One of New Zealand's top property investors is selling up his portfolio because, as Greg Ninness discovers, he sees the credit crunch as the "end of the beginning".
Olly Newland believes the property market "is on a knife's edge."
"If another reasonably sized finance company or developer tips over, that could be the end of it. I hope I'm wrong because I've seen the downside before. It's ugly and it's not a nice market to be in," said the veteran property investor, author and market commentator.
So the man who once owned a portfolio of 100 residential properties and more commercial premises than you could shake a stick at has been cashing up.
He's kept a handful of his best properties a couple of residential renters and a few good quality retail and industrial premises and sold the rest, putting the money into term deposits and a few other non-property investment vehicles. Fortunately he had nothing invested previously in Bridgecorp.
Newland's is another voice in a growing chorus that believes the credit crunch besetting finance companies at the moment will soon send some developers to the wall.
Those who are part way through projects are especially vulnerable, because they may not be able to get the finance to finish them, he said.
And the effects are likely to be felt across the entire market, including residential, commercial and industrial sectors.
But it's the residential market which is most at risk he believes. Newland has been through booms and busts before and has had his share of successes and failures along the way.
"In the 1970s it was the same. All anyone wanted to talk about was property; how much they'd paid for it, what it was worth now and how much money they'd made. And then it went bust and suddenly no one wanted to talk about property any more and all the smart money was pouring into kiwifruit instead. And when that crashed they moved on to ostrich farms. But in the end there's no such thing as a get rich quick scheme."
But there are differences this time around.
In previous booms, rapidly rising house prices were fuelled by high inflation. But this time property prices have raced ahead of inflation and, just as importantly, at a much greater rate than incomes.
"So one way or another something must give. Either wages will have to double over the next few years or house prices will start to fall back," he predicted.
Not that Newland has given up on property as a means of making money, even temporarily.
A few months back he purchased a couple of older style apartments in Auckland's eastern suburbs that were in need in renovation, did them up and sold at a profit, one doing better for him than the other.
He believes do-ups still provide the best opportunities to make money.
"Renovating is still one of the best ways to get capital growth because many homes are getting on in years and people aren't as handy these days as they used to be and often don't have the skills or the time to do their own improvements. So they'll pay a premium to get a property that's already been done up."
And while Newland "wouldn't touch" inner city apartments, he said it may be possible to make money from them if you could buy them for about half the price they were originally sold for which would provide a good rental return and be prepared to sit on them for 10 years to get a reasonable capital gain.
However you could probably still make a good profit by buying up smaller blocks of suburban home units, keeping them for a few years and then selling them off individually.
He also believed investors should resist the temptation to buy properties in the lowest income areas. Although property prices there could be cheap, they also had the least potential for capital gain because the natural limit on how much people on the lowest incomes could pay either to purchase or to rent would put a brake on values.
You would be better off buying into the up and coming suburbs, he suggested.
He said he remembered that when he first started buying investment properties, Ponsonby in Auckland was such a rough part of town that the banks wouldn't provide mortgages on houses in the suburb. Now it's one of the most expensive suburbs in the country. "But those changes take 30 years to happen," he said.
And while Newland has a negative outlook of the market at the moment, he doesn't expect it to crash overnight.
"Property is a slow mover. It may take years to unravel, so we aren't seeing the end yet. It's not even the beginning of the end. But it may be the end of the beginning."