What goes up, must come down is a sentiment our national housing market is living and breathing this winter, as buyers and sellers adjust to conditions at the declining point of this property cycle.
Where the Real Estate Institute of New Zealand’s (REINZ) Housing Price Index (HPI) fell 0.8 percent in May – representing the sixth monthly decline in a row, the frenzied air of competition amongst buyers has given way to a more measured pace, affording new opportunities for those in the market.
**Tony Alexander **
Asset markets – including residential property, at least in the short-to-medium term, are driven by psychology and the way people think, rather than underlying analysis of the market and its fundamentals.
During the upward period of this property cycle, people looked for reasons to buy - even though residential property values were already so highly-priced relative to incomes.
In particular, Kiwis purchased on the basis that prices would keep rising, informed by historical capital gains that others would pay a premium for a new family home or investment property.
If people found excuses to buy on the way up, now they will look for excuses not to buy, or even sell, on the way down.
Despite this, the usual reasons for purchasing a property remain; including sizing up for family requirements, sizing down for ease of maintenance or shifting location for job, schooling or lifestyle opportunities.
History tells us that many buyers will sit on their hands waiting for the perfect opportunity to purchase a property at the bottom of the market. However, few seldom pick this point and because of this, we will see a backlog of Kiwis who want to move but haven’t, continue to build over the next two years.
Residential property is an asset in New Zealand that has delivered an average of seven percent of tax-free capital gain each year since 1992, and therefore can be viewed as a relatively stable long-term investment.
With this in mind, serious buyers wishing to make a move should take advantage of the biggest listing jump in years and the highest willingness of vendors to negotiate and secure a sale, instead of sitting on their hands and joining the market again when there’s a rush on the next leg up.
**Kelvin Davidson **
Chief Economist, CoreLogic
Over the next few years, capital gains will be harder to come by for property investors, which means landlords may be best advised to adopt a back-to-basics approach, focussing on the fundamental features of investment property.
Key considerations include a focus on cost control, how rents increase and purchasing properties with the highest yields for the lowest risk.
While the national average gross property yield is now just 2.6 percent versus the average standard two year fixed mortgage rate of 5.6 percent, opportunities exist for investors that seek well-located properties that command good rental returns, particularly those able to add value through simple renovations.
Combing listings by property type and location can be a worthwhile exercise, with some apartments and townhouses in Auckland’s central suburbs, and two bedroom flats across areas like Hamilton East and Greerton in the Waikato and Bay of Plenty benefitting from rents that are rising around seven percent annually.
Many investors will tell you that in fact, a downturn is the best time to be buying, as sellers can be more amenable to negotiations.
Those looking to make a move in the current market will be encouraged by the recently announced easing of Credit Contracts and Consumer Finance Act (CCCFA) regulations which have coincided with the RBNZ’s decision to push out any formal caps on debt-to-income ratios until at least mid-2023.
**Suzie Wigglesworth **
National Director of Projects & General Manager Auckland Central, Bayleys
The new-build sector is adapting to change and despite some early caution from buyers we are starting to see some transactional volume return as purchasers adjust their budgets to manage higher mortgage lending repayments and rising costs for goods and services.
The obvious opportunities exist for property investors to target new-build properties over existing homes and keep claiming mortgage interest deductions from tax, as well as the new-build classification as exempt from the 40 percent deposit requirement under current loan-to-value ratios (LVRs).
However, we are also seeing a growing number of younger property purchasers becoming more aware of the benefits above and beyond average capital gain from land banking opportunities and future development potential.
For buyers with an eye on the news, this looks like a large, well-located site with long-term subdivision potential, which could serve as a family home while urban areas are gentrified and intensified around them.
Large tracts of land across Auckland’s northern and southern reaches have been earmarked for future development, as have locations across North Waikato, while Tauranga is receiving increased investment to reinvigorate its town centre.
Properties flagged for-but-not-yet-zoned for greater densification offer the greatest potential for capital gain and our dedicated New Build team is receiving increased enquiries from buyers seeking strategic advice.
To year-end, buyers will be rightly watchful of the rising cost of debt and their ability to secure finance for a new purchase, however, those with accrued equity and a view to long-term investment will find opportunities available in a more static marketplace.