What is happening with the Current NZ Property Market

Posted on Sunday, April 15 2012

What is happening with the Current NZ Property Market

Back in January 2011 I asked the question “Is this the optimum time to be buying property investment?

I mentioned that I don’t have a crystal ball, but what I can share with you is my personal view about what I see happening in the current market.

So, to start with, unfortunately no one could have predicted the devastating earthquake that struck Christchurch on 22 February 2011 and shook the economy and shocked most of New Zealand.

The Christchurch property market is recovering, especially the suburbs at the west, north, and south of the city. Sections in new subdivisions are selling well, and towns like Timaru to the south and Rangiora to the north are experiencing reasonable population growth. The starting point for any property transaction in Christchurch is insurance. Insurance companies in general currently don’t want more exposure and mostly will not provide new insurance coverage for properties that don’t have current insurance at the time of sale. So if you buy or sell a property in Christchurch in the near future (until the insurance companies relax their exposure tolerance), make sure the insurance is transferable whether you are a seller or a buyer or the deal can fail.

Most insurance companies will allow policy transfer provided the recipient side doesn’t have a criminal record. (It is best to be prepared and check with your insurance company or adviser beforehand).

For new buildings in the outer suburbs or Green Zone areas, some building companies offer insurance coverage for the first 18-24 months or more.

Hopefully, Christchurch will not have any further major earthquakes so things can continue to improve on all fronts.

So let’s revisit my 2011 observation and see where things are at today, 15 months later.

Back in January 2011 I observed the following:

“We have less competition in today’s market as most Mum and Dad investors are sitting on the fence waiting for the 20%+ further property prices decrease that will never happen.”

Here my comments referring mainly to the Auckland and Christchurch markets:
In Auckland, especially the central city, city fringe, and higher socio-economic areas, home buyers are very actively buying at record high prices at auctions. If not at auction, then a multi-offer situation is very common. 15 months later, home buyers in the major cities now acknowledge that interest rates are historically low and current affordability levels will not last once interest rates start to rise.

This is noticeable also in the desirable parts of Christchurch where there is minimum earthquake damage or none at all.

In these areas of both cities, the market is very hot, and thus it is very hard for the average investor to find a “bargain”.

“Interest rates are STILL at historically low levels and it is only a matter of time until they start going up again, some economists are predicting later in 2011, I second this, and cannot see it happening earlier like in the first or second quarter.”

Interest rates did not go up in 2011; in fact, the Reserve Bank of NZ lowered the Official Cash Rate following the February 2011 earthquake with hope that lower rates will ease the burden and stimulate the economy. Considering the current high levels of the Kiwi Dollar and the sluggish pace at which NZ is stepping out of the “recession”, I personally don’t think we will see the RBNZ increasing the Official Cash Rate this year. I do think that it is possible that some banks will start increasing the interest rate perhaps later this year because of increasing overseas borrowing costs.

“Some Lenders are starting to ease their lending criteria, and 90% loans are available for those who can show reasonable serviceability.”

Some lenders have continued to relax their lending criteria, and the relaxed criteria are most welcome by property investors and home buyers.

“There is an increasing supply of properties on the market, and they are taking longer to sell; this gives us better negotiation power.”

The observation above should be now changed to “there is a reasonable supply of properties on the market in most parts of NZ”. However, in general the number of inventories is decreasing, especially in Auckland and in the desirable suburbs of Christchurch. This is starting to affect the value in those areas, and we see that in some of those suburbs prices have passed the 2007 top of the market level.

One of the main indications that the property cycle is in full recovery or is heading towards the boom stage is the high number of sales vs the lower time it takes to sell properties, what we call “time on the market”.
At this stage we are not seeing the high level of sales we have seen in the previous boom, when sales were at a record high: this could be explained because of shortage of inventory. As the REINZ latest report indicates, there is a considerable drop in the long term average for number of available properties on the market. As an active property buyer in today’s market, we are definitely noticing a shortage of properties to choose from.

On the property development front, it is evident that building consent levels are still very low and will probably stay at these historically low levels until the rebuilding in Christchurch is in full swing. This will only start when the earthquake claims are settled and the insurance companies are willing to extend their exposure.

In Christchurch, property developers cannot actually build within the inner city, fringe, or outer suburbs, as they cannot obtain insurance, and so development land is not that easy to move in these areas.

In Auckland it is a different story altogether. Properties which are zoned 6a or 7a are in high demand and have been selling for premium prices to local and international investors.

“I believe the Rugby world cup (and the new film the Hobbit) will have a positive effect on the NZ economy, Immigration, tourism, and the property market. While New Zealand is viewed by millions of people around the globe this year, I think 12 months from then the effect would be felt as it takes time for those who plan to Immigrate, invest, or visit to actually do so.”

Now, the above observation is the one that took many of us by surprise.
The Rugby World Cup didn’t have that much of a major impact on the economy or the property market at large. We all heard about some Auckland vendors who capitalised on their close proximity to Eden Park and while the RWC was on they charged ridiculously high nightly rates from international Rugby enthusiasts.

A note to mention: is that I recently had a conversation with Christchurch based business owners within the tourism industry who advised me that since most of the large Hotels in the central city are close, as they are located in the no go red zone, the Motel industry in Christchurch is doing very well, as we can see every cloud has a silver lining.

Uninsured and Damaged House Buyers In Christchurch

Due to lack of supply and strong demand, rents in Christchurch in the desirable suburbs are going through the roof and are basically starting to catch up with Auckland levels. The increase of rent in Christchurch is so strong that again there are literally positive cash flow properties in some areas.

The team at WeBuyProperty.co.nz currently purchasing As-Is-Where-Is Houses, We Buy Uninsured Earthquake Damaged Houses in Christchurch.

The rental market in Auckland is also pushing higher new levels at $500 per week for a 3 bedroom house which is a $150 higher then the national average.

This happening especially in the central city area, where there is strong demand from young professional couples and families who want to live near central Auckland.

In both cities these days often at the first open house for a rental property a property manager or landlord will have over 40 prospective tenants turn up in single day wishing to sign for the property as the new tenants resulting at bidding wars.

Although the world economy is not out of the woods yet, in New Zealand we are starting to see shoots of recovery in the property market. These will most likely ripple to the rest of the country over the next few years, and then the next boom will come, which will most likely be smaller and shorter than the previous one.

It also is increasingly possible that the Auckland and Christchurch property markets will experience their own mini-boom in the short – medium term.

This is true provided Europe, the US, and the world don’t experience a second round of banking collapse or, heaven forbid, a major natural disaster.

This is the time to take action and stay safe. We at WeBuyProperty.co.nz purchasing an Insured and damage houses in Christchurch.

Successful investing,

Hadar Orkibi

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Expert's Bio

Hadar Orkibi

Hadar is a full time Property Investor and Trader, Specialising in Do-ups & Add value, Multiple income properties, High Yielding, Commercial, Equity and "Move Forward" Properties. Hadar is co-owner and Sales & Marketing Mangers at www.PropertyGenie.co.nz. Owner of the Private House Buyers companies www.WeBuyProperty.co.nz & www.PropertyBuyersAuckland.co.nz/ Find Hadar on Google+

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