New Zealand has a long-standing love affair with property investment.
It's a topic that sparks passionate debates, from first-home buyers struggling to enter the market to seasoned investors building substantial portfolios.
But what drives this obsession? Let's delve into the reasons behind New Zealand's property investment fever.
Historical Roots
Land ownership:
New Zealand's history as a settler colony has deeply ingrained the value of land ownership in our culture. Early settlers saw property as a symbol of security and wealth.
Generational wealth
Property has often been seen as a way to build generational wealth, passed down through families as a valuable asset.
Economic Factors
Inflation hedge
Historically, property has been viewed as a hedge against inflation. While this hasn't always been the case, the perception persists.
Tax benefits
Depreciation and other tax advantages have made property investment attractive for many.
Leverage
The ability to borrow money to purchase property has amplified returns for investors, although it also increases risk.
Low interest rates
Periods of low interest rates have fueled property investment as borrowing becomes cheaper.
Psychological Factors
Fear of missing out (FOMO)
The rapid rise in property prices has created a sense of urgency among many, leading to FOMO-driven investment decisions.
Security and control
Owning property can provide a sense of security and control over one's financial future.
Lifestyle aspirations
For some, property investment is seen as a pathway to a desired lifestyle, such as early retirement or financial freedom.
Criticisms and Challenges
While property investment has been a lucrative strategy for many, it's not without its critics. Rising house prices have made it increasingly difficult for first-home buyers to enter the market, contributing to affordability issues. Additionally, the concentration of wealth in property can exacerbate income inequality.
Furthermore, the property market is subject to economic cycles. What goes up can also come down, and investors need to be prepared for potential downturns.
The Future of Property Investment
The New Zealand property market is evolving. Factors such as rising interest rates, stricter lending criteria, and government interventions are reshaping the investment landscape. While property will likely continue to be a popular investment option, diversification and a long-term perspective are becoming increasingly important.
Ultimately, the decision to invest in property is a personal one. It's essential to weigh the potential benefits against the risks and to consider your individual financial goals and circumstances.
The above blog was written by Reid Mckenzie a financial adviser working for Mckenzie Financial Planning (www.mckfp.co.nz).
The above information is general in nature as is not meant to constitute personalised financial advice. Reid recommends seeking personalised financial advice from a registered financial adviser before making financial decisions.