It's a town and country boom

Property prices are climbing everywhere. But, as ANNE GIBSON reports, there is a niggling problem for some: affordabilty.

Ka-ching! Home owners are getting richer, almost by the day.

It's not too hard to imagine cash registers ringing as house owners check the sale of that house across the street.

For people with property it's a bit like checking the sharemarket pages in the Herald every day and calculating how much more you are worth when the prices go up.

The flourishing real estate market has meant that our paper or unrealised wealth is increasing rapidly - so why not buy that new car or beat the crowd and book that overseas holiday?

The rise and rise of real estate prices has spread through all regions and price ranges, making both rural and urban dwellers richer.

"It has only been in recent times that the rural and urban economies have simultaneously been enjoying economic success," said Real Estate Institute president Rex Hadley in gloating about a record national median house price of $186,000.

The prosperous market is not only making people feel richer, but it is also likely to be one of the factors behind the increased spending on consumer goods, travel and credit cards - a concern to the controlling influence on monetary policy, the Reserve Bank.

Real estate agents were counting their fortunes this week, balancing their books for the year to March. Some found records had been set in the year; Bayleys broke the $3 billion sales mark, well up on the previous year's $2.3 billion.

But in Wellington, Reserve Bank governor Don Brash is taking on the role of Uncle Scrooge, drumming his fingers on his desk as he sees those record figures rolling in from the Real Estate Institute.

His reaction was to increase the official cash rate marginally to 5.25 per cent this week, resulting in WestpacTrust lifting its floating interest rate yesterdayfrom 7.2 per cent to 7.5 per cent.

This slight nudging up of interest rates serves as a reminder that if the spending spiral continues, we will pay a higher price for spending financed by borrowings.

But some observers are crediting the increasing value of houses with saving the global economy.

The March 28 issue of the Economist sang the praises of the worldwide growth in residential real estate values in an article headed "The houses that saved the world".

Increasing house prices had helped to shelter the world economy from deep recession, it said.

A new index developed by the Economist showed that in Britain, Australia, France and Spain, house prices had been rising at their fastest pace in real terms since the boom in the late 1980s.

Germany and Japan were the only two out of 13 countries surveyed in which house prices fell in real terms last year.

Beneficiaries of the housing success this week dismissed Brash's moves on the official cash rate, saying such a minor tweak would hardly cause a hiccup.

"This won't affect our buyers," said North Shore and Waiheke Island luxury specialist agent Brian Guy, of Premium Real Estate.

With a strong 12 months behind him, Guy sings the praises of his top agent, Chris Wiley, who sold property worth $34.7 million in the year to March.

Guy mentioned - almost in passing - that three other agents each sold property worth $20 million in the same period.

"Every time the housing market is going well, Don Brash has to step in," Guy said.

"But most of our buyers tend to arrange their own finance and don't make their deals conditional on getting the bank's approval.

"So changing interest rates by a quarter or half a percentage point won't affect them."

David Rainbow of Bayleys in Newmarket - often said to be New Zealand's single most successful real estate agent - this week announced that he had cracked 15 years of his own marks and "been in involved with the sales of $59 million worth of property in the year to March".

Industry sources said his commission could be between $800,000 and $1 million (Rainbow says the amount is "much less than people think").

He specialises in the Remuera mansion market. His top deal, with Libby Butler, was an Arney Rd property for $6.75 million in 2000.

Rainbow's biggest deal in the year to March was $6 million-plus and "in the Auckland region" but he says that both vendor and buyer put confidentiality clauses into the agreement so he can't blow his trumpet about the sale.

Pity, he agreed, but that's life.

It was Brian Guy's Premium which snatched the record last year, with the $8.3 million sale of 12 Gibbons Rd, a beachfront Takapuna home sold by Oenone Bidwill - former wife of multimillionaire Auckland entrepreneur Charles Bidwill and sister of John Spencer, who was New Zealand's richest man for many years - to David Hughes, a New Zealander working in America.

It remains to be seen who will make the record sale this year.

Guy recalled somewhat uneasily that Doug and Barbara Myers' home in Remuera remains on the market.

So does John and Christine Fernyhough's famous "moved mansion" in Remuera, shifted 8m to the east for more than $25,000 to take better advantage of the afternoon sun and sea views.

Each of these homes is expected to sell for between $8 million to $10 million.

One famous house which is being sold - although the unconditional deal has yet to go through - is Wayne Hartner's Golf Rd mansion in Epsom, nestled among trees on the edges of Cornwall Park and One Tree Hill.

Rainbow took it to tender and expects the deal to settle in about two months.

The property will go to an Auckland businessman.

Hartner was finishing building the house, which has a tennis court and pool, when his Hartner Group went to the wall, owing at least $20 million.

What is fuelling the high prices?

Most economists suggest a combination of factors:

* Interest rates which are relatively low. These draw people into mortgage borrowing - a point which concerns the Reserve Bank governor.

* Net immigration.More people are around and wanting to buy, particularly rich people buying in British pounds or United States dollars.

* The improving economic outlook, fed partly by low unemployment, job security and that intangible wealth factor - how rich we feel.

"Residential property has always provided a snapshot of the public's attitude to the economic environment and currently there are many positive influences at work," the Real Estate Institute's Hadley said.

"Net migration is well up, interest rates are still relatively low, job opportunities are increasing and there is significant growth in wages.

"New Zealanders are obviously feeling very confident and that's reflected in the property market right across the board."

The price increases and rising sales volumes are evident across all types of property, just as they are apparent on farms, in towns and in cities.

The Auckland median in March 1996 was $220,000; it is now $262,000.

The Wellington median has risen from $140,000 to $205,000, Canterbury/Westland from $131,000 to $141,000, Otago from $100,000 to $107,000, and Waikato/Bay of Plenty/Gisborne from $131,000 to $156,000.

The downside is that houses are becoming less affordable.

The AMP Banking Survey issued on Monday revealed its affordability index was down 4.7 per cent in the March quarter.

Even a top agent like Rainbow is wondering how long the good times will last.

"Often what happens when you get a market with a lot of hype in it, vendors suddenly believe their property is worth a lot more than it was a few months ago.

"Price expectations can get out of line with market realities and this may lead to a slowing down of activity."

BIG SPENDERS

You know there's a housing boom when:

* New Zealand's median house price figure is at a record high of $186,000, statistics issued yesterday by the Real Estate Institute show.

* A 1821sq m development site in Remuera went for $2 million at last week's auction at Bayleys' rooms in the Viaduct Basin. The freehold property at 115 Remuera Rd, near the strategic corner with Bassett Rd, was not even bought for its stately old house. That will be removed. Nine townhouses could be built on the land.

* A house at Coopers Beach in the Far North set a record for the beachside settlement when it sold for more than $1 million through Harcourt's Mangonui office. The large residence has two self-contained apartments, suitable for renting as holiday accommodation, office owner Andrena Blucher said this week.

* Bayleys Real Estate has found Aucklanders' appetite for mansions - houses in the $500,000 range - is still strong. It reports that it sold half as many mansions again in its January quarter than the previous quarter.

Reserve Bank of NZ

Real Estate Institute NZ