June 2017 Property Market Update

TOP END STABLE

Despite a widely-reported cooling of the Auckland market, sales remain as strong as ever in the high end North Shore areas of Milford, Takapuna and Campbell’s Bay.

Auckland is in a transitional period of consolidation. We’re coming off a peak, the result of sustained growth over several years. During this period, rapidly increasing immigration numbers and New Zealanders moving to Auckland to live helped make properties, especially in the lower to mid-range - those between $1 million and $3 million - become hugely popular. However, the Reserve Bank’s new rules around LVR and deposit lending have seen diminished demand at this level.

QV’s latest report shows more properties listed for sale, but buyers are being more picky. Properties with undesirable features or outstanding maintenance are sitting around for longer. The Reinz house price index shows North Shore values have risen by 16.4% in the past 5 years but that growth has slowed over the past month.

Sales volumes have dropped and auction rates have fallen quite dramatically with more buyers adding conditions to sales transactions. Consequently, Auckland has switched to become a buyers’ market. It’s interesting to note that record prices are still being achieved for well-positioned and well-maintained properties.

COASTAL STRIP UNIQUE

I’m seeing that in the North Shore’s high-end coastal areas which values remain stable with high prices for unique, quality properties.

As the residential specialist in this highly desirable, prestige coastal strip, I have personally sold about 25% of the $109 million of real estate transacted in these areas, most of which are not even visible on the open market. This year alone I have sold five homes over $4 million and one over $5 million.

I also closely track all property for sale in this area. So, I am well-aware of what is happening in this unique market. I assure, there is still good demand for high quality, well-located homes. However, as finance and the market tighten, the need for a specialist negotiator is key to achieving a good result. Being able to negotiate a deal face to face is paramount at the upper end.

GROWTH CERTAIN

My view is that properties located along the Golden Mile and Seaward side of the Shore and lakefront areas in Milford and Takapuna will always be in huge demand and their value remains steady. Compared to waterfront properties in places like Sydney, Auckland represents great value. Earlier this month, a historical Fairfax mansion in Point Piper sold for NZ$76 million. And in January, prominent NZ luxury car salesman Neville Crichton sold his Point Piper mansion for NZ$62.8 million. That’s despite a weakening overall market similar to that in New Zealand. Australia’s property values dropped 1.1% in May. I believe, because of our global appeal as a safe haven from potential turmoil, our top property still has a lot of growth.

LOOKING AHEAD

So where is the market headed? Economists are predicting an interest rate rise of around 2% over the next 2 years. It will be gradual. With the end of the world’s 8-year experiment in quantitative easing – banks will gradually tighten their lending. Quantitative easing is an interventionist regime that adds more funds to the economy where a central bank purchases government securities to lower interest rates and increase money supply. It does this by flooding financial institutions with capital to promote increased lending and liquidity.

Our Reserve Bank has already announced a capital review in the wake of the changing regulatory environment. And banks are pulling back on high gearing because they’re not willing to take so much risk. This will gradually rein in Auckland’s housing market.

Of course, that has to be counterbalanced with an ongoing lack of supply. There is a huge shortage of houses in Auckland. The Unitary Plan is now in place to build 410,000 houses over the next 23 years. But if you think prices are high now and that they must fall – I’d be very sceptical.