August News letter

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Whangarei Real Estate Market Stays Hot Over Winter

price risesWhangarei property price rises continue to accelerate. The average price, as per Corelogics latest August release, is $421,750. Rising at 19.9% year on year. That’s growth at $1,614 per week for the average home in the city. While the press gnash their teeth in fury at the ‘Housing Crisis’ most home owning New Zealander’s will be rubbing their hands together as they see their wealth growing. At the beginning of the year I predicted we would see growth between 17.5 and 22.5% this year. I also predicted that this growth would accelerate in the first part of the year and start to slow towards the end of the year.

I am never wrong small

I suspect I will be wrong on both counts. Growth is very likely to accelerate beyond 22.5 % as Tauranga has now hit 25.7% and Hamilton has hit a massive 31.5%. Hamilton’s growth rate is now faster than Auckland’s ever was. So the chances are Whangarei will hit a growth rate of around 24-26% before starting to slow early next year

Meanwhile Auckland has slowed down to a mere 16%. Auckland’s growth rate has been consistently slowing for over 6 months now, showing it is heading towards it peak. But keep in mind inflation is running at less than 1%, bank deposits are around 2% so 16% growth on an average Auckland price of $992,000 is still $2,836 gain per week. So 16% growth in Auckland is worth nearly double the value that 20% is to Whangarei. At the current slowing growth rate Auckland will peak towards the end of next year.

The reserve bank has been doing it level best to reign in the housing market and the latest rise in deposit requirements is the latest bucket of water on the Auckland housing inferno. Investors now require 40% deposit.  This may have a short term effect but as investors usually have other property they can use to leverage deposits and as house prices are rising rapidly therefore increasing the same investors property equity as we speak this will have, at best, have a short term effect.  The issue which is still there is supply. When you have a shortage of houses then the market will continue to push prices up regardless of any other tinkering.

Jono Ingerson, Head of Corelogic says:-

The Reserve Bank’s own analysis expects these measures to slow property value growth by 2% to 5% less than would have been the case without these restrictions. So if values in an area were going to increase 15% then they would now slow to say 10%. They don’t expect prices to crash.

If we apply this thinking to Whangarei then we could see growth over the short term slow down to around 19-20 % from the projected 24%. That’s still very rapid growth.

He goes on to say: – “However investor groups I have spoken to over the past two weeks are not talking about pulling back, instead how to get around the lending limits. This includes splitting their portfolio across different lenders, including non-bank lenders who at this stage are not subject to the RBNZ restrictions.

The reality that keeps coming up is nothing is going to change long term until the building supply is increased. Investors are smart people and they will find their way around the restrictions until its no longer worth their while.

The most important part of the latest tinkering is that new building is exempt from the deposit restrictions. . I think we will see more investor interest in new builds which will be great for the economy and will over time sort the fundamental issue of housing supply. This translates directly into rental demand with our sister company “Harcourts Just Rentals “who experienced their highest ever demand for rental properties with over 1000 requests in July. Rents are rising and the time is ripe for investors to look at the European tenancy system where rentals are more like commercial leases. Longer terms (up to 20 years) with rights of renewal so the tenants can on sell their rental lease which encourages them to develop the grounds and improve the décor of the property.

We see no evidence, be that, level of enquiry, open home attendance, or the number of contracts being presented, to suggest there is any lessoning in activity. Whangarei House prices are still headed to an average sale price of $500,000.

The problem with Real estate is trying to find the right information to assist with decision making. There are a huge number of people who constantly get quoted in the media who have massive personal barrows to push. The list is long, but specifically includes Financiers, share brokers, many economists, and basically all journalists. The most unreliable source of Real Estate opinion you will ever get will come off the pages of your newspaper, or from the screen of your TV or smart phone. News stories are written to shock and intrigue you, and they seldom get their facts right before launching forth. The opinions come from everywhere except from the people at the coal face. For example the press, based on some pretty weird interpretation  of the real estate statistics,  have been predicting the Auckland market has peaked and is about to burst for over two years now, while the  evidence says its slowing down a little but has  some  way to go before it peaks .

I read with amusement an article by Real estate Legend Sir Bob Jones  who wrote  in May this year, about  two “media darlings” who are constantly quoted as reliable sources of market trends. Bernard Hickey and Shamubeel Eaqub.  Jones with his usual wit and satire writes “ As an aside , his ( Eaqub’s )” wisdom” on this issue , along with Bernard Hickey’s, the latter a doomsayer without peer, should be seen in the light of both some years back ,selling their Auckland homes and fleeing to the capital to avoid their claimed imminent Auckland Housing price collapse. In light of subsequent events, those brilliant judgements have cost them considerable loss of wealth, which rather weakens my life long militant atheism. “

The Current Case for Buying new build New.

If you are looking to invest new, or to replace what you have, there is very strong argument to buy new. Most real estate agents won’t push for building new as the builders have their own salespeople and the agent gets left out of the commission loop. bleeding heartYes I know your heart bleeds for us, but there are nine very compelling reasons to consider this in today’s economic climate.

  1. 20% deposit will get you in. Unlike existing homes, the new 40% deposit criteria do not apply to building new. Therefore building for the average New Zealander is now a lot cheaper in terms of how much you have to have saved yourself.
  2. It’s going to cost you more than the second hand house you were looking at (around $550,000 in Whangarei) but consider this. You will get a long term (5-10) guarantee on the house. It’s a bit like buying a new car, you know you won’t have any maintenance costs for a number of years. Your home will have the latest weatherproofing systems and treatments. It will have the latest technology in insulation and heat retention with most new home buyers saying their power bills halved. You can guarantee it’s all new and has none of the maintenance issues an existing property may have, nor is “P” contamination going to be an issue.
  3. You will get a higher rental as these properties are sought after by tenants who will pay a premium for new properties. Most new builds are renting for around $500 per week, which is a return of 4.7% on a purchase of $550,000. Your tenant is going to come from the top of the rental heap and is more likely to stay longer and look after the property better.
  4. New build suburbs have a two year period when they look like a jumble of roofs and bricks. But then the planting kicks in and the boundaries become clearer. The subdivision takes on a new appearance and historically prises rise. Established planting seems to put around $50,000-$70,000 in value onto all the properties in the subdivision.
  5. New house prices are based on the value of the land plus the building costs. Building costs rise steadily while land is more sporadic in its rises. So the next house that gets built, that is similar to yours, is going to be dearer than yours thus ensuring your value is increasing also.
  6. The work required to add value is going to be within most people DYI skills. Planting gardens and lawns, building birdbaths, and maybe some painting are going to be easy projects that most people can do themselves.
  7. Chattels Depreciation. While you can no longer depreciate your building costs you can depreciate your chattels. With a new build there is clear evidence what the chattel actually cost so there is a start figure to base the depreciation on which is not the case with existing properties. The depreciation rates are high with many items around 25-30% and when you sell you don’t have to pay any of this back. The average new build will have a long list of depreciable items. (Carpets, Hot water cylinder, fencing, Driveway, Decking, Dishwasher, Oven, Drapes, Heat Pump, and light Fittings, to name a few.) . You will need to get a chattels valuation done which will cost about $600 (tax deductible) but as can be seen from the list above, this cost could easily hit $40,000-$50,000. Depreciation in your first year could be around $12,000. It will drop quickly after this but at the top tax rates this is worth the effort
  8. You are doing your country proud. We do have a shortage of houses in many parts of New Zealand. Whangarei is one of these areas. The only way that property prices will stabilise is when there are enough houses. So by building new you are doing your bit to alleviate a very real problem we have. This is in direct contrast to both the USA, Ireland and parts of China where the number of houses was greater than demand therefore causing prices to drop.
  9. It is very good for our economy. New building creates jobs. Building is a high labour intensive industry that flows through all the groups of tradesmen, to the suppliers, to the landscapers to the draftsmen and so forth. Building new gives the council another rating opportunity thus increasing the wealth of your district. Building is currently one of the driving forces in New Zealand’s economic recovery, being recognised by the Reserve Bank along with tourism and immigration. Starting with the Christchurch rebuild and now driven by Auckland it is one of the main factors setting our economy apart from most of the rest of the world.

 

Rental demand increasing

The statistics from Harcourt’s Just  Rentals show a growing amount of inquiry for rental property. This is unusual activity for the winter months when people tend to stay put more. It is another sign that the Whangarei population is growing more rapidly than the WDC has planned for . We would expect a small delay and then for rents to increase in line with the demand for properties. All great news for landlords. ( Figures supplied by Renee Wilkinson the person to talk to for  property management ph.  021892443)

Rentals Jpg

 

 

 

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