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Bayleys June Market Round-Up

As the COVID-19 pandemic rages across the globe with worsening reports from the United States, India and South America, the number of expatriate Kiwis returning home has picked up again, following a lull in international arrivals during the higher levels of lockdown.

While the virus has made a reappearance at our borders, New Zealand (at the time of writing) has managed to contain community transmission and the upside of returning residents is a valuable resource for our economy amidst lost revenue and layoffs.

Where some pick muted migration to spell disaster for property prices, the inflow of Kiwis re-entering the country coupled with record retention of those that would otherwise have flown the coop have contributed to an assumed net inflow of around 34,000 people – with greater potential should employment prospects improve.

Returning home with equity in their pockets, some will look to purchase their own residential property, while the remainder not staying with family and friends may enter our rental market, spurring further demand for quality homes.

This is consistent with recently released data from TradeMe Property, which shows the number of property views up 69 percent in May 2020 when compared year-on-year, along with an increase in email inquiries and properties added to member’s watchlists.

Offering an interesting silver lining to what has been a difficult few months, positive anecdotes have seen an upswing in consumer sentiment which when paired with pent-up retail spend and record low interest rates contribute to an economic outlook that’s just a little brighter.

Despite noting that New Zealand moved to alert level one sooner than expected, and the positive contribution this made to the economy, in its latest Monetary Policy Review the Reserve Bank of New Zealand (RBNZ) remains cautious, saying that the positives could be ‘short-lived given the fragile nature of global pandemic containment’.

While deciding to keep the Official Cash Rate (OCR) on hold at 0.25 percent, and the quantum of its Large Scale Asset Purchase (LSAP) programme at $60 billion, the Monetary Policy Committee’s discussion around expanding its quantitative easing (QE) programme indicates a preference towards loosening monetary policy, which could mean further bond buying or the use of a negative interest rate in the wake of a worsening global financial climate.

As uncertainty persists, expected to ease only when more information about a COVID-19 vaccine is available, economists predict that a challenging period lies ahead.

However, declining mortgage rates and fiscal support by way of wage subsidies and additional benefits are poised to help households, softening the blow of rising unemployment.

In-depth reports:

• In its Capital Gains and Rental Yield Report, Q1 2020 the Real Estate Institute of New Zealand (REINZ) found Southland was New Zealand’s best performing region with capital gains increasing 22 percent in the three months to March 2020 compared year-on-year. All of New Zealand’s 16 regions showed a strong lift in capital gains however Auckland, Canterbury and Nelson sat at the back of the pack. This, largely due to the local shortage of listings putting upward pressure on purchase prices.

• Westpac’s June 2020 Regional Roundup says the depth of recession felt by New Zealand’s regions will be dependant on industry DNA. The report explains those vulnerable to slower economic recovery are areas that rely on tourism and exports, while urban industries logistics and digital technology in distribution hubs offer better economic prospects.

• In its latest World Economic Outlook June 2020, the International Monetary Fund (IMF) anticipates global economic growth in the realm of 4.9 percent over 2020. While managing its infection rate and enjoying a stronger-than-expected reboot following the return to alert level one, New Zealand remains vulnerable to global supply chain disruption and a long road to recovery lies ahead.

Topical articles:

latest analysis of spending survey results, independent economist Tony Alexander finds consumer attitudes cautious and focussed on tangible investments, with a net 21 percent of respondents intending to spend more on home renovations over the coming months. When contrast with results gleaned at the end of May, the latest survey finds consumers across the country weary of the future yet less concerned about job loss and income reduction, pointing to increasing optimism.

• The latest Finder RBNZ OCR Survey found out of 16 experts and economists, 31 percent believed the OCR would drop into negative territory within the next 12-months. While the RBNZ has given New Zealand’s financial institutions notice to prepare systems for a negative OCR, it seems likely that it will increase its bond buying programme before implementing a negative interest rate.

• In the June 2020 CoreLogic New Zealand Monthly Property and Economic Update, head of research Nick Goodall expects a limited number of new listings will uphold property values, so long as demand persists. Seasonally, there is an expectation that new listings will taper off, thus driving competition amongst buyers in the market now.

The global pandemic is set to have a long-lasting influence on our housing choices, says Australian property commentator John McGrath. The move towards working from home will influence our design choices with a growing appetite for flexible living spaces and an extra bedroom/study, while greater adoption of remote working by businesses could lead to a greater number of purchases in lifestyle locations.

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