What’s happening in the housing market?
ASB and Kiwibank have cut interest rates to two-year lows, the Auckland auction clearance rate for last week hit a five-month low at 29% and GDP growth is predicted to soften. Yet in February, Harcourts saw sales increase in the Wellington Region by 7%, Christchurch 6.3% and the South Island 2% whilst Barfoot & Thompson saw a 28% reduction in sales in Auckland. The New Zealand property market is acting in a localized fashion that we have not seen for several years, what’s driving these varying levels of performance?
To understand, we need to break down the market between investment and residential. The NZ investment market is spooked. The looming prospect of a Capital Gains Tax that extends beyond the current five-year Bright Line test and new rental property standards for landlords, has resulted in both BNZ and Westpac increasing interest rates on those looking to purchase an investment property. The government is signaling just how serious it is with new rental standards, allowing tenants to receive up to $4,000 for reporting non-complying landlords. It should be noted however these standards still leave New Zealand below the rest of the world and such investment will more than likely be recouped in any sale of the property. The rate of landlords exiting the market is increasing.
Movement in the residential market is purely down to the age-old issue of supply and demand. A lack of development has been felt particularly in the Wellington Region but is also impacting other areas within NZ. KiwiBuild is slated to bring 2,000 new properties to Porirua but with the first of these not due until 2020 (a big if on the current performance of the scheme) it is unlikely we will see any change to supply in a hurry. Meanwhile, the collapse of several high-profile New Zealand construction firms has the private building sector concerned and acting more cautiously than we have seen for years, limiting new development.
Our Thoughts
For investors, a better option right now may be to review your investments and consider stocks, bonds and other financial products as part of your personal wealth strategy. Rental income has been an easy ride for the average Kiwi investor over the last 30 years, but the market is only going to become more difficult.
For those seeking to purchase their first house, low interest rates are fueling demand but this doesn’t mean you are priced out of the market. Now is a great time to review your options.
Our team of financial advisers and mortgage brokers here at FoxPlan can guide you on your financial journey. Work with us to make smarter financial decisions, together.