New Zealand Residential Real Estate Market Analysis 2023
Lalaine C. Delmendo | December 29, 2022
When adjusted for inflation, nationwide house prices declined 17.9% over the same period.
Auckland, which accounts for more than 30% of total property sales in New Zealand, saw the biggest y-o-y house price decline of 18.1% during the year to November 2022 – in sharp contrast to the 26.2% house price growth seen in the same period last year.
Huge house price falls were also registered in Wellington, where prices plunged by 17.4% y-o-y in November 2022, followed by Hawke's Bay (-17.2%), Manawatu/Wanganui (-8.2%), Waikato (-7.4%), and Otago (-6.2%).
Regions with modest to minimal house price declines included Nelson (-4.9%), Bay of Plenty (-3.7%), Gisborne (-3.6%), Canterbury (-3.2%), Northland (-2.7%), Taranaki (-1%), Marlborough (-0.7%), and Tasman (-0.1%).
Only the West Coast and Southland saw y-o-y house price growth of 20% and 10.5%, respectively.
“Rising interest rates, access to finance and concerns around the economy have created uncertainty in the market. Across Aotearoa New Zealand, market activity through spring has been subdued and median prices continue to soften as buyers remain hesitant,” said Jen Baird, chief executive of REINZ.
Despite the huge house price decline, Auckland remains the most expensive housing market in New Zealand, with an average price of NZ$1,065,000 (US$671,288) in November 2022. It was followed by Tasman, with an average price of NZ$869,500 (US$547,948), Bay of Plenty, with an average price of NZ$857,000 (US$540,189), and Wellington, with an average price of NZ$795,000 (US$501,000).
The cheapest housing can be found in the West Coast and Southland, with average prices of NZ$420,000 (US$264,776) and NZ$475,000 (US$299,449), respectively.
New Zealand saw spectacular house price rises of about 114% (82.5% inflation-adjusted) from 2001 to 2007. Then after a pause, there were nine further years of substantial price rises of about 155% (114.6% inflation-adjusted) from 2012 to 2021, supported by strong demand and economic fundamentals. But house prices have plummeted in recent months, amidst falling property demand.
In November 2022, property sales in New Zealand were down by 36.1% to 5,525 units as compared to 8,644 units a year ago, according to REINZ. Sales counts in all regions declined by double-digit figures in November 2022 from a year earlier.
- In Auckland, the number of properties sold was just 1,797 units in November 2022, sharply down by 43.5% from 3,182 units in the same period last year.
- For New Zealand excluding Auckland, property sales fell by 31.7% y-o-y to 3,728 units from 5,462 units a year ago. The regions outside Auckland with the biggest annual decline included Gisborne (-45.2%), Manawatu/Whanganui (-39.1%), and Wellington (-36.2%).
“In late November, the Reserve Bank of New Zealand (RBNZ) raised the OCR by a record 75 basis points to 4.25%. The central bank also forecasts a peak of 5.5% next year and predicts a further rise in inflation. The immediate effect on the real estate market was more hesitancy,” said Baird.
Nationwide, the number of days-on-market increased sharply to 41 days in November 2022 – 12 days more than the same month last year.
Over the same period, the total number of properties available for sale across the country was 28,449, up by 47.7% from a year ago. In fact, two-thirds of all regions saw an annual inventory increase of at least 50%.
The overall economy is showing signs of slowdown, with a projected economic growth of 2.3% this year, following a 5.6% expansion in the previous year, based on the recent forecast released by the International Monetary Fund (IMF).
Rental returns are poor in Auckland: range from 1.61% to 2.68%
Property prices. Typically, it costs around USD 1,203,727 to USD 2,234,192 to buy an apartment (three-bedroom) in Auckland. Three-bedroom apartments are by far the attractive property type in New Zealand because of the increase of 3-bedroom average weekly rental sales and also influenced by purchasable new builds.
Property rents. Rental rates in Auckland are relatively higher than in rents in other cities. Average rent costs from USD 2,380 to USD 3,924 per month.
Property returns. Gross rental yields on apartments in Auckland are low, with rental yields ranging from 1.61% to 2.68%.
Wellington, the capital city of New Zealand. attracts many expats too. This city is prone to earthquakes but most buildings here are earthquake-proofed, especially the new builds. One of the expat-friendly neighborhoods in Wellington is Mount Victoria where most residential properties are located. And perhaps the more city-centre like is Te Aro. There are multiple restaurants, pubs and shopping malls in this area. Last 2019, we found that rental yields on 1- and 2-bedroom houses in Wellington are around 5.5%.
Residential transaction costs for New Zealand are relatively low.
Rental income tax is high in New Zealand
Rental Income: Rental income is taxed in New Zealand at progressive rates, from 10.5% to 33%.
Capital Gains: Capital gains are not normally taxed in New Zealand.
Inheritance: There is no estate duty payable in New Zealand.
Residents: Residents are taxed on their worldwide income at progressive rates, from 10.5% to 33%.
Buying costs are relatively low in New Zealand
Total transaction costs are relatively low at 4.23% to 4.80%, of which 3.5% to 4% (plus 15% GST) goes to the real estate agent as commission. The buyer pays the registration fees while the seller pays the agent's commission. Each party pays for their lawyers. There are no stamp duties. There are only two procedures needed to register a property and each procedure takes a day to complete.
Tenant protection laws are neutral in New Zealand
New Zealand law is neutral between landlord and tenant.
Tenancy Laws: The Residential Tenancies Act 1986 guarantees the rights of both parties and sets the parameters of their relationship.
Rent: Landlord and tenant can freely agree on the rent, and any increases are allowed provided that the landlord gives sufficient notice or there has been no rent increase over the last six months. A tenant can call upon a Tenancy Tribunal for rental assessment if he thinks the increase is excessive.
Modest economic growth; soaring inflationThe NZ economy saw surprisingly strong growth of 6.4% in Q3 2022 from a year earlier, a sharp improvement from miniscule y-o-y growth of 0.3% in Q2 and 0.8% in Q1, according to Statistics New Zealand. The robust growth was mainly driven by the services sector as easing pandemic-induced restrictions boosted both domestic and international demand.
“A fair chunk of this quarter’s whopper growth is an artifact of one-off drivers: the big surge in service activity and exports driven by the opening of the NZ border,” said ASB Bank economist Nat Keall. NZ borders fully reopened on August 1, 2022, driving growth in both domestic and international travel.
On a quarterly basis, the economy expanded by 2% in Q3 2022 – more than double the initial 0.9% growth forecast for the quarter.
The NZ economy contracted by a modest 2.1% during 2020, mainly due to the negative impact of the Covid-19 pandemic, in contrast to its robust economic performance in the past decade, with growth of 2.9% in 2019, 3.4% in 2018, 3.5% in 2017, 4% in 2016, 3.7% in 2015 and 3.8% in 2014. After the Asian financial crisis New Zealand grew by an average of 3.8% per year from 1999 to 2007.
The economy expanded strongly by 5.6% last year, as economic activity gradually returns to pre-pandemic levels. NZ’s economic growth is projected at a modest 2.3% this year, as global economic uncertainty remains elevated.
The budget deficit was equivalent to about 1.3% of GDP last year, sharply down from the previous year’s shortfall of about 7.3% of GDP. For the year ending June 2022, the deficit stood at NZ$9.7 billion (US$6.1 billion), which is equivalent to about 2.7% of GDP. It was roughly half of its initial forecast of a NZ$19 billion (US$11.9 billion) shortfall in the Budget 2022.
The deficit is projected to fall to about 0.9% of GDP next year.
New Zealand’s general government gross debt surged to 50.8% of GDP in 2021, sharply up from 43.2% in 2020, 31.8% in 2019 and 28.1% in 2018. It was the highest level seen since 1993. The gross debt is expected to increase further to about 56.6% of GDP this year, according to the IMF.
Unemployment stood at 3.3% in Q3 2022, unchanged from a year earlier and the second lowest level ever recorded, according to the Statistics New Zealand. There were about 97,000 unemployed people in Q3 2022, slightly down from 98,000 a year ago.
Inflation stood at 7.2% in Q3 2022, slightly down from 7.3% in the previous quarter but still sharply up from 4.9% a year ago. The past two quarters have been the highest levels ever recorded since Q2 1990 and far above the RBNZ’s target range of 1% to 3%.
NZ Prime Minister Jacinda Ardern won a second term in office in a landslide victory during the October 2020 general elections. Ardern vowed to tackle various social issues including housing affordability and homelessness, improved healthcare, and child poverty. She won praise internationally for her handling of two major crises – the 2019 Christchurch mosque shooting, and the 2020 Covid-19 outbreak.
However, there are signs that support for Ardern is gradually waning, amidst surging prices, crime wave, and rapidly rising mortgage interest rates. In fact recently, the ruling Labour Party lost a seat in a by-election, ahead of a nationwide elections next year.