The latest CoreLogic figures say the average Auckland house price has hit $896,676. That’s very close to the peak of where property prices should be based on the 8% growth line discussed in the last newsletter. The prices will probably go higher, as the fundamentals of supply and demand have not been met and there is still a shortage of properties compared to the number of people, however in my opinion buyers are in gambling territory now. You should expect the 8% growth over the year and chances are that it will be higher but based on historical property price trends Auckland prices are now very close to where they should be. Last newsletter it looked like Auckland was still 16 months away from its peak. I now believe that’s more like 8-12 months. The catch up period is over for Auckland but it is still there for the provinces.
Price growth has hit 7% year on year. The average Whangarei house is now worth $362,021. That’s currently an average growth rate of around $2,100 per month and this is predicted to accelerate.
In the last newsletter in September, Whangarei’s property growth was 4.6%, so over the last two months this growth has accelerated dramatically and is predicted to continue to do so. It should hit double figures by the end of the year. Hamilton has already hit 14.9% annual growth and Tauranga has hit 11.2%. Auckland is sitting on 22.6% growth but the gap with the provinces is starting to close. The growth continues to be associated with places close to Auckland showing the ripple effect discussed in an earlier newsletter. The one surprise is Rotorua which has property price growth of just 2.3%. If I was to guess at the next place in NZ to benefit from the Auckland price ripple it would have to be Rotorua.
I had a discussion with Mel Lindsay the manager of Harcourts Just Rentals to get the latest information about the market. This market is also going through some serious changes, most of which are good for the landlord.
Key points are:
- There is a serious shortage of rental properties out there. There is still resistance to the low priced poorer socio-economic areas and poorly maintained properties, however there is huge demand for the middle and better areas.
- Tenants are staying longer! This is great news for landlords. The most costly period for any landlord is tenant change over time. This is when you lose income and end up spending money on the property to fix those items that where ok for an existing tenant but need replacing for a new tenant.
- The shortage of properties and tenants staying longer are probably linked. When you don’t have a viable alternative, you stay with the existing option.
- The shortage is being made worse by the accidental landlords, the ones who couldn’t sell their properties so rented them instead, now selling their properties, leaving the market to the long term and serious landlords.
- Vacancy rates have dropped close to zero. This is the down time when the property is between tenants. As a landlord you want this time to be as short as possible. In a traditional market a company would be proud of a vacancy rate of 2-3 percent. Harcourt’s Just Rentals are currently running at 0.06 percent which is a very impressive figure and great news for landlords.
- Rents are on the way up for most properties. Rents have been edging up due to supply and demand and this is expected to accelerate over the next 12 months. Mel has asked me to express a word of caution here. It’s not across the board and poorly maintained properties and properties in poorer social-economic areas have not seen the same increases.
- When a property is vacant the rent can be raised quickly but when occupied it should be raised gradually and regularly so the tenant doesn’t get “rent shock” and leave.
- The Whangarei Hospital is in its recruitment season so there are a lot of medical people looking for accommodation right now. These people have to be within 25 minutes’ drive of the Hospital. Surprisingly, with the new bridge, the Parua Bay area is a major beneficiary with 4 recent requests for homes in this area. Call Mel if you can help. (021347355)
- Harcourt’s Just Rentals have been listening to their landlords and tenants and have researched and implemented a team approach to property management. They call it the” Pod System”. Each property now has two portfolio managers. A lead manager and a back-up manager. This means at least one manager, who knows the property, is likely to be available for landlords and tenants requests and the key decision making, such as rental levels, is done using two heads rather than one. Problems are solved quicker and sickness and leave are fully covered. The teams are saying the results have lifted their level of customer service and satisfaction significantly.
Real Estate Salespeople are the Good Guys!
A recent survey conducted by ‘Neilsons’ on behalf of the Real Estate Agents Authority found the following. Among those who had recently taken part in a real estate transaction with an agent.
88% found the agent knowledgeable about the market. 85% were provided with all the information they needed and thought the entire process was clearly explained to them. 84% found the agent both professional as well as knowledgeable about the relevant legal requirements. 84% thought the agent acted ethically, honestly and openly during the transaction.
This is a big improvement on past surveys and shows the new legislation is having a good long term effect on the public perception of the profession.
In his latest issue, Tony Alexander (BNZ economist) discusses what appears to be a huge shift in the Reserve Banks’ thinking. In the past the bank has used interest rates to curb house prices. However in a low inflation, low interest rate economy, raising interest rates has a detrimental effect on other factors such as the value of the Kiwi dollar. If we have high interest rates then overseas money flows into the country to take advantage of the rates, our dollar goes up and then our exporters find it hard going as their products are less competitive, so the country suffers.
The 30% Auckland based deposit requirement is the first of what may be a series of moves by the Reserve bank to control house prices by restricting credit to house buyers. In simple terms what the bank does is instead of making money more expensive it makes it harder to get. The days of easy money could dry up.
Last week my 5 year old grandson was staring intently at my head for some moments before he quizzically stated, “Poppa Baz! I have never known anyone with silver hair before”. Bless him!. Us old silver hairs’ can remember the last time credit was hard to get in the 1980’s . To get into my first home I had to have a dedicated post office home saver account. It had to be open for a minimum of three years with a steady savings record. I then qualified for a first mortgage at a subsidized rate and a second mortgage at a higher rate. It was not enough to buy a home but by the time I added to it, by taking my overdraft up to its limit, maxing out both my credit cards and taking a small bridging loan from my solicitor, I had enough to buy my first home. It looks like these days are coming back, so relationships with your banker will become more important.
If you don’t get Tony Alexanders newsletter can I recommend you do. He talks plain English and has been very accurate over the 10 years that I have been reading him. The link below will take you to his last issue and there is a free subscribe button on the page.
Click here and open the word document
Also known as Capital Values. The period when the new valuations come out is a pain in the proverbial for real-estate agents, because they are just so inaccurate. They are provided to Councils for the purpose of setting rates for that property. Whangarei’s rates are based on the land value of the property plus a few specific factors such as kitchens in the dwelling. When QV work out the valuations they try extra hard to get the land value right because that’s what the W.D.C. are paying for. This part of the rating value is probably right, although we would never know because we don’t break a house sale down into land and buildings. The house value is not as important to them and generally they go off the information held by the W.D.C. on their property files. They don’t visit the properties, so at best, the final house valuation is a rough guess. The council pays just a few dollars per valuation so they get what they pay for… a cheap valuation.
Quoting directly from the QV “Understanding your Rating value” sheet, they admit it .. “Every three years rating values are assessed… using a mass appraisal process”. Translate “mass appraisal” to “computer model” and you have the picture.
Rating Advice #1.
If you think the valuation is too low take the opportunity provided to challenge it, but remember you only have until the 10th of December this year to lodge your objection. You can do it online. I think it is better to get the valuation into line with the properties real value once, (and why not this time), and then it will stay in line in future valuations. It does pay to have the valuation reflect the value because if you ever sell and it low ,you can bet your buyer is going to beat you over the head with it. I’m happy to help with the research to assist your objection.
Rating Advice #2.
Don’t challenge the land value , challenge the house value because it’s an easy price to get up and because the valuers haven’t actually looked inside the house and the house value won’t affect your rates. By having the land value low and the house value high you get a higher valuation without putting your rates up. There are some cases where the land value is way too high and you should challenge it to gets your rates down.
In the July issue of this newsletter I put the case for a looming building shortage in Whangarei. I said that the population had caught up with the available housing supply and from July on there would be an increasing shortage of new dwellings unless Whangarei started building more homes. We build about 350 per year but probably need about 1000. The positive news is it looks like we are building more homes. I pass on the following recent conversations, which while not proof of the rise in building activity, are certainly anecdotal evidence for it.
- I spoke to a well know local developer this week. At the beginning of this year he had 12 sections in one subdivision available. These sections had been on the market for over 7 years. He sold 2 in the first half of the year. In the last two months he has sold 8 and the remaining two both have people swinging on them.
- I spoke to a couple who are building once they sold their house. When they first had plans done there was a choice of builders available. They have now sold their house and can’t find a builder to start. They are going to find temporary accommodation until a builder is available next year
- I spoke to a couple who are doing a kitchen renovation. The company doing the work has 4 months’ work lined up and has turned down over 20 more jobs because they just don’t have the resources to cope.
- I spoke to a popular digger operator to get some estimates for some sections. He told me that if they want the work done it would have to be sometime into the next year because of the work he already has lined up.
So it looks like the housing supply is picking up but this will be limited by the number of tradesmen who can do the job and when they will be available. Building prices are definately going up.
Meanwhile the stream of Aucklander’s’s migrating over the Brenderwyns continues unabated and is being joined by a new trickle of migrants from Hamilton and Tauranga.