New Zealand’s property market buoyant
Last Updated: October 17, 2012
Residential property prices in New Zealand have continued to rise in the third quarter of 2012. The national housing median price rose by 6% to NZ$371,000 (US$304,168) during the year to September 2012, according to the Real Estate Institute of New Zealand (REINZ).
Locally, Southland registered the biggest annual house price increase, with a 17% year-on-year (y-o-y) rise in September 2012. Districts which also recorded strong annual house price rises include Central Otago Lakes (14.4%), Auckland (8.4%), and Nelson/Marlborough (8.3%).
There were also modest house price increases in Canterbury/Westland (5.9%), Wellington (5.3%), Waikato/BOP (3.5%), Manawatu/Wanganui (3.2%), Taranaki (2.4%), and Otago (2.2%).
Only two districts recorded house price falls. House prices fell in Hawkes Bay (-2.9%) and Northland (-1.5%) during the year to end-September 2012.
Auckland has the most expensive housing in the country with an average price of NZ$515,000 (US$422,228) in September 2012 while Southland has the cheapest housing with an average price of NZ$200,000 (US$163,972).
This was supported by data released by the government valuer Quotable Value Ltd., showing the national residential property price index increased by 5.3% during the year to end-September 2012. Over the same period:
- In Auckland Area, the average sales price soared 7.2% to NZ$575,797 (US$472,073)
- In Wellington Area, the average sales price rose 2.3% to NZ$445,679 (US$365,394)
- In Main Urban Areas, the average sales price increased 6.1% to NZ$478,404 (US$392,224)
- The nationwide average sales price is now NZ$428,308 (US$351,153).
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, as the global crisis spread to New Zealand. During 2008, house prices fell 8.95% (-11.93% in real terms). Then in 2009, house prices rebounded by 5.42% (3.4% in real terms). However in 2010, house prices fell again by 1.65% (-5.45% in real terms). In 2011, house prices recovered slightly, rising by 2.8% (0.93% in real terms).
The median days-to-sell of dwellings declined to 33 days in September 2012, from 37 days a year earlier, and total dwellings sold increased by 8%, to 5,356 units. Residential mortgage loans were up 3.2% y-o-y, according to the Reserve Bank of New Zealand (RBNZ). More than 58% of the total outstanding residential mortgages had floating interest rates in August 2012, up from just 12.36% in August 2007.
Property prices are expected to continue rising. "With the strong, sustained period of growth recently, and the typical expected lift over the coming months, property values are not expected to slow," said Kerry Stewart of Quotable Value, Ltd. New Zealand’s economy is projected to expand by 2.2% in 2011, and 3.1% in 2013, partly due to the rebuilding plans in Canterbury, according to the IMF.
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.
The history of the boom
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).
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.
- Wellington’s house prices rose 79.7% (53.5% in real terms).
- Auckland’s 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
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
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.
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%
The recent downturn began when the country’s 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 Zealand’s strong currency threatens the country’s 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’s 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
The smallest sizes of apartment in Auckland earn yields of 6% or above – 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 Zealand’s, a yield above 6% isn’t 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 Zealand’s 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
The strength of the New Zealand dollar, coupled with mounting budget deficit, is hindering a solid economic recovery. The strength of the New Zealand dollar (kiwi) is also a concern. From NZD1=USD0.5151 in February 2009, the New Zealand dollar has appreciated dramatically to NZD1=USD0.8174 in September 2012. The high New Zealand dollar handicaps exports and thus economic growth.
In the second quarter of 2012, the country posted a seasonally-adjusted current account deficit of NZ$2.9 billion (US$2.38 billion) in Q2 2012, up from NZ$2.6 billion (US$2.1 billion) in the previous quarter, according to Statistics New Zealand. For the year ending June 2012, the country’s current account deficit amounted to 4.9% of GDP, up from about 4.5% of GDP recorded in a year earlier.
New Zealand’s budget deficit was NZ$9.24 billion (US$7.58 billion) in the year through June 2012, wider than earlier forecast, according to data released by the government.
Inflation rose to 2.4% in the year to September 2012, based on TD Securities-Melbourne Institute Monthly Inflation Gauge. From 2000 to 2010, the overall inflation rate averaged 2.6% per year, according to the IMF. However in 2011, inflation rate in the country rose to more than 4%, due to higher prices for petrol, housing, cigarettes, tobacco, and food.
Migration flows weak, bad for house prices
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 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.
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