By Greg Ninness
There are increasing signs that Auckland’s residential property market could be at a major turning point as the speculative money that has been driving prices higher leaves the room.
The signs are easy enough to see.
The number of homes being sold in Auckland is tracking down at a time of year when they should be going up.
And while sales numbers are down, the number of homes coming on to the market is increasing.
That combination of lower sales numbers and more new listings is increasing the number of homes agencies have on their books and tipping the balance of supply and demand back towards buyers.
Consider the figures from Auckland’s largest real estate agency, Barfoot & Thompson, which handles more than a third of all residential property sales in the Auckland region.
In October the company had 1905 new residential listings, up 24% compared to September and the highest number of new listings in any October month since 2013.
But while new listings were up, the number of homes Barfoot sold in October was down 26% compared to September, and the lowest it has been in the month of October since 2011.
Not surprisingly, Barfoot’s inventory - the total number of homes it has available for sale on its books - shot up 21% in October compared to September, to be at the highest level it has been in the month of October since 2012.
Property website Realestate.co.nz has also reported a similar trend, with the number of Auckland homes being listed for sale on the website on the rise, while buyer activity on the site searching for Auckland homes is down.
The turn in the Auckland market is also showing up in the auction rooms, with clearance rates (the number of properties selling under the hammer) falling dramatically over the last few months.
And it is becoming increasingly common for homes that would have sold readily under the hammer a few months ago to be passed in without receiving a single bid.
Anecdotal reports from agents also suggest there is a widening gap between the price potential buyers are prepared to pay for Auckland properties and the price the vendors are hoping to achieve.
Consequently the negotiations between buyers and vendors, with the agents in the middle trying to close the deals, are becoming increasingly drawn out and difficult.
So what has caused this change in the Auckland market?
The obvious culprit is the new loan-to-valuation ratio (LVR) mortgage rule introduced by the Reserve Bank, which restricts new bank mortgages to 60% of a residential investment property’s value.
However while the LVR restrictions have undoubtedly had an effect, I think bigger forces are also at work.
There have been two main groups of investors behind the rapid escalation of property prices in Auckland which has spread to the rest of the country.
Baby boomers who owned their family home with very little debt and may also have owned one or two investment properties, have been borrowing up large and buying more investment properties. The second group is recent migrants, particularly those from China, who need a house to live in but who also often buy additional properties as investments.
Something both groups have tended to have in common is that they have been chasing capital gains rather than rental yields, and have been prepared to pay what have in some cases been exceptionally high prices for properties that will be providing very low rental returns.
But over the last few months that has changed and both groups have been less active in the market.
There's more to it than the LVR restrictions
While the new LVR restrictions may have caused some investors to change their plans, they are not the main worry of most of the investors I have spoken with.
What is concerning them most is that they see interest rate starting rise and prices levelling off in Auckland and perhaps even declining, wiping out any possibility of capital gains.
And when your whole investment strategy is based around rising prices and capital gains, then suddenly you have no reason to keep buying.
The effect of that is most noticeable at the Auckland auctions, where Chinese migrants have, until recently, often completely dominated the bidding.
That is not surprising because you need to be able to bid unconditionally at auctions, and migrants arrive here cashed up, giving them an advantage over local buyers who will often have to sell their existing home before they are able to buy another one.
Often Chinese migrants were bidding against each other to secure a home or investment property and that tended to supercharge the bidding, resulting in some very high prices.
But lately that heat has gone out of the market as their view of it has changed.
Fewer are turning up at auctions and those that do are being much more cautious in their bidding.
That is showing up in sales figures on the North Shore which has been one of the most popular destinations for Chinese migrants, where the REINZ’s median house price has declined for the last three months in a row, pushing the Shore off its top spot as the most expensive district in the country, to be replaced by Auckland’s central suburbs.
With the likelihood of rising interest rates increasing by the day, the questions weighing on the minds of many investors at the moment are whether the current downturn in sales in Auckland will be sustained and if it is, will that also flow through to a fall in prices and if it does, whether that will then flow through to property markets in other regions?
An oversupply of properties for sale & a dearth of interest from buyers?
I don’t pretend to know the answers, but I would offer the following observations based on past experience.
- A sustained drop in the number of homes being sold is usually followed by a fall in prices.
- Auckland usually leads the markets in the rest the country. Property trends in Auckland will eventually start to spread throughout the rest of New Zealand.
- Regardless of what happens with interest rates, there is an ongoing housing shortage in Auckland, with net migration gains at record levels and new building activity increasing at a mediocre pace. That should limit the effect of any price falls in Auckland. However in other regions that do not face the same demand side pressures, any price falls could be more dramatic.
There are now only a few weeks left until sales activity tails off for the summer break.
If current trends continue, there’s a risk the market could face the start of the main selling season next year with a significant oversupply of properties for sale and a dearth of interest from potential buyers.
Any increase in interest rates between now and then will only add to those woes.
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133 Comments
Maybe the reverse Boatman.
a Silicon Valley billionaire wanted property here for "security of water, being able to control your immigrants, the safest place in the world", Wall said.
A number of Americans wanted sites for a string of luxury tourism lodges, golf courses, hotels, other business ventures and homes, said Wall, the son of agency founder Graham Wall.
"Post-election, they're pushing the button," Wall said of the trend. "People were keen but after the election, they said 'let's press go.' They'll create new assets, jobs and growth," he said.
One client asked to see sites throughout the country "all over the place", with the potential to develop a new lodge chain, he said.
"Americans quite like the idea of lifestyle stuff," he said, citing hunting lodges and golf courses. "Some of them want huge chunks of land to turn into something even more beautiful. It's about owning their own piece of New Zealand," he said.
They regarded New Zealand as safe, secure and stable and they knew about earthquakes but this did not deter them, Wall said.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=117…
If real estate is an investment, why do not Real Estate agents own all real, real estate.
They would be mad to sell it.
Similarly, why do Banks not beat em to it.
Why does it need a third party to cough up the money, plus 4%...of course.
I always choke when seeing the words "Potential" in a real estate agents blurb....well why the hell did they not take it??.
Check out 2005.
Big fears of auckland slow down not from 'prospect of higher rates' but from ACTUAL higher rates with ocr going over 6% (up to 8.25%! Mortgages 10%!).
Even throughout all this auckland merely flat lined with sales dropping.
The regions in contrast still had 3 YEARS of catch up left in them, confining to rise at 20% pa dispite 9% mortgage rates.
It took the gfc to finally stop things in their tracks.
This time macro tools hopefully will be able to do what 8 25% OCR couldn't do last time and slow the rate of growth. Big falls simply won't happen anywhere provided DTIs don't come in them Auckland is screwed (9x income prices are mad up there and will be flat for a very very long time)
Yes. While mortgages remain under 6% (esp while they are still under 5%) the kiwisaver help and generally low house prices compared to major cities (or even the 500k now in Hamilton/tauranga)... most regions will see continued upward pressure as there are a lot more buyers than sellers (esp true in pn which I watch closely, 23 days to sell Oct, 147 sold, only 153 for sale).
No I don't think the business practice of insurers withholding business in this circumstance is unusual – its business. The point is it is another nail in the coffin for the property sector in nz. And this event was not for seen. The RBNZ would not have included this is there last LVR hike, and it will undoubtedly have an impact on settlements in the WGN region for some time, and other areas affected by the quakes. It will take time for Insurers to assess the damage, and risk and for reinsurers to price in that risk. All this uncertainty will lead to loss of confidence.
I run a large business Nymad and any instability/loss of confidence in the market will undoubtedly flow through to people putting away their wallets.
Although I have no skin in the game (property) as a kiwi I like anyone else want the economy to perform, and for our regulators (rbnz) to do the right thing and manage financial risk.
Personally I don’t believe that Wheeler and co have done that - they went hard out late - after the horse had bolted, although they aren't the only central bank to be caught sleeping at the wheel.
Now that they have ramped up the macro prudential rules, specifically around LVR, and foreign investors, the market has gone soft.
This coupled with the quake (if you go back to my first post here) will have the effect of a double hit and may see prices plummet. Something the rbnz will be trying to avoid, and something as a business owner I don't want to see.
no conspiracy theory here!
I had this problem in 2013 directly after the wellington earthquakes, and couldn't get insurance. Didn't proceed as a result. So wouldn't surprise me, especially as this time the quakes felt worse and caused more damage.
I wonder if we will get to a point where they won't want to insure these areas. Supposedly that is why EQC was setup, so I wonder if some major changes are needed.
The LVR limit is not the culprit, it is the warden that has injected a little bit of rationality into the wild credit-fueled party.
But the warden needs the DTI sheriff to turn up to bring the lending and borrowing madness down to earth before the place is wrecked.
It is business as usual in Christchurch with no damage occurring g from what I have experienced and heard.
Yes it is bad in Kaikoura etc.
Christchurch population is expanding and even though we have had thousands of shakes we are still here and
It is still going to be the place of choice for both young and old going forward with opportunities and affordability that Auckland doesn't have.
Why on earth people that live in Auckland put up with the many negatives that the large population causes I can't fathom.
Here's a few reasons off the top of my head:
- more diverse
- better food, eateries etc
- more educated and worldly populace
- better opportunities in more sophisticated industries like IT, Law, Finance.
- better/warmer climate
- better recreation opportunities (ie beaches etc nearby)
- ....
- More variety, sure.
- That sounds awfully like that party line CJ spouts about Trump voters.
- Interesting, there is an article today on NZherald about quite the opposite for Law....
- Could depend on ones perspective, sun doesn't help the snow fall.
- more beaches uh ok, But more recreation opportunities... In Auckland? Your dreaming mate.
I guess if crushing house prices and sitting in traffic is your idea of a better place to live, then you are correct :)
@TimfromTaupo: Now, now Timothy, you really must have quite a small one.
And this article is quite correct: Auckland property prices are slowly reducing as this article points out due to market trends both locally and abroad. I know because I live in Auckland not some in significant place where not a lot happens.
I don't think Wellington lacks in a educated populace, good eateries, diversity or "sophisticated industry".
But it's a matter of priorities isn't it? Wellington has better views, proximity to the South Island, i's a more liveable city, less traffic, better infrastructure, less ugly strip malls and is just a much more attractive city IMO. I have ginger hair, and so couldn't give two hoots about warmer climate and beaches. There are plenty of beaches in proximity here. And personally I find having to drive to everything to be the opposite of recreation. In Wellington I can walk or bus everywhere, in Auckland I had to drive.
The Man ; I lived in Chch for 18 years lost my house to the EQ & moved to Auckland 4 years ago. There is a reason why almost 4 times more people live in Auckland, it's just a much, much better place to live and work, warmer, better work opportunities and pay better beaches, more events etc etc
Yvil, your take on it and that is your thoughts.
Warmer yes but rains more!
Not too sure about earning more As from people,I know that have lived in Auckland were worse off financially.
Couldn't be bothered with the traffic and the other problems due to the large population.
Your airport is a nightmare, your beachs are not that flash!
Yes you may have more events if you are into that but Just as you like Auckland there will be just as many up there that hate it now but won't admit it.
Different strokes for different folks as they say.
Stay up there if you are happy with everything it is your choice.
Bollocks, what earthquake? Most Chch people have barely noticed these quakes or have forgotten them already.
Chch rental market is massively oversupplied, but house prices have been stable for 2 years plus, yet interest rates are much lower, so not much likelihood of price falls. Auckland on the other hand is up 50 or 70% over the same time. Yields are pitiful in Auckland, big price drops are inevitable there. Price drops in Chch will be limited.
Dead right Chris J.
There are so many on here with tunnel vision that probably haven't been able to leave Auckland.
Yes rentals are oversupplied in Chch although we are having absolutely no problem re tenanting or attracting good tenants to new purchases or the odd vacating tenant and at good returns.
The people on here that think Chch is doomed is delusional and prices have certainly not dropped or population declining.
Quite right. During the extended period of bureaucratic meandering and insurance company intransigence Christchurch residents who were red-zoned or waiting for a rebuild bought in either Waimakariri or Selwyn. Both these districts had a long established capability to absorb high growth and continued to do so. But all it really was was bringing anticipated growth forward. Waimakariri experienced 9 years of projected growth in 3 years.
As dwellings get replaced in Christchurch (and many won't be) there is an inevitable slight oversupply of properties in Greater Christchurch. Combine that with the exodus of builders, project managers, CERA etc and demand has plateaued.
So what?
PS Auckland is incapable of responding to pressure the way Greater Christchurch has been hence the difference in housing markets
Gordon, can you please give me these figures that you obviously have that show that people are leaving Christchurch.
Or is it coming from your friends that you say you have all around the country?
Christchurch is growing Gordon and prices certainly aren't dropping any time soon I can assure you.
Who knows but for me immigration is going to remain strong and there just isn't enough supply coming on along. AKL was meant to see movement of labour resource from chch but now that is not going to happen after the quake- infrastructure repairs and Wellington CBD going to use that. Not only is there a shortage of labour and planning there are bottlenecks in the supply of products such as plasterboard.
I see from the Herald the yanks have picked up the phone and looking for properties all over the place.
I think the reason is a little simpler.
Mortgage rates are half what they were a few years ago.
Properties are double what they were before
People have been borrowing twice as much as before
Now the interest cost is the same as they were a few years ago
But rents have not doubled while expenses have
Ergo prices for investors have reached their peak as costs and returns are effectively back to where they were when it all started.
The lemon has been squeezed dry.
Specuvestor's onshore and offshore bailing, banks tightening lending, FHB fence sitting waiting for a drop in prices, understandably no one will want the risk of a capital loss after purchase. Bubbles rely on the next fool to take the risk. If there are no more fools to bail the last fool out, then the last fool has the risk of being shown to be the greatest fool of all.
Having watched closely the trends during the last GFC, the next signals to look for are are large chunks of agents exiting or getting culled, agencies running workshops on how to condition clients (sellers) to accept less money, and an increase in "sell your own house" signage. They were all clear signals of an industry under stress and declining prices at that time.
The turning point was four or five months ago, you guys are way behind the times.
When the market turned from four or five buyers to zero to one buyers per auction it was all over...
The market has just being hanging on in there for the past few months before the real price action happens.
Put some restrictions on foreign buyers and all out collapse will happen.
Key will be left naked on the beach by the election. A bit like the Paua on the Kaikoura coast... The tide is going out...
Listen to the Chatter
Chris_J. The first signs of the turn were back in January - I highlighted this 4 months ago
If you listen to the chatter there have been a series of announcements and events leading up to this
It's a case of paying attention to the little things and not waiting for the megaphones
I see you have lightened your load - well done
It appears that we have reached the top. The fact is that a lot of people simply cannot afford a house in Auckland and those that can have already purchased. Although, unless we get DTIs and significant increase in supply I doubt we will see any major correction.
However, what effect the earthquake will have is still yet to be determined. Also, I saw in the NZ Herald today that Americans are making the move here. One of them liked that we have immigration under control. I thought he would be happy now that Trump is president - I guess it shows when it comes to housing nothing is logical. I just hope we don't actually get any whinging liberal yanks here.
Americans making the move to NZ .... lol... what 5 thousand maybe 10 thousand tops with a population of 318million not even a drop in the ocean.
Why would you sell up in California to come to Auckland with bad weather, expensive poor quality housing on low pay.... may get a few more however lets not get too carried away with ourselves.
I agree, I think Brexit, Trump and strengthening anti-immigration sentiment in most of Europe will make government in NZ less blasé about the electorate's views on immigration. Indeed, National had one slightly negative poll and within a week there were policy announcements on immigration and a freezing of several routes to NZ.
Here is an alternative analysis.
There have been two main groups of investors behind the rapid escalation of property prices in Auckland which has spread to the rest of the country.
The main group of "investors" aren't actually investors, they are people who want to live in houses - these are the fundamental forces driving the market. And the reason there was a spiralling upwards of Auckland property prices (faster than other places) was there were more of these people wanting to live in Auckland than houses being built for them. When Auckland City Council cut off land supply to Auckland City, driving land (building) costs through the roof, the number of houses/apartments built was retarded. The speculative investors (the two types you mentioned) saw land price increases - caused by the idiotic land supply restrictions of Len Brown and Penny Hulse - investment piled in to take advantage of fundamental market movement and they made a killing.
Which means this conclusion...
•Regardless of what happens with interest rates, there is an ongoing housing shortage in Auckland, with net migration gains at record levels and new building activity increasing at a mediocre pace. That should limit the effect of any price falls in Auckland. However in other regions that do not face the same demand side pressures, any price falls could be more dramatic.
...is very wrong.
If the reason prices have increased in the regions is not due to baseless speculation, then neither is the increase in prices in the regions. The people who did want to buy houses to live in Auckland have now started in ever greater numbers to desire living in other places.
As this effect snowballs and as more and more people leave Auckland. Prices are more likely to fall in Auckland than in the places people are moving to.
I agree.
Both tv1 and 3 are doing current affairs studies on people leaving auckland to live in the much more affordable regions.
Never has there been such a gap (700k we are talking about!!!! Life changing) between prices in auckland and the regions. Never has the incentive been so great. And hence, never have we seen an exodus from auckland on such a scale.
Gordon and Nymad, please supply the figures that you have that shows that Christchurch population is diminishing?
There are large numbers that came to Chch for the rebuild and are now definitely staying, but would love to know where you have found out that all these people are leaving Christchurch in large numbers and therefore Chch population is diminishing
Gordon, you have a habit of quoting things and then never backing up with any evidence haven't you?
Much of what I read, is people are looking for any "reason" why something will or won't happen - and using any evidence that may be plausible as an reason for their point of view, but it may as useful as reading tea leaves - the Yanks are coming, Christchurch is cold in winter , Aucklanders are mainly stuck in traffic etc, etc. Maybe, just maybe you're all just scared that the whole thing is based on a house of cards ready to come tumbling down.
We just don't know and Mr Market just doesn't care ( he's a bit of a socio-path, driven by fear and greed).
Put it this way.. at 900k-1mill for average house in auckland, there is far greater risk Mr market will turn up offering 20% or more lower once a bit of fear sets in (or merely the mania vanishes) than turning up offering 1.2 mill, there just isn't enough people earning enough to sustain growing prices north of 1 mill.
Cheap regions on th other hand aren't so limited so it's all blue sky there up to 500k ish
Gordon, I live in Christchurch and going by the amount of traffic on the roads and new housing being built and being lived in, the population does not appear to be diminishing at all, quite the opposite.
However, you know differently, so can you please supply us with the figures you obviously have that says that the Christchurch population is dropping, or was it just an unsubstantiated statement?
Gordon, you are having us on aren't you.
You have quoted a "New Zealand Herald" article of a year ago as substantiating your stupid claim that people are leaving Christchurch in numbers!
Where is your up to date figures Gordon substantiating your claim that people are leaving rather than moving to Christchurch.
That's right you know you are wrong again so you quote something a year ago!
Send that Herald link of 2015 thru and the current Chch population so we can compare to validate your statement please!
I can't find the article you are referring to Gordon, can you give the link?
I found this one but it's from 2013;
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11140576
Gordon, just read your November 2015 article.
You are a classic!
It says that Christchurch population was growing significantly by 5900 from the previous year which would be 2014.
It continues to grow significantly I can tell you, but then you know differently don't you, from all your friends that tell you everything.
Gordon, pre earthquake 2010!!!!!!!
You are saying that people are leaving Christchurch NOW!
Where is your evidence to say that Chch population is dropping?
What is the growth or drop from NOv. 2015 to 2016? that is what will substantiate your statement rather than quoting a figure 6 years ago Gordon!
Has a Census been done in Chch Gordon in recent years?????
I am telling you now that Chch population is not shrinking unless you have evidence to support your claim?
The 2015 was an estimate and the 8100 was URBAN Christchurch where there were many houses still to be repaired or houses dozed. Didn't mean they had bolted to Auckland etc.
Many people just moved out to outer Chch like Rolleston, Lincoln etc. but still worked in Chch!
How many times have we heard this before... the turning point ... lol
This just seems like more media BS to try and convince us all that we don't need any further measures to try and control the excessive lending by banks.
Trying to convince us that Debt to Income ratios are not needed.
That a Vancouver tax on Foreign buyers (included students & temp visa) is not needed.
If the trump election taught us anything it taught us how biased mainstream media was and how the public saw through it.
NZ is ripe for it's own brexit/trump
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11749447
Duncan Garner appears to agree: "there are massive warnings and lessons here for our ruling elite - both those in power and in the media. Get out more and get in touch with those who gave up on democracy a long time ago. Winston Peters did this brilliantly during the Northland by-election. He upstaged National because they'd had forgotten their voters and taken them for granted. They were arrogant"
The risk for Key in going for a fourth term is that the appeal of his back story diminishes with every year; the longer he stays on the more he looks like any other politician, clinging onto power for the sake of power."
But O'Sullivan does admit there is still evidence of "widespread discomfort over the plight of young Kiwis who cannot get onto the Auckland housing ladder without taking on massive debt. There is a growing sense that the system is unfairly rigged against the young and those without the means to get ahead in metropolitan areas like Auckland. As indeed it is."
Good to see AKL taking a breather...I called the Bank again this week and am not sure if it was the manager or the whole office that was laughing at me when I asked for some money for remedial work on my properties. I reminded them that these properties are over 100 years old and may need substantial work, re-piling, reroofing, painting, etc otherwise they will fall apart around the tenants...can still hear the giggles, there aint no more money to be given to anyone for anything, grim times indeed for tenants of New Zealand unless they have a bucket to catch the drips in the lounge....
I agree with you that it's good that we're seeing a plateau in prices.
Talking about grim drips in the lounge, I'm also assuming you know about the changes at MBIE regarding rental property repairs:
Landlords who rent out substandard houses can now expect to get a knock on the door from the Ministry of Business, Innovation and Employment (MBIE) – and may even have rent withheld from them until repairs are complete.
MBIE has a new Tenancy Compliance and Investigation Team, which has the power to investigate substandard housing, even if the tenant does not complain.
[...]
He said changes that now allow tenants to redirect their rent when repairs are not being completed could also have an effect on some landlords' cash flow.
[...]
The MBIE spokeswoman said maintenance costs were something landlords should budget for as a normal business expense. (http://www.stuff.co.nz/business/85573055/changes-should-not-worry-good-…)
That could certainly affect your liquidity, but hopefully wouldn't lead to needing to sell one property to pay for repairs to all your others...
fair enough, any dire repairs i can still take care of, as is a business, what i am more talking about is a fresh coat of paint, re-insulation, fixing the garden, adding extra amenities and some improvements....in general landlords now cant look after their tenants as well as they used to, before it was a quick call to the bank and you'd get $20k to fix up the house, now its just giggles, 40% LVR's are hurting the people they are trying to protect...
I think you are exaggerating keywest. Landlords have typically never needed much excuse to avoid improving their properties. You can't really add much value to a property while it is tenanted. Tenants don't want the house being worked on while they are living there.
Zach, you sounds like my brother? I was going to spend $50-75k on an old villa: re-pile, paint inside and out, new garden, chop trees, fix up all wonky bits inside and out, new kitchen / bathroom, fix draft floor, re-insulate, build car port, take a look at the roof and maybe bring the outhouse into the house, (and put rent up mind you) bank says no....NZ housing stock will remain looking shite for another 3 to 5 years...look it at another way: i spend $75k now and get another $300 a week, that is a 20% return on investment....
I know a few people - funnily enough all property investors - who believe their own BS that we are going to see torrents of Brexit and Trump refugees
I think they are very wrong.
Migrating to NZ is nowhere near the good value it used to be for both poms and yanks.
Plus neither brexit or Trump events are likely to be anywhere as disastrous as the naysayers say.
One wonders too if some think a bit more cautiously about the move given the big earthquakes of the past 5 years
Property prices will not effect immigration by the wealthy, though it will effect the middle class/ poor. The wealthy would be more likely to emigrate to a country with high property prices, as it confirms they are moving to a desired/ exclusive location. Why do the wealthy by Coach or Burberry handbags for 2K plus? Certainly not for perceived value, it is about status. The thought process would be if the property is cheap, it can't be that nice a place to live, but if property is expensive it must be a great place to live. This is just how the human mind works.
Bahaha. In the UK it's chav's who take out massive loans to buy Burberry handbags.
And for the wealthy, NZ will never have "designer" status. The status NZ has, it's about clean living, wholesomeness, safety and a rosie tinted idea about going back to the 50's. No one thinks... "NZ, the millionaire's playground"!!! or "New Zealand, a luxury destination"?!!!!
That is not the image that NZ has advertised to the world and a major image campaign would be required to change NZ's image to one of wealth, status and luxury.
We are not in the UK. If you have a look at most luxury brands major growth market is East Asia and these seem to be the major owners/ purchasers when I travel internationally. I am simply saying that rising property prices will not stop the wealthy moving to NZ, they do not decide where to move to based on whether property is a bargain. NZ may not be marketing itself as a millionaire's playground, but it is being seen as a desirable place for deca-millionaires plus to relocate. NZ's how the US used to be vibe is a huge lure for wealthy Americans. In my work just in the Wairarapa I have had dealings with 3 US billionaires who have purchased in this area. And I think you will find that Queenstown fits the bill as a "millionaire's playground" or "luxury destination", despite what you state in your previous reply. The use of !!!! does not make your statement correct, it just make you look like a bit of a "Chav" to borrow a term.
Nope. Maybe one day, when resources massively run out and if the world mostly turns into an overpopulated, polluted sink hole and NZ is some how saved from that fate. Maybe then.
But right now, luxury is still places like Beverly Hills, Maldives, Bahamas, Milan, Paris, New York, Hong Kong. You are delusional if you think that any of the worlds wealthy consider NZ a luxury destination. NZ is many wonderful things, but a billionaires playground it is not. It has certainly been considered a safe place for middle class Asian's to store Capital. Safe haven yes, for some middle class money is not luxury destination.
You are really misrepresenting things to make a point here. It is well known that Chinese tourism to many, many destinations has increased, NZ hasn't received more of any increase than the other destinations. Chinese tourists are the fastest growing group in both the USA and the UK, for instance.. The Chinese economy has been booming over the last decade and a more affluent middle class has emerged so yes they are taking holidays but that doesn't prove that NZ is considered a luxury destination. Just that the Chinese middle class can now afford foreign holidays and are taking them in greater numbers worldwide. They can also afford to buy investment properties all over the place too and this has been well documented. It most certainly isn't limited to NZ but NZ is popular because of the lack of capital gains and inflating prices.
what the heck is a chav?
Found it - had to look it up in google
British. derogatory, informal. A young lower-class person typified by brash and loutish behaviour. 'Having a moan has become fashionable, whether it's about grammar, chavs or cheap furniture
Next Question
What is a lower class person?
NZ was once class-less
No upper class
No Lower class
You bringing your british class values here with you?
We don't want it here
What a load of nonsense. You have all kinds of derogatory terms in NZ for the equivalent groups of people according to socioeconomic groupings. In fact when I first arrived I had to look up what a "Westie" and a "Bogan" was, because I heard people referring to it. On that google search, several sites suggested that the Chav was basically an equivalent term.
I would associate chav with behaviour and clothing style rather than socio economic class, personally, but thanks for the assumptions.
Inability to secure insurance may slow down the market in several regions according to this
http://www.stuff.co.nz/business/86522212/postquake-freeze-on-new-insura…
It usually takes a few days to get the results through bigblue. I'm not sure why you are making such a big deal of this. Auctions used to be an uncommon way to sell houses in Auckland, reserved for houses it was difficult to put a price on, and I will welcome a return to sale by negotiation personally. Even 30% success results at today's auctions seems quite good to me. Hopefully we are just seeing a return to normal.
I think the big deal is that it shows a BIG change in sentiment / emotion in the marketplace - what was ridiculously easy has now become allot harder....this time last year it was 90% clearance rates at auctions and they have been commonplace for the entire recent "boom" in prices....(I agree its a relatively new thing. When I bought my first homes it was all by negotiation)
For the last 5+ years all a real estate agent had to do was talk their way into a listing - then arrange an auction and hey presto it sold - usually at a price above anyone's expectations and with this came the mania that it will just go on forever - buy and sell, buy and sell and make a fortune.
Easy Peasy irrational exuberance for all....
But now (and this only refers to Auckland's North Shore ) and this is first hand from RE agent friends it has stopped dead in its tracks...for months... and has not had the normal spring/summer pick up.
It seems the top end is still ok....the +$2M sales to the well heeled and cash buyer but the sub $900k segment is dead and stockpiling as I type - Realenz and trademe figures back this up.
Credit has tightened massively for speculators, and first time buyers or those simply wanting to upgrade a little are no longer playing the crazy FOMO game. Hence demand is decreased.
Despite all the logical reasons given ALL markets are firstly driven by emotion - namely fear and greed...and given the amount of mum and dad speculators that have entered the Auckland market in the last 5 years this effect could be magnified - they are not un-emotive professional investors...most far from it.
They are middle class families who leveraged themselves up to the eyeballs all based on future (fast) capital gain....of course all at negative cash-flow and bugger all yield.
So if it stays this way who will blink first?... and what will the effect be - a whole bunch of amateur speculators wanting their money back around the same time?
I know plenty of these people and now they are not far from a cult. There is no thought to the possible downside and it's all done with other peoples money... secured against the family home....
Most were unwillingly to entertain any advice to the contrary or devils advocate "what if scenario's"....all of a sudden everyone was a seasoned property "investor" and it will go on forever.....frankly its been reckless behavior from what I've seen.
Who knows what will happen - I thought this thing would run out of steam a couple of years ago but this is the first time I've heard from those at the actual coalface that its changed - very quickly and balance is coming back into to equation. Well, at least for now.
The days of listing any old piece of crap and getting what you want for it seem to have changed....
Who knows where to from here.....but it does seem a real shift has happened?
I do believe many of the latest arrivals to the "endless capital gain party" may find there is no chair when the music stops - at least in this part of the NZ market.
Would be interesting to hear more feedback from other parts of Auckland that are not the affluent DGZ zones etc but more the median...
Inflation is low, and rents have been almost exactly unchanged over the last two years in Auckland based on TradeMe. In this environment, rents on properties need to be consistent with their outgoings. For example, if a basic home rents for $500 per week, that is about $400 per week after rates, insurance, and property manager fees. That leaves $400 to pay the interest on the mortgage. With mortgage rates around 4%, this can service a mortgage of about $500,000. If the price is much different to this, it will probably gravitate back over a sufficiently long time. For the last twenty years mortgage rates have been falling, pushing up sustainable property prices. If mortgages rates fall from here, the sustainable price of property will rise, and if mortgage rates rise from here, the sustainable price of property will fall.
There is no way a responsible and prudent bank would loan $500k for $400/week.
Even assuming yr 4% interest rate, the bank should allow for payback of the loan from income over 30 years, and tax on the income. That would support a loan of only about $300k.
And that is before factoring in potential increases in interest rate.
However, note that I am talking about responsible and prudent banks. There have been none of those in NZ for a quite a while now.
Trying buying a property with a 500k loan in Auckland....
All the above analysis ignores the fact that Foreign Buyers don't need to borrow from NZ banks to buy properties. Remember 30% of buyers per LINZ were foreign students & Temp Visa Workers and Off Shore buyers.
Zachary Smith I believe it is quite relevant that the sell rate at auctions has taken a dive into the 20% territory.
Dropped into a few open homes on the North Shore last week and it was absolutely DEAD! In November last year there would have been 20 or 30 people at every open home and busloads of Chinese looking but now it is a buyer ghost town and the auction rooms are deserted. Also note that there were at least twice as many homes listed in the first two weeks of November on the Shore compared with the number of homes that actually sold in the entire month of October, so that looks pretty sick to me. There is not going to be a sudden increase in buyer activity, we have peaked out and now entered a 2 to 3 year downer period. Will also be a particularly low volume of sales in the three month period prior to the election next year, which could be a great time to grab a bargain.
Quite surprising really that with so much real estate for sale and interest rates in the 4.19% region that buyers have disappeared but there you go - it's all cyclical and we are on the downward leg.
If you are heavily geared and prices drop 20% expect the bank manager to come knocking - mortgagee sales looming!
My bank seemed to use the CV for calculating capital so a 20% drop in current prices wont cause them to come knocking. As long as the mortgage is being serviced and income streams look good I'd say the bank will be cool with that.
According to my Chinese contacts things have slowed down as expectations of capital gain are less and the fear of further measures being taken making the situation worse. Now we are entering a time where buyers can be more picky as there is no sense of urgency.
The theory that prices will continue to increase or stabilise because we have massive net migration gain, not enough new homes being built and interest rates at record lows etc, has been blown out the window! (Was myself previously of that view but oh how wrong can one be!) Could this be because people are now leaving Auckland for the provincial towns and cities combine with 40% LVR and the fact that bank criteria has become very restrictive i.e. Bridging finance nigh on impossible to secure, banks stress testing people at 7.5% interest rates and already internally applying their own DTI's? Any mortgage brokers out there - what are you seeing?
Stop spreading false rumors here, the market in Auckland continues to roar onwards and upwards. With more selling for over $1M than under, just look at QV data.
This is just a media thing to try to shake the weak hands into selling, price will double again in seven years, and every seven years after that. This is before the fact that half of the India and China wants to live in Auckland, prices can only go up.
So stop spreading fear here!! More people will sell because of articles like this.
I suppose I'm pointing out that I think the mantra of property prices doubling every 7 years (or 10 years, pick a number) is not likely to hold true into the future.
Yes it has been the trend over several decades in New Zealand but there have been exceptional changes to the economy that have allowed it to occur - namely interest rates, banking deregulation (more leverage, interest only, lower deposits), increasing debt (we sit at a record ~165%+ private debt to GDP) and the rise of two income households. These trends are pretty much spent. In other developed countries the bubble has already burst.
As prices continue to rise in NZ, the political pressure for change gets higher, the RBNZ restrictions get tougher - there is a political limit and well as a financial limit.
Sure, prices might go a bit higher, I don't have a crystal ball. But I am certain the risks are stacked to the downside and we are much more likely to see a reversion to 7-8x income than a rise to 19x. This doesn't mean that a central Auckland villa will be going for $500k, but I think a correction of at least 20% in real dollars is highly likely.
There is a plausible scenario where NZ continues to get sold at ever higher prices to foreigners, prices disconnect from local wages further and NZ becomes the "Switzerland of the South" - but I think the political pressure will be too much for this trend to keep increasing for decades (National have already started to reduce immigration for example, banks not lending against foreign income, etc).
Short version - Auckland property is experiencing a severe bubble and it will almost certainly burst. And I don't think our shonky Government, immigration and all can save it.
Yes exactly - the crazy run of the last years cannot be extrapolated infinitely into the future as its assumes infinite credit and wage growth to support it - which there isn't.
And the experiment of QE and ZIRP that was the catalyst to multiple asset bubbles globally cannot go on forever. And this has essentially accelerated 2-3 cycles of this "7 year cycle" into one. I see a long period of stagnant prices whilst the other fundamentals catch up.
Just an opinion but history tells us all markets eventually correct to the fundamentals - but of course "this time its different" apparently...
You are also correct that sooner or later a political groundswell would stop it dead in its tracks - there is a tipping point.
Everything has its limit - seems the next fools in the greater fool theory are not playing ball at the moment - another month or so of this will confirm if its real but I agree with BigDaddy 'the lemon is squeezed dry".....
I am really surprised that the majority of women joining the workforce is not also cited as a reason for the massive escalation of house prices in the last few decades. For the Boomer generation, very few women expected to work full time for the majority of their lives (obviously this expectation changed as the Boomer generation aged),but their salaries were often not necessary for acquiring a mortgage at the beginning of their adult life as FTB's. Yet GenX and millenials, the opposite is true, being a stay at home mum is considered a luxury and a privilege. Women entering the workforce has added another income to mortgage affordability and the value of houses have predictably gone up, according to what couples/families can afford.
So that's another major factor that has contributed to the rapid increase of house prices previously, but which will no longer be a factor for the future of house prices.
Accepting that there is upward pressure from supply and demand factors and looply Lens leftover lot (4Ls) to deal with, the ponzi relies on the next fool to write out an even bigger cheque. Your arriving Indians and Chinese are far from fools, and will not be wanting the risk of capital loss. Who would, even bigdaddy says “the lemon has been squeezed dry”.
Its election year very soon. If Brexit/Trump are anything to go by, the average man/woman globally is more than uncomfortable with rampant immigration policy and getting priced out of their own backyard. Is NZ any different. I'm picking that next year’s election will see trumpeted promises of an end to the flood of immigrants in NZ (que Winston), and that those that do make it to our shaky shores will be savvy enough to be very wary of bailing out the heavily leveraged in our fools paradise.
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