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Bayleys October Market Round-Up

Tags: Residential Residential Views

A summary of some of the recent developments shaping New Zealand’s housing market over the last month.


What a difference a month makes. The virus has reappeared at our borders, New Zealand’s general election has concluded and housing market performance has defied expectations so drastically that policy speedbumps may be reintroduced.

Convincingly winning the majority vote and the ability to govern alone in the most recent general election, the Labour Party will lead New Zealand through the next three years of economic recovery.

While the result was not so surprising to most, it does put great power in the hands of the Party which now has the ability to quickly and efficiently executive initiatives without the ‘handbrake’ that was the consultation process with coalition partners New Zealand First and the Greens.

Where intentions have been signalled to increase the minimum wage and holiday entitlements for employees, commentators are hopeful that the government will be able to balance growing costs to businesses with a strong programme of development and infrastructure. This, a popular opinion that has aided business confidence, filtering down to the property market by way of increased investment.

When the Reserve Bank of New Zealand (RBNZ) relaxed loan-to-value (LVR) restrictions for owner-occupiers and investors in May, the intention was to ensure mortgage holders utilising the mortgage deferral scheme did not end up in high LVR territory.

However, it’s become evident that by scrapping the rules for 12-months, the central bank has provided a timeframe in which more Kiwis are urgently trying to find their place in the housing market.

Where lending data shows increasing high LVR lending to both investors and owner-occupiers, the RBNZ has said it is closely following the factors which have resulted in rising pressure across the property market. This behaviour, it says, could cause it to investigate dampening options such as bringing back LVRs.

What this looks like, however, is still uncertain with some saying restrictions may only be brought back for investors.

In spite of ever-present downside risks to the economy, it’s evident that three factors continue to support housing activity.

These are, the record low interest rates which are set to stay for the foreseeable future; some Kiwis with extra cash to spend thanks to money saved on holidays and throughout the lockdown period and the massive support New Zealanders have received from the government and the RBNZ through its wage subsidies, small business loans, quantitative easing programme, mortgage deferral scheme and various other initiatives.

These supportive factors continue to alleviate the financial pressure many could have felt, with a surprising number of Kiwis using this opportunity to invest in the residential housing market which is seen as an avenue for wealth creation and continued financial stability.

In-depth reports:

• The latest Housing Price Index (HPI) data from the Real Estate Institute of New Zealand (REINZ) has found the value of New Zealand’s housing market has lifted 11 percent year-on-year, recording the fastest pace of housing inflation since February 2017. This is a tricky time for appraisals and valuations as the price of residential property continues to rise quickly in many parts of the country, making the use of timely, up-to-date information and recent comparable sales all the more crucial in the decision-making process.

CoreLogic’s most recent Pain and Gain Report Q2, 2020 has found 96 percent of the properties sold across New Zealand in the three-months to June 2020 recorded a gross profit on resale. Of those properties, the median resale gain was $215,000 and the median lifespan for homeownership was 7.2 years. Sustained value gains are the main reason Kiwis continue to gravitate towards residential property investment, especially while servicing the mortgage has never been more affordable.

Independent economist Tony Alexander’s recent survey of 15,000 mortgage advisors has found a net 34 percent are fielding more inquiry from investors seeking advice. He notes that while presently banks are cautious and following responsible lending practices, greater interest in funding to investors and businesses may only increase once closer to administering a COVID-19 vaccine; the economy is in a stronger position and the financial climate in Australia is more certain. However lacklustre banks’ willingness to lend may be, the central bank has indicated an interest in a Funding for Lending Programme (FLP) which will increase access to low-cost funding which the express interest of encouraging more funding activity.

Topical articles:

Westpac expects that if New Zealand’s borders remain closed, slowing net migration will result in population growth falling to around one percent for the next few years. The silver lining here is there will be less competition between foreign workers for employment opportunities and our building and construction industries have the chance to catch up on the estimated 50,000 housing shortfall. The bank now predicts house prices will rise more than eight percent in 2021, which illustrates strong market dynamics continue to balance downside risks.

CoreLogic’s monthly update to its Buyer Classification data series has found investors with a total of two properties have increased their market share recently, indicating these are ‘small players’ that have likely ditched the term deposit in favour of residential property investment. While raising a 20 percent deposit is still challenging for many New Zealanders, falling interest rates are making mortgage repayments more affordable and increasing opportunities for the likes of investors and first home buyers.

The latest analysis from ASB Bank for the three-months to August 2020 has found investors have taken advantage of relaxed loan-to-value (LVR) rules to borrow 134 percent more above 70 percent LVR. While owner-occupiers continue to account for the lion’s share of new lending, first home buyers have raised their profile, accounting for 20 percent of the market in the three months to August. The relaxed lending policy continues to work in unison with record low interest rates, stoking the fires of a hot housing market.

New Zealand’s surprisingly low unemployment figure for the June quarter stole the spotlight from the fact that we also recorded the biggest drop in hours worked since employment data began 30 years ago, says interest.co.nz. Banks will have their eye on these numbers and be closely balancing loan applicants’ suitability to take on more debt with income security, given that short terms employment now accounts for an estimated 30 percent of New Zealand’s workforce.

Anecdotal evidence suggests more buyers are making pre-auction offers in the hope of avoiding heightened competition in the auction room. The ‘wait and see’ attitude to buying has been replaced with urgency and prospective purchasers are clued-up, finance arranged and ready to act. For sellers, a pre-auction offer can be just the tip of the interest iceberg, and while accepting a good offer is tempting, running the entire marketing campaign can deliver more keen buyers come auction day.

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