PHOTO: Head of Research Nick Goodall | CoreLogic
Best of the Best NZ 2019 Summary with CoreLogic Economist – Kelvin Davidson:
· 2019 will go down as another intriguing year for the NZ residential property market, with a key focus on new government legislation – whether actually enacted (e.g. tax ring-fencing for rental property losses) or not (capital gains tax)
· Sales volumes ticked along & prices have generally risen (with Auckland a notable exception) and are set to be around 90,000 for 2019 as a whole, a touch above the decade average of about 88,000, but well below recent cyclical peaks of about 110,000 in 2015-16.
· Tentative demand was a key factor behind relatively subdued sales activity this year. However, part of the explanation has simply been a lack of listings and tight supply of property on the market in most parts of the country – you can’t buy what’s not for sale.
2019 Key Takeouts:
- Property value growth across NZ as a whole eased in the first half of 2019 and hit a lull of 2.0% year-on-year in June (with Auckland dipping to -2.7% in the same month) and has since rebounded to 3.3% (November), with Auckland having turned a corner.
- Apart from Christchurch (which is still relatively flat), most of the other main centres have moved along steadily in 2019, with Dunedin the stand-out star – values there are now 17.1% higher than a year ago, after strong growth in 2016, 2017, and 2018 as well. Value growth is generally solid outside the main centres too
- First home buyers still hold a decent presence (about 24% of purchases lately), the key shift has been mortgaged investors (especially the smaller ‘Mum and Dad’ players) returning to the market strongly in the past 3-6 months, and their presence seems to have a played an important role in the rebound for property value growth.
- Scrapping of the capital gains tax proposals, the start of an upswing for property rents and yields, as well as low returns on alternative assets (e.g. term deposits), have all been factors behind the rising share of purchases by mortgaged investors.
So what lies ahead in 2020?
- The factors that have brought investors back to the market over recent months seem unlikely to fade as we move into 2020 – indeed, it could shape up as the ‘year of the investor’. At the same time, the wider economy looks set to continue to grow steadily next year as well, with unemployment staying low and migration high.
- There could well be a ‘window of opportunity’ for mortgage activity across the first 6-9 months of next year too, with serviceability testing more favourable for borrowers, the banks still competing strongly, and mortgage rates very low. The combination of solid underlying demand and better access to credit bodes well for the property market for at least the first half of next year.
- As we get in the second half of 2020, however, the requirement for banks to start increasing (from 1st July) the amount of capital held on their balance sheets may begin to put some upwards pressure on mortgage rates and/or start to tighten the supply of finance. The General Election (to be held no later than 21st November) could also create some uncertainty.
- After an expected total of around 90,000 sales in 2019 as a whole, activity could improve again in 2020, to about 95,000.
- For values, after an anticipated nationwide increase of about 3.5% in 2019, it wouldn’t be a surprise to see growth of at least 5% in 2020, as ‘provincial NZ’ continues to see rising prices, and the main centres tick higher too.
Overall, Kelvin is ‘cautiously optimistic’ about 2020 and predicts a rise sales and values.
“Against that backdrop, however, anybody associated with the residential property market needs to be aware of what’s going on in the insurance sector, with the move to risk-based pricing for buildings policies.
“This is causing large premium increases for riskier areas (e.g. prone to flooding), and buyers need to assess insurance early in the process rather than just before they go unconditional.”