Property Report: What the industry says

Agency heads tell Gill South the amount of frustrated buyers in the market could result in a busy winter period if potential sellers start the selling process now, rather than waiting until spring.

Auction seems to be the favourite mode of selling in the current market, with vendors seeing auctions as the best way to maximise sale prices. Photo / Brett Phibbs
Auction seems to be the favourite mode of selling in the current market, with vendors seeing auctions as the best way to maximise sale prices. Photo / Brett Phibbs

Mike Bayley
managing director
Bayleys Real Estate

Just as frustrated sun-lovers flocked to the beaches to enjoy the last rays of warmth in late March and into April, so too did the log-jam of would-be home buyers hit the markets. Their sheer volume surged over the limited amount of stock on the market - consequently pushing up prices.

With much of the buyer demand left unsatisfied because of the low stock numbers to choose from, there still remains a legion of purchasers out there in the market, cashed up and looking to buy.

As a result, and compounded with the traditionally lower residential real estate inventory numbers over the winter months, pricing levels have been underpinned and are set to go only one way for the coming few months.

The trend is most evident in Auckland, which has always been the lead indicator for residential activity, either up and down. There are increasing signs that activity levels are now sprouting up in pockets around the provinces, although caution still remains a key element in buying decisions for most.

There are few economic indicators and little sentiment to suggest that residential listing number trends for the winter quarter will be any different to what they have been traditionally - quiet, yet steady. An extended period of sunny weather, however, could boost attendance at open homes.

Immigrants, one of the drivers of the residential property sector, have finally been in a positive for the first time in seven months, albeit at an incredibly small number, 130 people. While the figure is minute, it does reflect stability.

At this level, it is hard to see migration playing any major part in the demand curve for homes in the short term. However, any substantial rise in migration numbers would further underpin a strengthening in existing domestic demand.

Stability is also the key word associated with the Official Cash Rate remaining at 2.5 per cent and associated bank mortgage rates remaining motionless until what economists forecast will be the end of this year/early 2013.

Borrowers like the surety that OCR stability provides them; however their ability to buy may be tempered somewhat by the shortage of stock.

Carey Smith
NZ chief executive
Ray White (Real Estate)

During the opening four months of 2012 the real estate market has shown a consistent upward trend in sales numbers in comparison to 2011. The volume of property sales is up 21 per cent to 23,247 across New Zealand and this is also reflected in the main centres, with Auckland having 8501 sales for the opening four months of 2012.

There have been fewer properties coming on to the market and this has compounded the price increases in the major centres, with areas close to the CBD rising by close to 10 per cent, while the balance of the New Zealand market has also shown slight increases.

The Reserve Bank continues to maintain the low Official Cash Rate at 2.5 per cent. At the recent meeting in late April there was an indication that the OCR may come under some pressure to be further lowered in the future. We will see with the next Reserve Bank announcement set for June 14.

The investment market linked with consistent rental price increases has made this sector favourable particularly when it comes with lower interest rates and low vacancy rates. The investment market has been the area where we have seen the biggest increases in sales.

The outlook over the winter period may see some pressure come off prices as sales begin to level during the traditionally quieter period. The high activity coming out of the Christchurch market has eased and this will take some pressure off the sales volume across New Zealand.

We expect there will continue to be normal stock levels coming on to the market and with an easing of interest rates, this should combine to provide better conditions for all those transacting property.

Peter Thompson
managing director
Barfoot & Thompson

The feature most affecting the Auckland property market is the low number of properties available for sale and that limited choice is likely to remain until confidence in the economy and job security returns.

For the early part of this year, new listings have been steady, and certainly consistent or a little ahead of those for the past few years. However, there have also been a growing number of active buyers which has resulted in the stock of homes for sale remaining low. You have to go back to 2007 to find a period when there were so few properties on the market.

The growth in buyer numbers is being caused by new arrivals to Auckland from other parts of the country, expats returning home and immigrants. Add to them natural growth in the form of young Aucklanders looking to set up home for the first time and people trading up, or downsizing, and you have strong demand.

Property at the right price will continue to find ready buyers. While prices have risen and will continue to do so, in the main those price increases have been modest.

Across Auckland city we estimate the year-on-year price increase to have been in the order of two to three per cent.

There will always be exceptions with properties selling way above current valuation, or when at auction competitive bidding becomes a factor, but while concerns about the strength of the economy remain, there is limited scope for significant price increases.
If the market follows its traditional pattern as it heads into winter, prices could even tail off a little temporarily. Vendors are continuing to favour auctions, seeing this as the way to maximise the selling price.

The market remains active in the under $500,000 price category, and in the first quarter 62 per cent of all sales were under this value. At the same time, sales are especially active in the $1 million to $3 million price range.

Keith Niederer
general manager New Zealand
LJ Hooker NZ

ince the beginning of the year consumer confidence has been growing across the country with REINZ national sales figures showing a marked improvement and LJ Hooker/Harveys achieving record results in March.

Many Kiwis now have purchasing a residential property and living a rural lifestyle on their wish list, coupled with the lowest interest rates since 1965 and an improving New Zealand economy. We are also seeing more parents helping their family move into their own homes.

January, February and March resulted in a lot of property on the market being sold but not replaced, resulting in a shortage of property listings in many areas around New Zealand.

There are currently two economies operating in New Zealand - the Auckland economy and the rest of New Zealand. For the Auckland market, the pendulum has now swung in favour of vendors, especially in the inner-city market. Previously there was a smorgasbord for buyers to choose from, now it has moved to a market where buyers outweigh the number of properties for sale.

Today's buyers are very well-informed, however, and even with the shortage of listings, many are prepared to walk away from properties which don't meet their criteria - including price.

In the regional market we are still seeing enquiries, listings and sales but the volumes are not at the same level as the Auckland market.

With winter upon us, the shortage of listings will continue around New Zealand until the spring. For those contemplating selling their property in spring, we encourage them to consider listing now as there are plenty of buyers waiting.

Many interested buyers now understand, and have experience of, vendors setting no price for the sale of their property, preferring an auction, tender, or set-sale process. For many vendors this is the preferred method of sale and it makes up around 18 per cent of LJ Hooker/Harveys listings nationally. This approach often produces a premium price, with prospective buyers competing against each other to secure the property.

With low interest rates, banks are keen to do business. New Zealanders are presented with an opportunity as interest rates are set to stay at historically low levels and this gives them the ability to purchase homes in some areas of New Zealand for less than it would cost to build them.

Hayden Duncan
chief executive officer
Harcourts New Zealand

Figures continue to show signs of positivity especially in the central region, but a commonality prevails. The real estate industry, although showing positive signs amongst the public and real estate agents, is still climbing up the curve from one of the biggest lows in 15 years. Record interest rate lows, first home buyer and investor activity are helping the surge.

Written sales are up in the Northern region and Auckland's inner-city suburbs, while the North Shore continues to provide good buying. Other parts of Auckland still remain tight, so there is strong interest in homes for sale, creating competition.

Harcourts' central region - from Huntly to Taupo - is showing positive signs as auctions achieve an optimum price with the average sale price and sales again producing strong interest as smaller grazing and finishing blocks are sold.

Wellington continues to remain subdued but with improving results around auctions and tenders the average sale price is conducive to those areas still moving out of the lower end of the market.

With the countdown on until the plan for rebuilding Christchurch central is reached, the housing market in Canterbury still continues to improve. Auctions and tenders peaked for the region and the issue of limited property on hand remains the same but as fewer properties are coming on to the market, competition is driving the average sale price higher.

The South Island's provincial areas meanwhile, after experiencing a slight dip in the last two months, have seen an increase in written sales and property on hand. One could assume the provincial areas do offer an attractive lifestyle option for those wishing to downsize or relocate as we are seeing property being listed and sold.

So as national figures reflect, average sale prices are on the rise and more business is being done.

Shamubeel Eaqub
principal economist
New Zealand Institute of Economic Research

Real estate agents may be saying things are fantastic, but from my point of view, houses are still too expensive and the economic outlook is challenging. We are halfway through a seven-year economic famine and the second half will be just as tough with retiring baby boomers providing an added headwind.

In recent months, house sales and prices have edged up while mortgage rates have fallen. But there are not nearly as many buyers as there were in the halcyon days of the housing boom and the volume of house sales is historically low. This is because we have switched from gorging on debt to being more realistic with our finances. Many householders are paying down debt and saving.

Meanwhile the recession has sapped demand. Those who typically drive the housing market have been badly hit by the recession. Job losses have been worse for the young and for those in their 30s and 40s. The young tend to leave home and start flatting but this is not happening as much now. Those in their 30s and 40s tend to start families and move to bigger houses but fewer of them can afford to do that now.

There are definite pockets of strength. Houses are selling at eye-watering prices in some inner-city Auckland suburbs such as Mt Eden and Grey Lynn. There may be local factors for these inflated prices, such as school zones and keeping up with the Joneses rather than economic reasons.

The housing market is repeating the pattern of 2009, when we had a mini-recovery which fizzled. House sales have been following a similar pattern in recent months. The real reason for this is the economy. There are few new jobs and incomes are barely keeping pace with living costs. New Zealand, along with the rest of the world, is going through a painful seven-year economic adjustment. We have another three and a half years to go and it will be painful.

Much is being made of low mortgage rates, with advertised rates as low as 5.25 per cent but they are a short-term boost and houses are a long-term investment. Over the long term, mortgage rates will be around 8 per cent which is what homebuyers should be setting their budgets by.

Current low interest rates are a great opportunity to pay down the principal more quickly. This will reduce the total cost of the mortgage and pay it off more quickly. For example, paying at the 8 per cent rate would save you $20,000 for every $100,000 of mortgage and pay it off five years quicker. The website has some great calculators to show how much you can save.

Meanwhile, there is an important demographic change underway: the retirement of a generation of baby boomers. Over the past year the over-65 population grew by four per cent and the under-50 population shrank a little. This ageing population will be an inexorable process and will inevitably have consequences for the housing market. The Japanese experience of ageing coupled with economic mismanagement has led to three decades of stagnant house prices.

The boomers have played an important role in the housing market. As they reached their peak earning power, credit also became easier to get. They were avid buyers of houses because they could afford it. As more of them drove house prices higher, they bought into the dream that house prices only ever go up. The common 'wisdom' that your house price will always go up has been created and perpetuated by baby boomers.

But this group will be pivoting away from being the dominant buyer of houses to a mishmash of situations. They will be holding their houses for retirement income, bequeathing them to children and trading to a different home. The impact on house prices is unclear, but they will not be sending prices upwards.

For the next three years, the economy is likely to remain stagnant. What will house prices do? On the one hand, the fundamentals say house prices will stagnate for decades. On the other hand, irrationality abounds in the housing market and we could have yet another boom, only to trigger a bigger and deeper recession.

Glenda Whitehead
QV valuation manager
QV Auckland

To state the obvious, the perceptions and actions of people in the property market are what drive it. Finding a pattern in that maze is the job of property professionals such as registered valuers and property consultants. When there is evidence of a similar trend over a long period of time, the position of the market will be relatively clear. A bit like having a well laid-out road map, with clear lines of how to get from A to B.

Difficulty arises as the market, or parts of it, begin changing or hit a cross road. At present, for a buyer deciphering the central Auckland market, it can be likened to a tourist driving in Paris, and approaching the famous Arc de Triomphe without a map. The route to your destination is not always clear. You just don't know who else is going to be on the round-about cutting into your route, whether you should take a chance and grab an early off-ramp or gun-it across to where you think you want to go.

Examples of supposed market madness have been recently reported in the Herald. Three such examples are all homes originally built for state housing:

58 Wainui Ave, Pt Chevalier - sold in April for $850,000
39 Spencer St, Remuera - sold in May for $1.3 million
10 Puna St, Orakei - sold in May for $1.45 million.

The latter is a two-unit site that had been in private ownership for a number of years with minor upgrading work done to it. But the former properties are single-home sites with very modest homes currently on them.

So why are people paying what seem to be outrageous prices? On the face of it, these sale prices do seem exuberant. But let's look at some of the factors which could be driving people to pay these prices.

'Old Auckland City' is now essentially fully built. If you want to buy a piece of land to build your dream home on, you have to buy a property that already has improvements on it, and remove those to make way for your home. So these sales effectively represent land value.

The competition for this type of property is coming from people seeking an entry-level property into that suburb, developers, or other people wanting land to build their dream home. So the competition can be stiff, as it was in the above cases.

The prices paid have a component of 'scarcity value'. Such properties are fewer and fewer now, with many not coming to the market in this raw form. Other properties in these locations have more substantial improvements and value associated with them. Redevelopment of those sites is less viable as essentially you would be throwing away money you had paid for those improvements.

In the three suburbs mentioned, neighbouring properties are often very highly developed. Either older homes have been extended and upgraded to a high standard, or the sites have already been redeveloped with high quality modern homes. New build homes often 'max out' what is allowable on the site in terms of site coverage and building envelope. With this, the value levels are often at the upper end of what is achievable in that suburb.

A person paying what seems like an extraordinary sum for a 'statey' may not be looking at the value of it as it stands. Instead, they may see what the value of the proposed end product will be, less the costs to get there. The developer may know that they will have to pay essentially 'retail' value for the land, but if they're smart they can make
a profit from the build project. If they are lucky, there may also be a lift in the market between now and when they sell.

The buyer wanting to build the dream home is likely to be less focused on profit.
Perhaps, they are happy to break even on a cost/value basis when the project is complete.

Realistically if these types of properties are well-positioned, they are no longer 'entry level' properties in a suburb. In the past many suburbs provided a wide range of housing types from two- to four-bedroom homes, often on similar relatively large land areas. Now, the smaller homes represent an under-utilisation of the site and redevelopment is the most economic way forward. Zoning often allows larger sites to be subdivided into two, enabling two substantial-sized homes to be built compared to the one small home formerly there.

In this context, these prices appear less exuberant.

- NZ Herald

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