Market Report 2021 July 27

Market Report 2021 July

 

 

 

 

Market Update

 

Debt To Income Ratios - Good or Bad for apartments

 

Market Update - July 2021

 

July 2021

 

Imagine if investors could only buy apartments. Apartment demand would go through the roof and values would surely increase.

 

Market Report 2021 July 27

 

 

 

 

 

 

Imagine if investors could only buy apartments. Apartment demand would go through the roof and values would surely increase.

Sounds ridiculous? An apartment enthusiast's pipe dream?

Well, the tool everyone is scared of, Debt To Income Ratios, could make this a reality and give apartments a big boost.

Come again? So how will (DTI’s) make investors want to buy apartments and not houses? Seems a stretch.

Let’s run through an example of a family with an income slightly higher than the average Auckland household - $150,000 per year.

They own their home valued at $1.2 million, debt of $800,000 and want to buy an investment property.

The reserve bank then introduces a Debt To Income Ratio of 8. What can they buy?

A Debt To Income Ratio of 8 means their debt is now limited to 8 x their income. 8 x $150,000 = $1,200,000.

Having already $800,000 of debt means the family can only borrow another $400,000.

Without going any further we can already predict what DTI’s will do; lower how much people can borrow on a second or third property. In this case even if Loan To Value ratios go to 10%, buying a house in Auckland will be almost impossible.

But not the lower priced Apartment option.

Now, there is a lot more to it than this.

I didn’t include other debts or rental incomes, the DTI could be lower/higher or a servicing percentage not a ratio, but the basic outcome is the same.

Introducing DTI restrictions will push property investors away from houses and toward lower priced, higher income assets. Which in Auckland are largely apartments.

So, are DTI’s really something I want to be introduced?

Absolutely not. But if they do, us apartment owners will benefit from increasing demand and therefore raising values. So, I will look into these benefits and most likely buy more leading up to it's start date.

Property is about looking for opportunities. Looking at what others fear and look for in opportunities. So while this month's report is a bit different, I hope you enjoyed a contrasting point of view on something most people think is a negative.

P.S. If house values don’t start to plateau, it could be right around the corner.

Next month I am back to area values, from our blossoming waterfront, the mid-town recovery and of course the suburbs.

As always...

 

 

 

 

 

 

 

Whats My Apartment Worth?

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      Market Report 2021 July