NZ Property Market Scenario: Rags versus Riches

  • May 25, 2020 AEST
  • Team Kalkine
NZ Property Market Scenario: Rags versus Riches

Summary:

  • While April reported dip in property sales according to REINZ data, residential auction is slowly picking up with eased lockdown restrictions.
  • Though number of properties on offer in the latest auction was only a fraction of pre-lockdown figures, sales rate has been observed to be almost similar.
  • Westpac expects 7% fall in housing prices this year, while ANZ has predicted 10-15% dip.
  • Employment opportunities, GDP growth rate and long term return on rentals to be closely monitored to further gauge the property market scenario.
  • Property Stocks seem to be holding up well.

While New Zealand is emerging as key role model in attaining early success on COVID-19, its property market has been under the scanner, with the economy surviving on its housing market comprising about half of the assets of country’s households.

The attractiveness of the space can be gauged from the fact that NZ housing and real estate is at the top end of the Asia’s popular high-priced cities in the developed countries. Notably, around 6000 to 7000 houses are sold in NZ every month equalling to ~75,000 a year.

Housing prices in the nation have been seen to increase at a faster pace than average income in the past few decades.  Let u have a look at the current property space amidst unprecedented virus induced global financial crisis, given the usual trend of properties losing value during an economic contraction.

 Are There Any Encouraging Signs In The NZ Property Space?

The Real Estate Institute of NZ (REINZ) House Price Index reflected a 1.8% fall in values since COVID-19 ravaged the economy. While National house volumes fell 78.5% year-on-year during April amid Alert level 4 lockdown scenario, volumes dipped 82.4% (4357 to 767) ex Auckland as real estate agents were not classified as essential.

Moreover, REINZ figures depicted that only 1305 houses were sold in April 2020 compared to 6082 during the same month of 2019. The data also revealed that Auckland was the least affected as its sales volume only dropped 68.8% year-on-year during April. Majority of the properties sold were in Auckland, followed by North Shore and then Manukau.

Under Alert 4, properties were perhaps sold using phone auctions or online, which resulted in drying up of the housing market.

 

 

However, Residential auction is slowly picking up as lockdown restrictions have been eased with the nation currently operating under Alert Level 2. There are some signs of activity picking up in the property space with first time buyers and investors seen to be coming out in the market.

REINZ CEO, Bindi Norwell stated that new listings coming to the property market in May and consumer confidence in relation to ongoing employment and ease with which finance can be accessed would determine the recovery. She also added that metrics like sales price to CV ratio, percentage of auctions and a median number of days would be looked at by the Institute to sell.

Notably, median prices increased 17.2% in April 2020 compared to same month in 2019 to a record high of $680,000 in NZ, while Auckland's median increased to $925,000 marking rise of 9.2% compared to last year.

Barfoot & Thompson, NZ's largest real estate company sold 30 houses during May 19- May 21 compared to 201 during the week of March 16-22, i.e. just before the lockdown started. Nonetheless, while the number of properties on offer in the latest auction was only a fraction of properties offered before lockdown, sales rate was almost similar.

The overall sales rate was 53% as per the latest auction of Barfoot compared to 48% during March 16-22 auction. Although buyers are coming out again with competitive bidding in auctions and auction number are on the rise, more time will be needed to reach sufficient numbers to understand the market scenario.

Housing Market Outlook

As per latest NZ Property focus report, ANZ has predicted 10-15% fall in housing prices in 2020 with a prevalent risk of falling more as housing market responds much more to GDP than assumed by the bank, with GDP dip expected to be in the range of 8%-10%.

The report also added that RBNZ has only limited ability to prevent housing prices from falling, but it can help in faster economic recovery. Further, downside risks persist if any fears in the financial market lead to shrinking of funding markets and credit supply.

Similarly, other banks have also anticipated a fall in house prices. Westpac has projected 7% reduction in housing prices by the end of 2020.

Some segments of the market will witness more profound drops that are localised while other areas will soften. When people postpone their decisions to purchase a property or a house, volumes turn out to be shallow and the figures are doubtful.

Employment opportunities will be the most significant factor to determine housing price performance in the months ahead as NewZealanders move from relatively small regions to big cities to search for work.

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Market Experts state that Wellington has the potential to be a strong performer as it has the highest number of government jobs. Meanwhile, agriculture intensive regions are not expected to see huge market falls while tourism-dependent areas can be pushed into uncertainty due to travel bans.

Investors are expected to shift to regions with better long-term return on rentals and that have employment opportunities. Out of town investors who invest in cheap property will have to wait for at least 18-24 months to score bargains as regional housing markets are expected to slow down and witness a drop in value.

Equity Market Scenario

Meanwhile on volatile equity market front, let's have a look at some of the property stocks that have performed well since they hit rock bottom in late March 2020.

Investore Property Limited (NZX: IPL) that leases property to big-box retailers has seen a rise in its share price by over 23% since the lockdown was first imposed in NZ on 23 March, closing at $1.71 on 22 May 2020.

Similarly, share prices of Goodman Property Trust (NZX: GMT) have risen 19% from $1.88 on 23 March to $2.24 on 22 May, while Vital Healthcare Property Trust (NZX: VHP) stock has risen 26% from March low at $2.46.

While job market situation, growth scenario, virus containment, interest rate scenario and government’ initiatives may drive the property market in near term, market experts predict that once the dust settles, the next probable boom could make NZ property space as one of the most favoured one among developed nations. COVID-19 containment success is expected to provide impetus to the economy gradually, and the future may involve more housing sales online.

 


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