Buoyed by ultra-low interest rates
Lalaine C. Delmendo | January 29, 2022
When adjusted for inflation, house prices rose by 18.56% y-o-y in November 2021.
Auckland, which accounts for about 30% of total property sales in New Zealand, saw a house price growth of 26.2% during the year to November 2021.
The highest price increase of all was in the West Coast, where prices surged 42.9% y-o-y to November 2021, followed by Canterbury (31.4%), Gisborne (29.2%), Waikato (27.6%), Northland (26.5%) and Taranaki (26.2%). There were also double-digit house price hikes in Hawke's Bay (25.8%), Manawatu/Wanganui (24.8%), Wellington (21.8%), Bay of Plenty (20%), Marlborough (19.5%), Otago (16.1%), and Tasman (14.9%). House prices also increased in Nelson and Southland, by 9.9% and 9.6%, respectively.
“The market has settled back into its stride — returning to business as near-usual across the board. November shows an active market where property prices continue to increase, stimulated by demand as New Zealand prepared to leave Alert Levels behind,” said Jen Baird, chief executive of REINZ.
Auckland has the most expensive housing in New Zealand, with an average price of NZ$ 1,300,000 (US$889,459) in November 2021. It was followed by Wellington, with an average price of NZ$ 962,500 (US$658,542), Bay of Plenty, with an average price of NZ$ 900,000 (US$615,780), and Tasman, with an average price of NZ$ 890,000 (US$608,938).
Even coronavirus has not been enough to stop this strong growth. Housing in New Zealand has become really expensive, for a country with such a small population relative to its landmass.
The cheapest housing can be found in the West Coast and Southland, with average prices of NZ$ 350,000 (US$239,470) and NZ$ 435,000 (US$297,627), 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 2012-2021, supported by strong demand and economic fundamentals.
Demand remains strong. In November 2021, property sales in New Zealand were up 12.4% from the previous month but down 18% from a year earlier, according to REINZ - yet it remains the second-highest November month sales since 2006 – the highest was November 2020.
- In Auckland, the number of properties sold reached 3,102 units in November 2021, up 16% from the previous month but down 19.6% a year ago.
- For New Zealand excluding Auckland, property sales fell 17% y-o-y to 5,279 units but it was the highest sales count since April 2021.
Nationwide, the number of days-on-market remained steady at 29 days in November 2021 from a year ago, according to the REINZ.
“Inventory levels across New Zealand increased 5.1% from November 2020. Good news for buyers who will benefit from greater choice. While the uptick is welcome, when the amount of inventory is compared to the number of sales, we see eleven of the sixteen regions have 10 or less weeks of inventory available, suggesting that supply-side pressure on prices remains,” said Baird.
New Zealand's economy contracted by a modest 2.1% during 2020, in contrast to its robust economic performance in the past decade, with growth of 2.2% in 2019, 3.2% in 2018, 3.8% in 2017, 4.2% in 2016, 4.1% in 2015 and 3.2% in 2014. The economy is expected to grow by 5.1% in 2021, according to 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.
NZ economy recovering; unemployment fallingThe NZ economy contracted by a modest 2.1% during 2020, in contrast to its robust economic performance in the past decade, with growth of 2.2% in 2019, 3.2% in 2018, 3.8% in 2017, 4.2% in 2016, 4.1% in 2015 and 3.2% in 2014. After the Asian financial crisis New Zealand grew by an average of 3.8% per year from 1999 to 2007.
New Zealand’s economy is believed to have grown by 5.1% in 2021, according to the International Monetary Fund (IMF). The country’s budget deficit only amounted to NZ$4.6 billion (US$3.15 billion) during the 2020-21 fiscal year (which ended last June 2021), compared to the government’s projected shortfall of NZ$15.1 billion (US$10.33 billion). The better-than-expected results were due to higher revenues and lower expenditures as economic activity rebounded strongly and unemployment continued to fall.
The budget deficit is now equivalent to about 1.3% of GDP, sharply down from the previous year’s shortfall of about 7.3% of GDP. However New Zealand’s general government gross debt surged to 43.6% of GDP in 2020, sharply up from the previous year’s 32% and the highest level seen since 1994, according to the IMF.
Unemployment fell to an all-time low of 3.4% in Q3 2021, down from 5.3% a year earlier, according to the Statistics New Zealand. There were about 98,000 unemployed people in Q3 2021, sharply down from 151,000 in Q3 2020.
Inflation accelerated to 4.9% in Q3 2021, far higher than the previous year’s 1.4% and the highest level since Q2 2011. The current inflation is now 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 campaigned on 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.
While poll results show that PM Ardern remains far ahead of any of her opponents, her popularity has significantly dropped recently amidst changes in the country’s pandemic fortunes. After more than a year of keeping the coronavirus out of the country, the government is now struggling to contain new strains of Covid-19.