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Market update - autumn 2024

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One of the most common questions our residential sales team members are asked week-in/week out, is their views on what are we expecting to see in the Lower South Island’s property markets this year across the districts.

Well, going back to the basics which have dictated residential real estate trends for many decades, the property market is essentially driven by three fundamental factors – employment levels, interest rates, and immigration numbers.

Covering off these individually:

Employment is still at a high level of around 96 percent, albeit softening a smidgeon from 2022 highs. As independent bank economist Tony Alexander notes in his first market update for the year: “Job growth is likely to remain positive this year, and improve over 2025 – so the degree of house buying despondency regarding ability to service a mortgage will be low.”

Mortgage rates are still in the mid-range – yes, well up from the three percent rates on offer three or four years ago, but still well below the highs of eight or nine percent many home loan borrowers would remember from the early 2000s. Across the board, it looks like we are seeing the very early stages of the mortgage rate ‘tide’ receding – with minor banking players Kiwibank and TSB both shaving off their longer-term fixed rates. We’re all wondering how long before the bigger retail banks follow suit.

Immigration numbers are still at record levels as migrants move on from the Covid restrictions era and seek to make new lives for themselves in New Zealand. The latest figure is that New Zealand recorded a net migration growth of 129,000 new citizens in the year to November 2023. That is a huge tally looking for somewhere to live when they touch down on our shores.

Additionally, this year we can also throw in the confidence engendered by having a new national government in power set to rebuild the economy. To reiterate the key core elements of how the new Government will impact on the residential investment property market, it will be peeling back mortgage tax deductibility for landlords to previous levels.

The restoration of interest deductibility will see:

  • 60 percent interest deductibility kept from April 2024 – rather than being reduced to 25 percent in line under the former Labour Government’s timeline
  • 80 percent interest deductibility available from April 2025
  • 100 percent interest deductibility reintroduced from April 2026.

Furthermore, National’s readjustment of taxation in the residential investment properties will see the bright-line ownership/sale timeline test returned to two-years – down from the current 10 years – restoring the bright-line test to what it was when introduced by National in 2015.

It also looks like the end of automatic rolling over of fixed term tenancies – which will allow for greater flexibility of property management for dwelling owners, particularly those with accommodation in holiday destinations where owners wish to spend time over the summer period enjoying their asset. Landlords will be able to terminate tenancies using the periodic tenancy rules and other grounds for eviction with the reintroduction of ‘no cause’ notifications.

Combined, all of these factors are giving renewed confidence to the wider Otago, Central Otago, and Southland populations, and indeed the country as a whole for investment in residential property.

POSITIVE OUTLOOK

While the economic rebuild being undertaken in 2024 and into 2025 will undoubtedly throw up some headwinds and challenges, the overall economic forecast for New Zealand is generally positive.

And it must be remembered that for the residential property market, people will always need homes to live in.

Booking numbers are already strong for Queenstown and Dunedin’s March auctions which are scheduled to be held on the 8th March and 22nd March respectively.

Combing back from the holiday period where activity in the residential real estate sector has been somewhat muted, as would be expected with most of the country on vacation mode, independent property economist Tony Alexander notes four key trends in the residential property markets.

Tony Alexander highlights these in his market report as:

  • Buyers remain in the market, but with little feeling that they need to get a purchase across the line as soon as possible.
  • Prices are rising - but not at an "accelerating" pace.
  • Lack of finance is a high barrier for many buyers.
  • More and more investors are looking at selling their rental property assets.

Latest in-depth Otago sales data from the Real Estate Institute of New Zealand shows that prices with multiple districts within the Lower South Island had rebounded or continued to grow strongly over the 12-month period to the end of last year.

These sub-market districts with price increases to the year ending 2023 include:

  • Clutha District – up 16.1 percent from $355,000 to $412,000
  • Waitaki District – up 8.5 percent from $433,000 to $470,000
  • Queenstown Lakes District – up 4.0 percent from $1,250,000 to $1,300,000
  • Dunedin City – up 2.2 percent from $600,000 to $613,000
  • Central Otago District – up 1.9 percent from $720,000 to $733,750

The REINZ data also tracked that in Otago, the current median number of days to sell a residential property now sits at 36 days – more than the 10-year average for December which has been 31 days. On current sales levels, there was 17 weeks of inventory on the market for sale in December 2023 – which is seven weeks less than the same as December 2022.

ACTIVE BUYER GROUPS

The Bayleys sales teams throughout the Lower South Island are seeing that first-home buyers and owner-occupiers were the most active buyer groups in the region, with vendors generally remaining optimistic and staying firm on their price expectations.

Meanwhile, figures from property data firm Valocity show the average property value in Queenstown-Lakes local authority has breached through the $2 million benchmark - and is $75,000 above its previous post-Covid peak. Much of that is built on the locale’s appeal as a lifestyle and holiday destination.

Some Queenstown-Lakes suburbs are showing average property values well above $2m. Kelvin Heights is $2.8m, Lake Hayes is $2.574m and Arrowtown is $2.548m – although if removing sales at Millbrook Resort, Arrowtown’s average would fall to around $1.85m. Millbrook sales clock in between $4m - $10m.

However, not only is Queenstown appealing as a home-owner destination, but because of on-going long-term population growth, a strong tourism sector now pumping virtually year-round, and a shortage of land availability for scaled developments, it is also a highly sought after location for investors from across the Otago and Southland regions who enjoy the fact that for most, they can be at their investment property within a few hours’ drive.

With choices for Queenstown and Arrowtown dwellings constrained, some potential buyers are extending their location options for a ‘lock up and leave’ holiday home out to the likes of Wanaka, Cardrona Village, Cromwell, Clyde, Luggate, Gibston Valley, and Mount Pisa - which generally offer lower priced opportunities.

Meanwhile down in Southland, the REINZ statistics highlight similar signs of positivity, encompassing:

  • Invercargill City – up 3,3 percent from $430,000 to $444,000
  • The Southland Region as a whole – up 2.3 percent from $435,000 to $445,000

The Real Estate Institute of New Zealand statistics for Southland show the current median number of days to sell a residential property now sits at 42 days – more than the 10-year average for October which has been 31 days. Emulating its neighbouring province, on current sales levels, there was 17 weeks of inventory on the market for sale in December 2023 – which is one week more than December 2022.

This reflects the requirements for vendors to carefully choose which real estate agency they should be listing with – noting particularly the finely-honed expertise Bayleys has in this aspect of the sales process.

The long-term prosperity of the Greater Southland region has been showcased in a recently released report, entitled Beyond 2025 Southland, which has been compiled with input from multiple Government agencies, in conjunction with the Southland Business Chamber and Invercargill City Council.

The report has identified several key drivers to sustaining economic growth in the province – including:

  • Continuing to forge ahead with the Invercargill central business district rejuvenation
  • Expanding the region’s transport network along with freight moving opportunities
  • Growing the frequency of flights and overall freight and passenger capacity in and out of Southland
  • Improving telecommunications services and coverage.

All of these various facets must of course work in synchronicity with the development of infrastructure and services – including housing – in the region. This gives confidence to those living and investing in Southland’s residential property market, that there is a combined and like-minded planning body and process behind the region’s future.

As always, should your browsing through this edition of View magazine uncover a fabulous property of interest, feel free to contact the Bayleys salesperson marketing the property for a chat on how we can assist in achieving your real estate dreams. We look forward to talking with you.

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