For the first time in seven years the red-hot property market across New Zealand has begun to slow its rate of growth, with many speculating that the best time to cash in on capital gains may now be behind us.
Talk to any savvy investor however and they’ll tell you, the most plentiful opportunities present themselves after the ‘up’ phase of the property cycle has been and gone.
Bayleys national residential and auction manager Daniel Coulson says “With new Government policy making waves in 2018, we expect to see that the residential property landscape will face a shift in dynamics as investors recalibrate, first home buyers rejoice, the construction sector hunkers down and tenants trade higher prices for healthier digs.”
1) SOME INVESTORS WILL SELL
“With a clear goal of creating affordable housing for more New Zealanders, tighter regulations are in the pipeline courtesy of Government policy, and we are seeing greater effort into reigning in the presence of property investors across the country,” says Bayleys Tauranga residential manager Dickie Burman.
“Legislation such as the Healthy Homes Bill is seeing a number of investors having to put more money back into their investments as they bring them up to new national standards. This eats into the top line profit, which when coupled with suggested changes such as the extension to the Bright Line Test and end to the ‘negative gearing’ tax loophole, is causing some to rethink their investment strategy.
“The trend we have already started to see in the Bay of Plenty is investors who may be over-leveraged, or simply disillusioned with the pain of added regulation, selling up and moving on to other opportunities, making way for first-home buyers and entry-level owner occupiers to gain a foothold into the market with properties in the $400,000 - $700,000 price band,” Burman adds.
2) BUYING FOR YIELD
“Buying residential property for the chance to create wealth through capital gain has proven to be an extremely successful strategy during the ‘up’ phase of the domestic market’s prolific growth,” says Coulson.
“…However we are seeing the tide in Auckland turning, and expect to see the rest of the country follow this pattern of growth slowly over the coming months.
“The slower rate of capital growth is making yield-based investment a more attractive option. In Auckland alone, Trademe estimates expect the average rent per week will rise four percent from December 2017 to a new high of $550 per week.
“Other cities such as Rotorua, Wellington and Nelson are also experiencing huge rental growth which when coupled with stabilising price growth offers more room for positive yield development – and the opportunity for budding property investors to cash in on the demand for quality rental accommodation,” Coulson adds.
3) EASING LVR’S
“As of 1 January 2018, the Reserve Bank of New Zealand (RBNZ) eased loan-to-value (LVR) restrictions which have allowed banks the ability to lend to a higher proportion of buyers will less than a 20 percent deposit,” says Coulson.
“Signaling a reprieve for first home buyers in what has been previously a really tough climate to gain a foothold, the RBNZ has indicated that a further easing of LVR rules are not entirely off the table for 2018, something first home buyers will be watching very closely in the coming months,” he adds.
4) MORE SUBDIVISION
“With a focus toward regional growth, we expect to see the Government work harder to remove the red tape from the consenting process, in order to keep up with its proposed 10,000 new homes every year for the next 10 years,” says Burman.
“For current land-owners, this focus has the potential to make the subdivision of existing land, or the development of multiple dwellings a more viable option for profit.
“While both of these avenues require professional advice and careful planning, we expect to see a rise in amateur property development through 2018, as property owners look to capitalise on the county’s growing population and the expected implementation by many regional councils of more efficient consenting processes,” Burman says.
5) BUSINESS HUBS
“Where 2017 saw a distinct shift away from residential property located in central-city areas – and particularly the popularity of city-fringe apartment developments which dominated the ‘lock-up-and-leave’ marketplace, we expect 2018 will bring buyers in search of housing proximate to their workplace,” Coulson says.
“Across the country we are seeing non-essential spending declining, Kiwi families are being more careful with their money and that means not spending unnecessary funds on fuel and transport when the option to live near their workplace is just as attractive.
“In Auckland, news that the council will add a 10 cent per litre fuel tax by the middle of the year has many buyers looking to new developments which have been centred around business parks and transport hubs,” he adds.
6) OFF PLAN SALES
“With news that the Government’s foreign buyer ban will come into effect by the end of February, we expect to see a rise in off-plan development and bare land sales,” Burman says.
“While overseas-based buyers will be unable to purchase existing residential property except in special cases, new properties are still a viable option, and given New Zealand’s preferable ‘safe haven’ status offshore, we expect to see new sales receive a boost this year.
“While we do not expect restricting foreign buyers’ ability to purchase existing residential properties will impact the sector significantly, the move is great news for owner occupiers who can expect to compete on a more level economic playing field,” Burman says.
7) MEDIAN VALUES WILL CONTINUE TO RISE
“Despite much ado in the media as to slowing property sales, we expect that this time next year, median values will have risen across parts of the country,” Burman says.
“We expect to see that while the rate of price growth will moderate and stabilise, reporting more single-digit percentage increases, median property prices will continue to rise. In this, property owners and investors who choose to buy with a view for long-term prospects will benefit from their current property purchases,” he adds.
8) AUCTION POPULARITY
“Despite December 2017’s data from the Real Estate Institute of New Zealand showing that the number of auctions taking place across the country was down four percent year-on-year, we expect to see auctions return this year as the preferred method of sale,” Coulson says.
“While the residential property market is in its state of change, it’s difficult for both buyers and sellers to determine value. For sellers, placing a price tag on a property puts them in danger of pricing the property too high, or even too low.
“This is where auctions work really well, because the market determines the value of the property through transparent competition; we are able to gain more clarity as to what buyers are willing to pay, rather than one party’s expectation of value,” Coulson says.
9) NEW HOUSING HUBS
“As the country continues to fight to keep up with huge housing demand and pressure on facilities, we’re expecting to see both international and domestic property developers move toward ‘one-stop-shop’ village-style subdivisions,” Burman says.
“It’s costly to continue to develop central city areas, which is why overseas we are seeing more of a move toward satellite cities, where business hubs, amenities, apartments and standalone houses crop up together to form new communities such as the planned Tauriko subdivision in the Bay of Plenty,” he adds.
10) MONEY MATTERS
“One of the main contributors toward the domestic property market’s huge growth this property cycle has undoubtedly been low interest rates which despite inching marginally higher, are still comparatively low by historical standards,” Coulson says. “Unemployment is still sitting around an attractive 4.6 percent, the Official Cash Rate (OCR) is not expected to rise until later this year and while migration to the country appears to have peaked, we are still benefitting from a huge cash injection to the economy by way of a booming tourism sector.
“Despite many predicting small changes to fiscal policy after mid-year, the underlying factors which are driving a strong domestic housing market prevail – and that’s a current shortage of stock amidst strong demand from buyers,” Coulson says.
“Contrast with the residential property landscape of 2017, the new year is shaping up to offer more price stability for those looking to buy or sell as we start to see a shifting power dynamic across the varying buyer classes.
“The result of more manageable inflation and re-jigged investor strategy, we expect that the real winners from 2018’s residential property climate will be owner-occupiers and first home buyers, who will return to the market with vigour.
“Despite this, there are still a swathe of opportunities for both capital and yield-based growth, should investors hold tight against the implementation of policy and regulation,” Coulson adds.