By the end of 2019 the NZ property market was showing signs of improvement – one needed only to have attended a pre-Christmas auction to notice the stark contrast in mood as previously indifferent buyers appeared now excited and confident to freely ‘bid away’.
The turn in sentiment can be traced back to April 2019 when the coalition government decided to abandon a general capital gains tax as proposed by the TWG. Since April, monthly house sales have risen steadily to be around 13% higher in November 2019; even house sales in Auckland have rebounded 30% to around average levels.
House prices also shifted up a gear, supported by record low interest rates, with Auckland posting seven consecutive monthly increases and fully recouping the prior two years’ worth of losses.
CoreLogic Senior Property Economist, Kelvin Davidson noted recently that the solid economy – especially low unemployment – and favourable mortgage rates were playing a key housing market role too.
At ASAP, much of the above confirms trends we have already seen through the numerous developments funded throughout the course of the year. Demand for well-located and thoughtfully designed properties remains high and clients who have adhered to these simple principles have been able to sell down stock quickly and often above initial price expectations.
Higher density developments such as terraced townhouse projects continue to represent the bulk of our development finance applications at ASAP; not entirely surprising given the high demand we continue to see at the affordable end of the market. In fact, the sector has proved somewhat of a safe haven over the past few years during periods of lacklustre activity at the premium end of the market. With land prices at elevated levels and affordability at the forefront of everyone’s mind, we expect sustained focus on high density projects over the coming year.
Looking ahead to 2020, most major trading banks are estimating rosy conditions to continue with calls for property prices to increase between 5.0-7.0% including ASB and Westpac who both recently revised their estimates upward to 6.5% and 7.0% respectively. What appears to be clear is that the market is being driven by the fundamentals of supply and demand rather than speculators, which was a feature of the last upward cycle.
The Reserve Bank’s decision in December to increase capital reserve ratios, whilst less severe than banking pundits predicted, is anticipated to further tighten credit conditions whilst its decision to leave existing LVR restrictions unchanged should continue to keep a lid on the speculative market.
What remains to be seen is how the coalition government will respond in the build-up to the General Election and whether a new round of ‘regulation’ will give rise to a pause in market activity.