Investment PropertyTips & Advice

2018 PROPERTY MARKET TRENDS IN NEW ZEALAND

By January 21, 2018 No Comments

Auckland’s average property value rose by just 0.6 per cent during the year ending November, according to Real Estate Institute of New Zealand data. What’s more, properties nationwide took an average of one day longer to sell compared to last year, indicating that demand is indeed decreasing.

On the other hand, property prices throughout NZ’s other regions rose at a far higher rate, and some factors suggest 2018 may see the property market continue its strong growth. So, with an eye to the New Year we ask – what’s next for New Zealand’s property market?

HOUSING SUPPLY TO RISE AT RECORD RATES
44,044 new homes will be consented throughout the country in the New Year.

New Zealand is in the grips of a housing supply shortage that is widely considered to be one of the drivers behind price increases. However, Infometrics data forecasts suggest that may begin to change over 2018.

In fact, dwelling consents are predicted to reach record levels next year after increasing by 39 per cent during the two years to June 2018. This means 44,044 new homes will be consented throughout the country in the New Year, an amount that will certainly put a dent in demand.

Despite that the undersupply problem won’t be fixed after one good year, which means these levels of building to continue through to 2019 and beyond. Auckland, for example, has a shortfall of 32,000 homes and a rapidly increasing population.

Despite that fact, Infometrics has forecasted an 11 per cent drop in house prices nationwide over the two years to September 2019.

GOVERNMENT POLICY TO HELP MODERATE PROPERTY MARKET

One of the new Labour Government’s election promises was to bring housing price inflation under control by building more affordable homes and regulating investment. The most significant of their promises include:

Banning foreign speculators from buying existing properties: this has been legislated in a round about way by classifying existing residential property as sensitive land and requiring foreign residents apply to purchase it. It’s important to note this is a not a ban as such – it just makes buying these properties more difficult for foreigners who now have to satisfy certain criteria.
Ringfencing property losses from other taxable income: this will prevent investors from using losses from property investment to offset tax on other income and should reduce investment demand.
Extending the Bright Line rule: property investors are now required to pay tax on profits if they sell their investment properties within five years (extended from two years).
New Zealand’s property market is complex, so it’s impossible to predict the exact effects these new laws will have. However, it’s likely that the net effect will be to decrease demand for property, at least in the short term.

INTEREST RATES TO RISE AND LVR LIMITS TO CHANGE
The Reserve Bank could rise the Official Cash rate as soon as mid to late 2018.

The Reserve Bank could rise the Official Cash rate as soon as mid to late 2018 if forecasts by the OECD and Infometrics data are to be believed. In anticipation, it’s likely that banks will start increasing consumer interest rates in the near future, continuing these increases through to the end of next year.

In cities like Auckland, where mortgage repayments constitute a large proportion of household income, these increases could further tamper demand for property.

Perhaps in anticipation of these changes – LVR limits will ease slightly from January 1, making it easier for owner-occupiers and investors to borrow a higher percentage of their properties.

This could work to counter the effects of rising interest rates, however, it’s likely that the fundamentals of Auckland and New Zealand’s markets will change as interest rates do. These changes (amongst others) will place further downward pressure on property prices.

NEW RENTAL LAW TO COME INTO EFFECT
New legislation will come into force midway through 2018 aiming to improve tenants rights.

On a more positive note new rental legislation will come into force midway through 2018 aiming to improve tenants rights. These changes will mandate that landlords may only increase rents once a year, as well as extending the notice period required for eviction.

Furthermore, all rental properties must, by law, be insulated by July 2019. Expect landlords around the country to finish bringing their properties in line with these laws throughout next year, and early the following year.

As a whole, this legislation means more rights for tenants, as well as a healthier warmer rental housing stock. On the other hand, it could also mean more costs for investors, which could tamper investment demand and potentially decrease the supply of available rentals.

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