By Jonno Ingerson*
During a tour of Asia with my research counterparts from CoreLogic Australia and the United States, when talking about our respective property markets the similarities between the Australian and New Zealand markets became increasingly clear.
The below graph shows a direct comparison between Australia and New Zealand house values by re-basing the 2 sets of house price index results. I started them at January 2009, the low point of the housing market following the global financial crisis of 2007/2008.
The results show a fascinating similarity between the 2 countries:
Auckland is far from unique
We know that Auckland has increased more in value since 2009 than the other main cities in New Zealand, with the exception of post-earthquake Christchurch. Likewise, Sydney and Melbourne have increased much more in value since 2009 than the rest of the main Australian cities.
There is a difference between Australia and New Zealand between 2009 and 2013 when the Australian Government put in place measures to help stimulate the housing market, notably low interest rates and first home buyer grants. This led to a stronger than expected increase in values, so the stimuli were removed and the Australian market then corrected slightly.
However, since 2013 New Zealand and Australia have been moving in a similar way, with the largest cities increasing rapidly while the others remain relatively steady.
Same story, different names
Since 2009 the overall increase in value in Sydney and Auckland is almost identical, up 65%, with Melbourne not far behind. The other cities are around 10% up.
What is also striking are the reasons given for the rise in values in Sydney and Melbourne; strong migration, investor activity, good consumer confidence, low interest rates, and a shortage in housing supply.
Sound familiar? It should, because that is exactly what we have been saying about Auckland for some time.
However there is one big difference between New Zealand and Australia.
In New Zealand there has been constant concern from many quarters about the unsustainable rise in Auckland values, with some labelling it a “bubble”. The Government and the Reserve Bank have moved to slow things down with a range of measures.
There has been little of the same concern from across the Tasman. Instead, the Sydney and Melbourne markets have been seen as insulated from the mining downturn affecting the rest of Australia, and responding to their own local positive effects. It has really only been in the last few weeks that I am hearing more noise about the rise in Sydney values and the issues of affordability this is raising.
A foreign attraction
While we were in China we met with a company who specialise in marketing to high net worth Chinese. They had carried out a survey asking respondents their most popular places to buy real estate. Topping the list was Los Angeles at 18%, but I was stunned to see New Zealand equal 9th on the list at 1.8% alongside Melbourne, Singapore ,and the UK, with Sydney slightly higher at 2.2%.
This told me that wealthy Chinese consider buying property in New Zealand equally to Melbourne and only slightly below Sydney. I was amazed. I expected us to hardly rate a mention.
But let’s think about this a little more.
If you’re a wealthy Chinese person looking to buy property, then New Zealand it is going to look pretty attractive. Up until the recent announcements from the Reserve Bank and Government, there have been few restrictions on foreign buyers purchasing residential property, and little in the way of tax on capital gains.
Compare that to Australia where non-residents have to buy new property, and those staying for a short time have to sell when they leave. Plus there is a capital gains tax and stamp duty.
Getting best value for money
Now let’s consider value. Here is our map of the average value of Auckland suburbs. There are 52 suburbs with an average value of more than $1m and just this month we had our first suburb – Herne Bay – crack the $2m mark.
Contrast that to Sydney where most of the suburbs within 20km of the CBD have an average value of over A$1m and suburbs close to the CBD have values between A$3m and A$5m.
For a Chinese buyer looking to purchase a house close to the central city and in a good school zone then Auckland is going to look very cheap compared to Sydney or Melbourne.
In fact, most of our premium Auckland suburbs are very cheap internationally.
The tip of the iceberg
The other thing that became very clear from our Asian tour was the sheer scale of Chinese wealth, and the clear message was that we have only just seen the tip of the iceberg.
My pick is that there is a lot more foreign money still yet to flow into our market, and it will continue to drive up demand for some time yet.
I am now thinking of Auckland as becoming a genuine international city. As such we should expect values to hold a significant premium over smaller New Zealand cities. And there will be more changes in Auckland’s character in the years and decades to come.
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*Jonno Ingerson is Director of Research at CoreLogic, and regularly provides the latest data and analytical insight on the property market throughout the country. CoreLogic is a leading property information, analytics and services provider in New Zealand, and provides clients with innovative, technology-based services as well as access to rich data and analytics. This opinion piece was first published in Westpac's Rednews. It is here with permission.
18 Comments
"I am now thinking of Auckland as becoming a genuine international city" I've lived and worked in many genuine international cities, Jonno. London and New York amongst them, and I can tell you, an International City, Auckland isn't. ( And, yes, Jonno. I've lived there as well!) Neither is it going to become one. A Speculative City prone to the Boom and Busts of foreign capital? Quite probably. But International? No.....
Australia realises that foreign investment is a risk to the financial security of both itself and its citizens.
NZ does not.
Will all Aucklanders need to either be foreigners or rent from a foreigner before anyone thinks this is a problem. In fact we are rapidly approaching this situation, yet the real questions are still not being asked.
If Chinese are happy to buy Auckland out at 1% rental returns, how can NZers ever compete when we have to pay our foreign owned banks 5 times that??
A little foreign investment was good, a lot is bad...
What does it say about our government protecting our rights when the right of a foreigner to become your landlord is more important than the right to own your own home??
You're getting close to breaching the Fair Trading Act s9 misleading decpetive conduct in the course of trade.
If this sort of post is in anyway linked to your qv business, and stimulating buyer interest in auckland is deemed related to sales of your (very poor) e-valuer and reports, then the contents of this post could be considered trade linked. And is clearly misleading based at least on your comparison and commentry around sydney and Auckland.
Why not use the same scales and colour schemes for your maps? You have both at 1mill +, but for some reason have sydney as an intense red for this, and then several other shades of red for slightly lower values 900k, 800k etc, making it appear Sydney has much more intense, higher pricing, whereas Auckland at 800+ gets a brown shade or orange...
Auckland is no Sydney. Or Melbourne.
It's CBD is soulless. It's houses are leaky and poorly built. Public transport is a joke and commute times insane. It's beaches simply don't compare. Wages are about 40% less than in Sydney.
Auckland is an okay city. Sydney is truely world class.
New Zealand is a world class country, but Auckland itself is a constant disappointment.
The Sydney CDB is also soulless, the houses are only slightly better built, if at all, and commute times are equally insane. Beaches are much better, but most Sydneysiders never go there anyways. We also do not suffer from droughts, bush fires, all sorts of creepy crawlies, flies round the face and stinky hot summers. In any way, it is perception that counts.
If I was a cashed-up Chinese part-securing the nest egg, I would rather spend in expensive Auckland than hyperexpensive Sydney. Flights to SYD or QLD are plentiful, if AKL gets too boring or winters get too unpleasant. Actually, houses in Europe are much better value altogether plus you get the amazing culture and diversity - but Europe has become unstable thanks to pissing on Russia's leg, the Euro disaster and unchecked mass migration (400000 asylum seekers expected in 2015 in Germany alone).
So no wonder Chinese are opting for AKL. They will put a floor under prices for the foreseeable future.
Yes, Australia imposes stamp duty on houses and businesses. It's a State Tax
NSW has an income from Stamp Duty of $5 billion per year, which enables it to pour massive amounts of investment into infrastructure for the benefit of the population as a whole and aslso to non-financially compensate existing locals in some small way for the pressures new-comers create - a piggy-bank account that NZ spurns - which the Chinese arrivals have been contributing heavily to
Just imagine, Auckland could right now, have in place, a world class double-tracked railway and subway all paid for, courtesy of migrants, instead of having to beg Wellington
Interestingly, South Australia State has just announced the abolition of Stamp Duty on businesses and commercial premises as a means of attracting investment and jobs away from the other states - another piggy-bank inducement not available to the non-auckland regions of New Zealand
Read more
http://www.businessspectator.com.au/article/2015/6/22/tax/will-sa-spark…
Australian Parliamentary home ownership inquiry begins this Friday
What these housing markets experienced was artificial demand generated by their banking and financial systems, having lent colossal sums of private debt to speculators to bid up housing prices which led to the entry of ever-more buyers.
It is during this period these institutions claim a dwelling shortage is the cause of record high housing prices
In a blunt submission to the upcoming parliamentary inquiry into home ownership, it is claimed there is an oversupply of housing, just as there was in the United States just before the market collapse that precipitated the global financial crisis
read more
http://www.smh.com.au/federal-politics/political-news/australian-housin…
great article...
I think these Urban economists might agree. http://www.nber.org/digest/mar07/w12355.html
They use the term "superstar city".... I use the term "Global City".
Inelastic housing supply + broad appeal = superstar city..
"However there is one big difference between New Zealand and Australia.
In New Zealand there has been constant concern from many quarters about the unsustainable rise in Auckland values, with some labelling it a “bubble”. The Government and the Reserve Bank have moved to slow things down with a range of measures."
Johnno as a NZer who works in Aus, essentially half the year in NZ and half in Aus. There has been bubble talk in the daily papers and other media with regards to Sydney and Melbourne property prices for at least 18mths, so the above statement by yourself if incorrect. The main difference between Aus and NZ, is there is more of a xenophobic tone to Australian reports.
The other misrepresentation, is offshore buyers not being able to purchase existing residential property in Australia. They can purchase an existing property in Aus, the proviso is you have to prove the residence is at the end of it's economic life, knock down and new build within 2 years. End of economic life very easy to push through by architects even if just dated bathroom and kitchen. There is a proliferation of French provenchal style mini mansions appearing in inner city Melbourne suburbs, no prizes for guessing which nation 75% of these buyers are from and it's not Australia.
The tip of the iceberg
Currently China government is control about transfer money to oversea thorough major banks. 50k USD per person/year. people who wish to buy house here have to pay higher rate and fee to transfer money here.
However, later this year, the limit will be removed for 6 cities residence in China, total population would be over 1000m.
buying house overseas will be easier and cheaper for those Chinese people, what would the house price in Auckland be....
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