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Feb 16, 2015

New Zealand's property market still robust


 

New Zealand house pricesNew Zealand’s housing market is still strong, but interest rates are moving up.

Nationwide median house price rose 5.4% during the year to end-December 2014, (+2.91% inflation-adjusted) to NZ$ 450,000 (US$ 333,324), according to the Real Estate Institute of New Zealand (REINZ).  However during the latest month prices declined 1.3% month-on-month.

Of New Zealand´s 12 regions, Canterbury/Westland had the biggest house price rise with a 16% y-o-y rise, followed by Auckland (13.0%) and Wellington (3.8%). House prices rose in all twelve regions during the year.

Housing in New Zealand is now really expensive for a country with such a small population relative to its landmass. 

Auckland has the country´s most expensive housing with an average price of NZ$ 670,000 (US$ 500,017), followed by Central Otago Lakes, with an average price of NZ$ 535,000 (US$ 386,849) and Wellington, with an average price of NZ$ 425,000 (US$ 307,310).

Properties are selling fastest in Auckland. with a 29 days-to-sale average in December 2014 (up from 28 days in December 2013).  In Wellington, the median number of days-to-sale was 35, up from 29 days last year. In Canterbury, the median days-to-sale was unchanged at 29 days, up from 27 days in December 2013.

Northland Region has the longest number of days to sell, at 59 days.  Nationwide, median-days-to-sale held steady at 32 days in December 2014, unchanged from last year. 

One reason for the strong house price rises is the rapid expansion of New Zealand´s economy, which grew 3.20% in 2014, up from 3% in 2013, 2.7% in 2012, and 1.4% in 2011, according to HSBC. The Treasury expects 2.3% growth this year.

A second reason for strong house price rises is low interest rates, and a third is high immigration.

Non-residents are generally allowed to buy houses in New Zealand. However, purchase of property does not give the buyer the right to live permanently in the country.

New Zealand´s property cycle

House prices started to fall in early 2008, but the decline was much less than in other countries:

  • In 2008, house prices fell 8.94% (-11.91% in real terms).
  • In 2009, house prices rebounded by 5.23% (+3.21% real).
  • In 2010, house prices fell again by 1.63% (-5.44% real).
  • In 2011, house prices rose by 2.91% (+1.04% real).
  • In 2012, house prices rose by 6.52% (+5.54% real).
  • In 2013, house prices rose by 9.8% (+7.17% real).

The current housing recovery really started in 2012. Since then prices have been zooming up, causing anxiety at the Reserve Bank of New Zealand (RBNZ), the country’s central bank. 

New Zealand gdp per capita

During the previous housing boom from 2001 to 2007, house prices in New Zealand rose 123% (87% in real terms, i.e. after inflation), including 24% in 2003, 12.5% in 2004, 14.5% in 2005, 9.6% in 2006, and 7.7% in 2007.

There were about 1.78 million private dwellings in New Zealand in 2014, 64% of which were owner-occupied.  In the third quarter of 2014, the total value of housing stock in New Zealand stood at NZ$ 745 billion (US$ 538.8 billion), up by 4.5% from the same period last year, according to the RBNZ.

Property sales surging

The number of property sales was up 24.2% in December 2014 from the same month last year, or up 15.7% by value.

New Zealand property sales

In December 2014:

  • In Auckland, sales were up 24% from the previous year
  • In Wellington, sales were up 33% y-o-y
  • In Canterbury, sales fell 16% y-o-y

Residential construction up - but nowhere near the boom years

Total new dwellings authorized were up 20.6% from January to December 2014, to 14,984, according to the Statistics New Zealand (SNZ). 

New Zealand dwellings

From 2006 to 2008, the average number of dwelling authorized was 23,500 per year. Then from 2009 to 2011, the number of dwelling authorized fell to an average of 13,000 per year.

Key interest rates creeping slowly up

New Zealand mortgage interest

In December 11, 2014, the RBNZ left the official cash rate (OCR) unchanged at 3.5%.  “We expect the Reserve Bank to remain on hold for another 12 months and as a consequence, we do not expect the floating rate to change over 2015”, says ANZ Property Focus.

The average floating mortgage interest rate was 6.6% in November 2014, up from 5.8% a year earlier, according to the RBNZ, and the two-year fixed mortgage interest rate increased to 6.2% in November 2014, from 5.9% the same month last year.

After a period of rising interest rates beginning in 2003, in July 2008 the RBNZ dramatically reversed gear. By April 2009 the key rate was down a record low 2.5%, where it remained until May 2010.

In May 2010 the RBNZ raised the key rate by 25 basis points, and again by another 25 basis points to 3% in July 2010. However, in March 2011, the key rate was cut to 2.5% to cushion the economy after the Christchurch quake of February 2011. Until February 2014, the RBNZ left the OCR unchanged at 2.5%. However in July the RBNZ increased the OCR to 3.5%, where it is now.

In November 2014, total residential mortgage loans increased by 4.5% y-o-y to NZ$198 billion (US$143 billion), based on figures from RBNZ.

Rental yields are excellent in Auckland

For a developed economy like New Zealand, the yields available are exceptionally attractive.

Apartments in Auckland earn yields of from 5.4% to 9.1%, according to Global Property Guide research conducted last August 2013.  The key to getting good yields is smaller apartments, which earn much more than large apartments. 

Even in Wellington, apartment gross yields are above 6% for all sized of apartments that we have looked at.

The average weekly rent for new private tenancies in the country was NZ$ 400 (US$ 297) in December 2014, up 5% from the same period last year, according to New Zealand’s Department of Building and Housing.

  • In Central Auckland, the year ended with an average weekly market rent of NZ$ 450 (US$ 334), the same level as a year ago
  • In North Auckland, the average weekly rent was up 5% from the previous year, NZ$300 (US$ 223)
  • In Bay of Plenty, the average weekly rent rose by 13% y-o-y to NZ$ 340 (US$ 252)

Migration flows at a new peak

New Zealand is attracting again large numbers of permanent and long-term migrants, because of healthy economic growth.  In December 2014, total permanent and long-term arrivals were up by 16% to 109,300 people, from 94,000 the same period last year.

New Zealand migration

New Zealand’s net migration rose to 49,800 in 2014 - its highest-ever level - up from 19,500 in 2013.  The previous highest net inflow of permanent and long-term migrants was in 2002, with more than 38,000 migrants, followed by 35,000 in 2003 and 15,000 in 2004.

Net migration was just 3,800 in 2008, which was attributed to a weak economy and low employment opportunities. In 2009, net migration increased again to 21,300 but plunged to just 10,500 in 2010.

International migrant flows have a significant impact on house price movements and construction activity in New Zealand. The housing boom of the early-2000s was strongly associated with strong immigration.

Inflation gdp inflation

In December 2014, the total number of visitors increased by 5% from the same period last year, to more than 402,500 people, according to Statistics New Zealand, having increased the previous year by 5% y-o-y.

New Zealand’s population is currently around 4.4 million, according to Statistics New Zealand, up from about 4 million recorded in the 2006 census. With a growth rate of 1% per year, population is projected to reach 5 million in 2020.

Economic growth strong in 2014 and 2015

New Zealand´s economy grew around 3.5% in 2014, up from 3% in 2013, from 2.7% in 2012, 1.4% in 2011 and 1.9% in 2010, according to HSBC.  

The government´s Half Year Economic and Fiscal Update shows the economy expanding 3.6% over the year to March 2015, and at an average of around 2.3% per year thereafter, according to The Treasury.

Since the Asian financial crisis, New Zealand experienced years of unbroken economic growth boosted by strong personal consumption. The economy grew by an average of 3.8% per year from 1999 to 2007.  During the global crisis the economy contracted briefly and mildly - by 0.8% in 2008 and by another 1.6% in 2009 - but New Zealand emerged swiftly from recession after only five quarters of negative GDP.

Unemployment fell to 5.4% in the third quarter of 2014, the lowest level since Q2 2009, according to the RBNZ. From 2009 to 2012, New Zealand’s average unemployment rate was 6.5%.

New Zealand´s economy is strong. A possible concern is the current account deficit of 2.8% of GDP for the year ended March 2014. High current account deficits tend to be a signal of economic overheating.  However this deficit is actually down from the previous year´s 3.9% of GDP, according to Statistics New Zealand. 

The deficit is no doubt related to the strength of the New Zealand dollar (Kiwi), which appreciated dramatically to NZD 1=US$ 0.8697 in July 2014, from NZD 1=US$ 0.71 four years ago.  Due to the strong US economic recovery, the Kiwi has since depreciated slightly against the surging US$.

New Zealand exchange rate

New Zealand’s net external debt is low, at about 26.5% of GDP (2014-2015).

Inflation was 0.8% in the fourth quarter of 2014, down from 1.6% in Q2 and 4% in 2011. From 2000 to 2010, inflation averaged 2.6% per year, according to the IMF.  

Mortgage market still shrinking


New Zealand housing loans

The mortgage market soared from just 55.6% of GDP in 1998, to 90.9% of GDP in 2009, but then fell back to 88.2% of GDP today.

 





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