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Bayleys January Market Round-Up

Following more than two months without COVID in our communities, the virus has breached control measures and Aucklanders remain on high alert following new community cases.

Despite this, market commentators are saying New Zealand’s economy is in good shape to weather another lockdown phase should community infection warrant it.

With data from the Real Estate Institute of New Zealand (REINZ) showing average residential property values have risen nearly 12 percent in the four months to December 2020, it is evident that monetary policy has turbocharged asset-prices, and we expect to see housing affordability remain a key issue for the government throughout 2021.

Further policy announcements around housing are expected come March, of particular note, Bayleys expects to see the Bright-Line Test extended from five to 10 years with greater support for residential property developers as the government attempts to build at scale and pace.

A popular scapegoat for rising house prices, property investors are again in the spotlight as they prepare for the second phase of the Residential Tenancies Amendment Act to take effect.

A swathe of amendments will make an impact, the most notable being from February 11 landlords will no longer be able to terminate a tenancy without cause.

Fixed-term tenancy agreements will also automatically roll over to become periodic tenancy agreements if no prior arrangement has been made between the tenant and the landlord.

Tenants will also have greater scope to make minor changes to the property.

Where lobby groups have criticised the changes, saying they will in effect cause investors to cash-in on their assets, removing vital properties from the rental pool, we are yet to see anecdotal evidence of a mass exodus.

However, the tenancy reforms coupled with the return of loan-to-value ratios for investors come March 1, could indeed have an impact on the willingness of investors to continue to comply with the targeted policy.

Previous efforts by policy-makers to curb property investor activity have failed to have a significant impact on value growth, historically initiating a short but temporary dip in the group’s market share.

With this in mind, 2021 is expected to see property prices across the country continue on an upward trajectory, encouraged by record low interest rates, substantial fiscal support, rising confidence, re-emerging employment opportunities, and the attention of a captive Kiwi audience seeking something greater than term deposit returns.

In-depth reports:

ANZ Bank’s latest Property Focus report expects house prices will remain high profile over 2021 with cooling measures in the pipeline. The biggest challenge, it seems, is for policy-makers striking a balance between economic stimulation and the long-term social impact of inflating asset prices to keep the economy afloat. While presently this underpins housing inflation, a degree of bank caution is anticipated in the next 12-months as long-term risks of rising unaffordability become more apparent.

CoreLogic’s January House Price Index noted near-record growth across the country which is attributed in-part to tight inventory and demand that outweighs supply. Interestingly, the report notes the regions with a lower average value have a higher proportion of eligible purchasers - leading to increased competition and stronger growth in locations such as Gisborne Whanganui and Masterton.

Meaningful changes to the way property investors manage their tenants will be in force from February 11. Set to offer greater security to Kiwi renters, residential tenancy reforms have the potential to create greater community engagement and a better standard of living for some 1.5 million New Zealanders that rent their homes.

Topical articles:

Latest data from property platform shows the number of available properties for sale is at a 13-year low. Just 12,932 residential properties were listed on the website for sale during December 2020, down nearly 30 percent on the same period a year earlier. A shortage of available supply continues to impact the residential property market, leading to greater competition for quality properties which is expected to last until supply issues are addressed.

In his analysis of housing cycle peaks in 1987, 1996, 2004 and 2015, independent economist Tony Alexander highlights the enormous role interest rates play in providing an impetus for residential investment. This, coupled with rate cuts to term deposits and a fear of missing out, continues to contribute to an environment where present market momentum is expected to remain through quarter one 2021.

Market commentator Ashley Church says the scale of Kiwi wealth associated with residential assets makes the country wealthier and rising values are a good thing. Given previous market cycles and the inability of policy to have an impact on housing inflation, he maintains a market crash is unlikely.

“Every measure” shows existing homeowners are significantly better off in’s latest Home Loan Affordability Report. However, the report highlights a growing inequality between homeowners and active first home purchasers. Where interest rate cuts have pushed down mortgage payments, they have also had an immediate effect on residential values, making it more difficult for first home buyers to gather a deposit.

• With news that ANZ Bank has joined Westpac in its 2.29 percent one-year fixed special rate, more mortgage rate cuts are expected to spur housing market activity. For borrowers putting their best foot forward in an over-saturated environment, lenders say it’s necessary to prove low-risk to the bank by demonstrating a stable income, good spending habits and selection of a quality investment.

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