Factors Influencing the Property Market
Winter is taking hold of New Zealand, but it hasn’t cooled down the Auckland property market just yet. Below I take a view of the current factors influencing the property market:
- 30%, Deposit Rule. Did you know that as of 1st October 2015, investors in the Auckland property market will need a 30%, deposit? In my opinion this will have an effect in slowing down the property market. It should slow down the housing market, even if only for a little while as people review the effects of this measure, but how big is yet to be seen. Neighbouring regions may well see an increase in property prices as investors start looking beyond Auckland – both Tauranga and Hamilton are likely candidates.
I also suspect an increase in apartment values as people who cannot afford to buy in the Auckland property market look to purchase anywhere they can. However, there will still be investment in the Auckland property market, as most property owners who are looking to buy a second investment property already have a lot of equity in their property now, which they can use to fund the 30%, deposit.
- High Demand, Low Supply. The well published supply and demand problems are not going to be resolved anytime soon. Since 1st January 2015 until now, a staggering 48,266 migrants have arrived in Auckland, many of whom will be looking for places to rent or buy. The Productivity Commission produced forecasts showing Auckland's housing shortage of 25,000 homes will balloon to 60,000 by 2020, even with the most optimistic forecasts.
Also take into account all of the politics and red tape which will be slowing down the process, along with the simple fact that we don’t have the capability to build at the speed we need. Therefore I suspect that prices will at least continue to hold their value, if not continue rising.
- Low interest rates. The low interest rates are certainly working out in favour of property investors and first home buyers. You can get a 5yr fixed rate for around 5.5%- meaning you can lock in security for 5 years, and if you can a get a rental yield to close to 5%, then you won’t have to top up your mortgage too much. In addition, the low interest rates can also help first home buyers, because they are allowed to borrow more money and get on the property ladder sooner.
Keep in mind that one of the causes of the lower interest rates is a weaker than expected GDP growth, which will have a knock-on effect for our “rock star economy.”
- Foreign investment. That’s the big elephant in the room that many politicians shy away from talking about. Foreign investment has had a significant impact on the housing market, and reports are starting to appear that it could grow even bigger. This is a complex issue and will not be resolved soon either. The new measures imposed by the Reserve Bank will help but I’d suspect not enough.
I am currently recommending that my clients wait for the OCR announcement on the 23rd of July before locking in rates. We don’t expect a big movement in the fixed rates but if there is a reduction in the OCR then you could find slightly lower fixed rates.
As always give me a call if you have any questions in regards to rates or investment.
0211 9444 24