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Sep 20, 2013

New Zealand's property market strong


New Zealand house prices

New Zealandís housing market remains buoyant, with economic growth healthy. During the year to end-July 2013, the nationwide median house price rose by 6.65% to NZ$385,000 (US$310,322), according to the Real Estate Institute of New Zealand†(REINZ).

All the countryís twelve regions had house price rises during the year to July 2013. Nelson/Marlborough registered the biggest house price increase, with a 14.6% y-o-y rise in July 2013. It was followed by Central Otago Lakes (13.8%), Taranaki (13.2%), Auckland (10.4%), Otago (8.4%), Caterbury/Westland (7.5%), and Wellington (6.8%).

Over the same period, there were also modest house price increases in Waikato/Bay of Plenty (2.3%), Manawatu/Wanganui (2.2%), Hawkes Bay (2%), Northland (1.25%) and Southland (0.5%).

Auckland has the most expensive housing in the country with an average price of NZ$552,000 (US$444,929) in July 2013, followed by Central Otago Lakes, with an average price of NZ$478,000 (US$385,282) and Wellington, with an average price of NZ$390,000 (US$314,352). Southland has the cheapest housing with an average price of NZ$186,000 (US$149,922) over the same period.

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

House prices started to fall in early 2008, but the decline was much less than in other countries. During 2008, house prices fell 8.94% (-11.91% in real terms). Then in 2009, house prices rebounded by 5.23% (3.21% in real terms). However in 2010, house prices fell again by 1.63% (-5.44% in real terms). The housing market recovered in 2011, with house prices rising by 2.91% (1.04% in real terms). In 2012, house prices rose by 6.52% (5.54% in real terms).

House prices in New Zealand are expected to continue rising for the rest of 2013, albeit at a slower pace, mainly due to a new rule that is expected to take effect next month which restricts the size of loans on residential mortgages.

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 Zealandīs economy is expected to expand by 2.5% in 2013, from 2.5% in 2012, 1.4% in 2011 and 1.8% in 2010, according to the IMF. In August 2013, the†RBNZ kept its official cash rate (OCR) at a record low of 2.5%, in place since March 2011.

The history of the boom

new zealand housing

From 1992 to 2001, house prices in New Zealand rose in parallel with GDP per capita. House prices grew by an average of 4.9% per year from 1992 to 2001 while GDP per capita increased by an average of 4.6% per year over the same period.

Then from 2002 to 2007 house prices began to rise faster (by an average of 12.6% per year) than income (which grew by an average of 4.8% annually).

new zealand gdp per capita

From 2008 to 2010, house prices dropped by an average of 1% annually while GDP per capita continued to grow, albeit at a slower rate of an average of 1.8% per year.

During the boom (2001-2007), the South Island registered the highest house price increases, due to the strong commodity market and tourism.

  • Christchurch, the largest city in the South Island, achieved price increases of about 104% (74% in real terms).
  • Other regions in the South Island saw even higher price rises, at around 141% (106% in real terms).

The North Island also saw strong house price rises from 2001 to 2007.

  • Wellingtonís house prices rose 79.7% (53.5% in real terms).
  • Aucklandís house price rose 77.6% (51.7% in real terms).

Other North Island provinces registered an average 102.6%% price increase (73% in real terms).

Property sales up

new zealand residential property

The total value of residential property sales in New Zealand was NZ$2.46 billion (US$2.06 billion) in May 2011, up 8.4% from May 2010. Auckland accounted for almost half of the total sales of about NZ$1.21 billion (US$1 billion) during this period.

There were about 5,766 property sales in the country in May 2011, up 10.8% from the same period last year. However, this was just 62% of the total number of properties sold in May 2007.

In May 2011:

  • In Auckland, there were a total of 2,188 property sales, up 16% from the previous year
  • In Wellington, property sales rose by 4.6% y-o-y to 573 units
  • In Canterbury, the number of properties sold was 654 units, down 9.9% from the previous year

The national median days to sell a property was 45 days in May 2011, up from 43 days in May 2010 and only 30 days in May 2007, according to REINZ.

In May 2011:

  • Auckland recorded the shortest selling period at just 36 days, down from 37 days in May 2010
  • In Wellington, the median number of days to sell was 47, up from 45 days last year
  • In Canterbury, the median days to sell was unchanged from last year at 41 days
  • Central Otago Lakes has the longest number of days to sell at 89 days

Construction activity remains weak

new zealand property

From January to May 2011, the total number of new dwelling units authorized was 4,993, down 25% from the same period last year, according to the Statistics New Zealand (SNZ). The total value of dwelling units authorized fell by 23% to NZ$1.43 billion (US$1.2 billion) over the same period.

In 2010, there were about 15,602 dwelling units authorized, up 8.2% from 2009 but still down by 15.5% from the levels attained in 2008. From 2002 to 2004, the average number of dwelling authorized was 30,000 per year. Then from 2005 to 2007, the number of dwelling authorized fell to an average of 26,000 per year.

new zealand properties

With low levels of construction activity, a housing shortfall of 14,772 units is projected during the period 2011 to 2016, based on a report published by the Department of Building and Housing.

The country needs to build more than 20,000 housing units every year to maintain sufficient housing for the growing population, claim local property analysts. However, the number of dwelling consents was below 20,000 in the past three years. "Residential consents cannot stay this low given ongoing population growth and earthquake rebuilding," said Mark Smith of ANZ Bank.

The key interest rate is likely to remain at 2.5%

new zealand interest rates

The recent downturn began when the countryís central bank, the Reserve Bank of New Zealand (RBNZ) decided to raise the Official Cash Rate (OCR) by steps to 8.25% by July 2008, from 5% in December 2003, to curb inflationary pressures. Floating mortgage rates rose to above 10%, while the 2-year fixed mortgage rate was above 9% by the second half of 2007.

However, 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.

Then the RBNZ decided to raise it by 25 basis points. In July 2010, the OCR was raised again by another 25 basis points to 3%. However, in March 2011, the key rate was slashed to 2.5% to cushion the economy after the Christchurch quake last February 2011.

Following the movements of the key rate, the floating mortgage rate dropped to 5.9% in April 2011, from 10.71% in April 2008. The three-year fixed rate slightly fell to 7.05% in April 2011, from 7.81% a year earlier.

The OCR is expected to remain at 2.5% until late 2011 despite high inflation, as New Zealandís strong currency threatens the countryís economic recovery.

About 53.9% of the total residential mortgages had floating interest rates in May 2011, up from 12.9% in May 2008. About 27.9% of all mortgages can be reset after a year, while 4.8% are fixed for 2-5 years.

The mortgage market has slowed

new zealand housing loans

New Zealandís mortgage market has expanded rapidly over the past decade. Outstanding housing loans soared 201% from 1998 to 2010, according to RBNZ figures, rising from just 55.6% of GDP in 1998, to 90.9% of GDP in 2009. However, the size of the mortgage market shrank slightly in 2010, to 88.2% of GDP .

Rents rising, rental yields moderately good

new zealand house prices

The smallest sizes of apartment in Auckland earn yields of 6% or above Ė 6.4% in the case of apartments of 55 square metre (sq. m.), according to the Global Property Guide research conducted last August 2010. In a developed economy like New Zealandís, a yield above 6% isnít bad.

Rental yields in Wellington are similar with smaller apartments yielding above 6%.
The average weekly rent for new private tenancies in the country was NZ$334 (US$280) in May 2011, a rise of 0.9% from the previous month and up 4.7% from the same period last year, according to New Zealandís Department of Building and Housing.
In May 2011:

  • In Central Auckland, the average weekly market rent rose by 6.9% y-o-y to NZ$442 (US$371)
  • In North Auckland, the average weekly rent was up 4.9% from the previous year, NZ$446 (US$374)
  • In South Auckland, the average weekly rent rose by 6.4% y-o-y to NZ$399 (US$334)

Strong NZ dollar, high deficit

new zealand exchange rate

Since the Asian financial crisis, New Zealand has 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.

In 2012, the economy grew by 2.5% from a year earlier, after GDP growth rates of 1.4% in 2011 and 1.8% in 2010. In the first quarter of 2013, economic growth slowed to an annualized rate of 2.4%, from 3.2% in Q4 2012.† New Zealandís economy did contract by 0.8% in 2008 and by another 1.6% in 2009, due to the adverse impact of the global crisis. But after five consecutive quarters of negative GDP, the economy emerged from recession with GDP growth rate of 0.1% in the second quarter of 2009, due to the strong housing market.

Because of healthy economic growth, New Zealand is attracting again permanent and long-term migrants.† During the year to June 2013, New Zealand had an overall net inflow of 7,907, in sharp contrast with a net outflow of migrants of 3,191 in the same period last year. However, the country saw a net loss of migrants to Australia of 31,246.

During the year to June 2013, the total number of visitors was almost unchanged from a year ago, at about 2.637 million people.

The†RBNZ kept its official cash rate (OCR) in August 2013 at a record low 2.5%, in place since March 2011. The central bank reiterated that it expects to maintain the OCR through the rest of the year.

Unemployment stood at 6.4% by end-Q2 2013, down from 6.8% the same quarter last year, according to Statistics New Zealand. From 2009 to 2012, New Zealandís average unemployment rate per year was 6.5%.

Inflation has slowed sharply, partly due to the impact of the strong New Zealand dollar (kiwi). In Q2 2013, the overall inflation rate eased to 0.7%, from 0.9% in the previous quarter, and 1% in 2012. From 2000 to 2010, inflation averaged 2.6% per year, according to the IMF. However in 2011, inflation rose to more than 4%, due to higher prices for petrol, housing, cigarettes, tobacco, and food.

The strength of the New Zealand dollar (kiwi) is a concern. The New Zealand dollar appreciated dramatically to NZD1=USD0.83 at the start of 2013, from NZD1=USD0.49 four years ago. The kiwi depreciated slightly to USD0.77 in August 2013, but bounced back again to USD0.81 in early-September 2013. The high New Zealand dollar handicaps exports and thus economic growth.

The country posted a seasonally-adjusted current account deficit of NZ$2.2 billion (US$1.77 billion) in Q1 2013, down from NZ$2.5 billion (US$2 billion) in the previous quarter, according to†Statistics New Zealand. In the first quarter of 2013, the countryís current account deficit fell slightly to 4.8% of GDP, from 4.9% of GDP in 2012, mainly due to a fall in imports of petroleum products.

new zealand inflation rate

New Zealandís budget deficit is expected to stand at about NZ$6.3 billion (US$5.1 billion) in the year through June 2013, down from NZ$9.24 billion (US$7.45 billion) a year earlier and NZ$18.4 billion (US$14.83 billion) two years ago, according to the Treasury.

The countryís net external debt fell by NZ$3.7 billion (US$2.98 billion) to NZ$138.7 billion (US$111.8 billion) in Q1 2013 from the previous quarter. The net external dent is equivalent to about 65.6% of GDP in 2013.

New Zealandís population is currently around 4.48 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.

Migration flows weak, bad for house prices

new zealand migration chart

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

The net inflow of permanent and long-term migration was highest in 2002, with more than 38,000 migrants, followed by 35,000 in 2003 and 15,000 in 2004. However, 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.

In the year to May 2011, the net inflow of permanent and long-term migrants was just 4,625, down 74% from the same period last year.

New Zealandís 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.

††




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