet we all know that the situation cannot last forever and many are looking at safe places for their money to go so that, on the other side, we can begin to rebuild as quickly as possible.

There are a number of reasons why some investments perform better than others but in this article, we’re going to look at property in particular and why it might be a sound investment at this time. With the housing market remaining in a solid position at the time of writing there are numerous options for people, even if careers and investments are not quite as certain as they may once have been.

Over time property can generate passive income if used as a rental property and can be the ultimate long-term investment if the value increases over a period of time. Billionaire Andrew Carnegie famously said that 90% of millionaires got their wealth by investing in real estate. This remains true today as people’s circumstances change and everyone’s normal requires a new definition every day.

Please be aware that the opinions given below do not constitute financial advice and are a summary of publicly available information. You should always consult a registered financial professional before making any investment decisions.

Is property more affordable today?

It seemed only a little while ago that we thought mortgages had reached their most affordable rate ever, and were unlikely to go down. On the 16th March, the reserve bank reduced the OCR (the Official Cash Rate) by 0.75% to an all-time low of 0.25%. Many retail banks cut their mortgage rates to match with the lower rate. At time of writing ANZ had the lowest rate, being a 1-year rate of 3.05%. Some bank managers are speculating that this may drop further and we may see interest rates below 3% in the not too distant future.

This is excellent news for anyone looking to build an additional house, invest in property or looking to refix their mortgage rate.

If you have existing equity tied up on your property you may be able to leverage this to get a mortgage on a new property which you can either rent out or use for a family member to move into. There are a number of options which we will explore in a bit and whereas the often-popular route of using it as an Air BnB might be less popular now than before there are still many uses for an additional property beyond accommodating short-term stays. 

While this low interest rate is great news for borrowing money it’s not great news for savers. The record interest rate is also applied to savings interest rates so while borrowing is cheap sadly savings provide a lower return than before. At present, the best high-street savings account was Kiwi Bank’s 90-day notice saver offering a 2.7% interest rate on balances above $2,000. Many savvy investors were aware that traditional savings accounts provided lower returns and had their savings in investments including shares but with the share market seeing its worst days since 1987 (yes, even worse than the GFC drop in 2007-2008), there are very few share deposits safe from the tumultuous stock market.

There are winners and losers when interest rates go up or down and while saving might not be as lucrative as it was before borrowing is more affordable than ever, and this is good news for the property market.

How are house prices doing?

Somewhat surprisingly, and also at the time of writing, house prices have remained steady in New Zealand despite the current situation. This means that your existing property will have held its value well and that the equity tied-up within it should remain strong. However it does mean that if you’re looking to buy an existing property as an investment that it would have also held its value pretty well.

So in the absence of bargains how can you use the low cost of borrowing to your advantage? Well, the answer lies in building a new property.

Prefab is obviously a good route to investigate with this, especially if this is your first time building and might be slightly daunted by managing a building project.

With a prefab home, the costs can be easily controlled as there are no weather delays and subcontractors can be managed on site. Because prefab home manufacturers can buy in bulk thanks to controlled production timelines they can pass on the savings to buyers. This means that while buying a brand new 3 bedroom, 200 sqm home in Cromwell might set you back over $800,000. You could buy a similarly sized house for closer to $370,000 and with a good section of land costing $300,000 you can save a pretty penny.

Can my property investment earn money?

While the tourism sector may have disappeared almost overnight, and taken Air BnB’s and other short-stay tourist business with it there are still a number of opportunities for a property to earn an income, and potentially cover its own mortgage.

History shows that recessions generally don’t impact the rental market in the same way that they affect other income streams. There are many reasons for this including the fact that some homeowners, unfortunately, are unable to maintain their mortgages or people look to downsize their monthly outgoings.

Another reason why buying and building a prefab home is more attractive during these times over buying an existing property is the Healthy Homes legislation coming into force. This requires all homes to meet certain insulation, heating and ventilation standards in order to be able to be rented out. For some people looking to get into property investment, this can seem an arduous task, with various unknown costs to meet the standards. 

The advantage of buying new is that modern homes meet these standards by default. Every Genius Homes plan meet the insulation, ventilation and heating requirements in-line with the new Healthy Homes guidelines. This means full peace of mind that your new rental property will be a solid rental home for years to come.

Other benefits to investing in a prefab property

Obviously property investment might be far from your mind. For some people reducing their monthly outgoings will be at the forefront of their mind and downsizing into a smaller home may be the perfect solution for reducing monthly bills, mortgage costs and this might be a quick priority.

You may also be looking out for a family member who wants to downsize and be closer to home. Then something small like a one-bedroom Kiwi design or something more traditional like a Cottage 1 might be perfect. A little bit more space can be found in the Cottage 2 or the modern-looking Ohau.

Whatever you choose there are a number of reasons why an extra piece of property can prove to be a sound long-term investment. Offering flexibility despite the uncertainty ahead property can be one of the many routes people take to protect their investments, shore up their savings or provide a passive income for the road ahead.

To learn more about our range of prefab homes click the button below and find your dream design.

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filed under Property Investing , Long-term Investment

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