Housing prices ready to cool as immigration slows

By BRIAN FALLOW and MATHEW DEARNALEY

Booming house prices are poised to come off the boil as the influx of migrants continues to ease, although investors are still priming a strong residential property market.

This should bring house-price inflation - now running at almost 20 per cent - back into single-figure territory before the year is out.

December saw a net increase of just 1600 permanent and long-term migrants, down from 2200 in November. These figures count newcomers intending to stay for at least a year, and expatriates aiming to settle back here, minus long-term departures.

Downward adjustments for seasonal effects such as the arrival of students before the academic year actually showed a small pick-up from November, from 1000 to 1400, according to Statistics New Zealand figures released yesterday.

But an extrapolation of figures for the last three months of 2003 produced a drop in "annualised" net migration to about 17,000, compared with a peak annual inflow of 42,000 in May.

That boom figure would have been enough to boost New Zealand's population by more than 1 per cent.

The annual gain to the end of December was a more modest 34,900 - down from 36,000 for the 12 months to November, and economists expect the contribution from net migration to keep dwindling as a recovering world economy offers greener pastures.

Combined with the added supply of housing from a building industry working flat out, that would gradually reduce pressure on the housing market over the course of this year, said Deutsche Bank economist Darren Gibbs.

He expects this may cut house-price inflation of more than 18 per cent by as much as two-thirds, and well into single digits.

Although property agents are typically less bearish, Real Estate Institute president Graeme Woodley accepts that house price rises may ease back to about 8 or 9 per cent "although that is just my perception".

ASB Bank chief economist Anthony Byett said the housing boom's character had changed from one driven by immigration to one driven by investors, taking advantage of low interest rates and motivated by expectations of capital gains.

That made for a riskier market, he said.

Reserve Bank Governor Dr Alan Bollard has started to raise interest rates, warning that buyers deceived by speculative froth in the market risk disappointment.

Mr Gibbs said that with interest rates on the rise and world sharemarkets climbing, one of the reasons often given last year for the popularity of housing as an investment - the lack of attractive alternatives - should count for less.

But Auckland property agents contacted yesterday believed last week's 0.25 per cent increase in the Reserve Bank's ruling interest rate was making little impression on residential property investors.

City Sales managing director Martin Dunn, whose company sells and rents apartments, acknowledged concern about declining immigration and the fallout from foreign-language school failures, which he is warning clients will depress rental income.

That had yet to happen, though, and he said investment sales remained strong.

Buyers included parents investing in apartments which could be used in the short-term by children embarking on tertiary studies, and then remain as assets for sunset years.

Mr Dunn said he was also still finding strong interest among expatriate investors, having sold 15 apartments in the past two months in the new Statesman block in Parliament St to overseas New Zealanders making long-term plans for their return.

"We had a huge month in January for sales and I think 2004 will be steady as she goes."

Mr Woodley of the Real Estate Institute said annualised net migration had not fallen as far as pundits were predicting late last year, and 17,000 was still a healthy contribution to population growth.

Herald Feature: Population
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Herald Feature: Immigration
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