Showing strength and stability, sale results from NZ’s residential property market have been hard to ignore, but in a global pandemic and local recession are market dynamics working in your favour? Bayleys analyses the factors affecting sale decisions.

Defying expectations, New Zealand has achieved elite status by containing the COVID-19 virus, and returning to a ‘new normal’ faster than global counterparts.

In the face of worrying predictions for unemployment, displacement and financial hardship, many productive industries have been able to open back up for business, leading to a sustained bounce in consumer confidence and upswing in spending.

Perhaps it’s the border closures or our fascination with house and home, but across Auckland the residential property market has ploughed ahead, recording the highest annual increase in sale volumes in 11 years.

Despite enjoying the luxuries social interaction affords, the virus is a shapeshifting threat and Kiwis have been asked to tread with caution as downside risks to health, and the well-being of our economy persist.

Stability

Of comfort to NZ’s team of five million are recent general election results, affording the Labour Party an opportunity to govern alone.

This time around, while holding 53 percent of the seats in Parliament, Labour has the chance to efficiently execute initiatives.

For many, including business-owners, clear-cut election results offer certainty, and the absence of transformative policy further alleviates concerns that more change is on the way.

However, Labour has signalled intent to increase business costs by raising the minimum wage and sick leave entitlements for employees.

With approximately 77 percent of all NZ-registered securities held against residential mortgages, our businesses and commercial interests are closely tied to the residential market-place.

With this in mind, it’s been pleasing to see rising business sentiment, with signs that businesses are keen to take on more staff over the months ahead.

Looking to the new year, a variety of factors support growth here, including easing monetary policy, further stimulus by way of loan extensions and spending on infrastructure, creating jobs and prosperity.

Financial Conditions

Favourable lending conditions driven by record low interest rates have driven the positive performance of New Zealand’s residential property market.

Never in our financial history have retail interest rates fallen below three percent and all signs from the Reserve Bank of New Zealand (RBNZ) indicate a preference for keeping these rates low, for longer.

The central back also removed loan-to-value (LVR) restrictions for 12-months to stop Kiwi households that utilised the mortgage deferral scheme from becoming compromised under existing rules.

For first home buyers and investors, this has been an excellent aid, allowing a higher proportion of high LVR lending, and customers with smaller deposits an opportunity to get a foot in the door.

However, the recent strength of the property market has caused concern and some expect to see limits reintroduced in the new year.

The RBNZ has been clear about its intention to support the property market with comments from officials indicating falling property values would be a ‘worst-case scenario’ for our economy as it recovers from this recession.

Fiscal policy including the expansion of the Large-Scale Asset Purchase programme (LSAP), a Funding for Lending Scheme (FLP) and a negative Official Cash Rate (OCR) continues to offer potential for further monetary stimulus while affording an air of confidence, which supports asset prices.

Fear

Recent market buoyancy continues to feed a fear of missing out, and Bayleys’ salespeople are seeing a high proportion of inquiry from buyers wanting to act now to avoid missing the boat as prices rise and the availability of stock dwindles.

Where the Real Estate Institute’s (REINZ) Housing Price Index (HPI) for September showed the value of New Zealand’s housing market to have recorded its highest pace of inflation since February 2017, buyers are now scrambling to take advantage of favourable lending conditions before the landscape changes.

While supply chain disruption by way of a backlog for appraisals, valuations, finance approvals and conveyancing has introduced extra considerations for both buyers and sellers, those serious about the market know that the current climate requires decisive action and having all ducks in a row before trying to make a move.

Despite the number of new listings coming to market, it has not been enough to keep pace with demand and the biggest question facing sellers has been where to go next?

The Government’s focus on infrastructure and a record number of building consents issued are reassuring for those that may be looking to take advantage of their sale profits and build their dream home.

However, with the average cost of building increasing by close to $100,000 in the four years to 2020, the fear of missing out continues to create urgency.