Creating good fortune in 2018
Closing a year that was transitional, uncertain and full of surprises, in 2018, we expect relative stability and a swathe of opportunities for the discerning, informed and a number of previously hesitant property watchers.
With a mood of change in the air, the residential property landscape is set to 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.
A SECTOR DIVIDED
With a target on the back of the property investment sector, the new Government revealed at the close of 2017 a handful of new policies aimed at shifting the balance of power from residential property investors, back in favour of owner-occupiers.
Legislation such as the Healthy Homes Guarantee Bill and suggested initiatives which include extending the ‘Bright-Line Test’ from two to five years and ending the ‘negative gearing’ loophole, which presently allows property investors to offset losses on residential property against income tax, has had a dividing effect on the investment market.
While figures estimate that activity from investors halved in 2017, the new year has revealed a split sector with a proportion of residential property investors viewing the changes as an opportunity – and the other, relegated to the proverbial ‘too-hard basket’. Despite this, positive investment opportunities for those in it for the long and short haul continue to hit the headlines.
While some will take their chance to capitalise on rising rents and the slowing rate of capital growth, we also expect to see many investors disillusioned with the pain of added regulation look to exit the market, resulting in a welcome replenishment of entry-level property for first-home buyers to snap up, particularly in known ‘investment’ suburbs like Papakura in the south, Eden Terrace in the central city and Warkworth further north.
YEILD VERSUS GAIN
Buying residential property with a view of wealth creation through capital gain has proven to be an extremely successful strategy in the years which have preceded the prolific growth of the domestic property market, however it appears the tide here is turning.
While buying for capital gain has been irrefutably successful during the ‘up’ phase of a property cycle, as values increase substantially due to heightened demand, the opportunity for property purchasers this year may be found buying for yield as the rate of price growth slows to reveal new opportunities.
Latest data from the Real Estate Institute of New Zealand (REINZ) has shown that in December 2017 Auckland’s median house price rose two percent year-on-year, with prices rising eight percent in Northland.
At the same time, the average rental per week has increased significantly across New Zealand’s main centres with Trademe expecting the average rent per week in Auckland to rise four percent from the close of 2017 to a new high of $550.
While economists predict that median values will be higher this time next year than they are now, the resounding feeling is that the rate of growth will slow, stabilise and become less likely to cause a ‘property bubble pop’.
During this time, the average yield for residential property investors in Auckland has dipped to around four percent, however we expect that the new year will see rents continue to rise while the rate of growth slows, leaving more room for positive yield development – offering a more attractive incentive for budding property investors.
REMOVING THE RED TAPE
While news that our Prime Minister is ‘expecting’ has somewhat overshadowed any further policy announcements, the Labour-led Government remains committed to improving housing affordability, with 10,000 new homes promised in the Auckland region this year alone.
The focus on regional growth, especially into the north, will similarly create new opportunities.
In the face of increased challenges to an already at capacity construction sector, we expect to see an emphasis by the Government on creating more efficient consenting processes for residences and infrastructure, which have long-been considered one of the local council’s biggest downfalls.
For current property owners this could make the subdivision of an existing site, or creation of multiple dwellings on said site a more attractive avenue for property investment. Not for the faint-hearted, the process requires careful planning, experience, knowledge and capital input throughout the process, however with more efficient avenues for consent in the pipeline for 2018, we expect to see a rise in amateur property development as owners of large sites in desirable areas like Mangawhai and Coatesville for example look to capitalise on demand for housing.
WORK PLACE ADJACENT
Where 2017 saw a distinct shift away from residential property located in the central city, and the popularity of city-fringe apartment developments dominate the ‘lock-up-and-leave’ marketplace, the game-changer for the new year comes in the form of a 10 cent fuel tax.
As of 1 July 2018 Auckland motorists will contribute 10 cents per litre to aid the Auckland Council in its transport endevours, resulting in what we expect to be an unplanned boost to property sales conveniently located near business parks, transport hubs and town centres.
The move comes amidst recent publicity for the sector as an investigation prepared by the Ministry of Business, Innovation and Employment (MBIE) found that Kiwi’s pay some of the highest prices for petrol of the countries included in the Organisation for Economic Cooperation and Development (OECD).
South Auckland suburbs such as Pakuranga and Botany Downs, and New Lynn in the west are expected to benefit from increased interest as proximity to work, school and amenities climb higher on buyer wish-lists.
In a move targeting offshore buyers in the battle for more affordable housing, the more socially conscious Government is this month expected to enact the foreign buyer ban which will see the sale of existing residential property crossed off the list of many previously viable options for offshore investors.
Despite tightening credit conditions deterring some foreign activity over the last 12 months, with significant lending restrictions ensuring that borrowing money has become virtually unfeasible for those who cannot provide proof of local income, we do not expect the move to significantly soften current property sales.
What we do expect however, is to see a rise in off-plan development and bare land sales as tensions are revealed in offshore economies, solidifying New Zealand’s relative ‘safe-haven’ status for overseas-based investors.
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 with auction campaigns running over the last three months providing a clear indication of where the market sees price.
While new opportunities will be revealed throughout the year which we expect will revolve largely around the progression and implementation of policy, legislation and evolving infrastructure, the a slower rate of inflation will afford more buyers more prospects. This will most likely create a pleasing flurry of market activity for those who have been watching the market with baited breathe.
Read more...[Download PDF]