Should I stay or should I go?

Defying expectations and impressing the world, New Zealand has achieved elite status by containing the COVID-19 virus, and returning to a ‘new normal’ faster than most countries across the globe.

In the face of worrying early predictions for rising unemployment, displacement and financial hardship, many of our most productive industries have been able to open back up for business quicker than expected, leading to a sustained bounce in consumer confidence and an upswing in spending across certain sectors.

Perhaps it’s the border closures or our fascination with house and home, but across Auckland our residential property market has ploughed full steam ahead, recording the highest annual increase in sale volumes in 11 years.

While enjoying coffee at our neighbourhood café and all the luxuries social interaction affords, the virus is an ever-present, shapeshifting threat and Kiwis have been asked to tread with caution as downside risks to our health, and the well-being of our economy persist.

Stability

Of some comfort to New Zealand’s team of five million are the recent results of the general election which have afforded the Labour Party the opportunity to govern alone, without the requirement for a coalition. Which as we have seen previously can provide an impediment to expedient parliamentary process. This time around, while holding 53 percent of the seats in Parliament, Labour has the chance to efficiently execute its initiatives.

For many, including business-owners, the clear-cut election results offer certainty to the market, and the absence of transformative policy further alleviates concerns that more change is on the way.

However, the Labour Party has signalled an intent to increase costs to businesses by raising the minimum wage and sick leave entitlements for employees.

With approximately 77 percent of all New Zealand-registered securities held against residential mortgages, our businesses and commercial interests are closely tied to the residential marketplace.

In short, if business is good, profits will likely find their way back to the property market.

With this in mind, it has been pleasing to see business sentiment on the rise, with signs that companies are keen to take on more staff over the months ahead.

Already, we have seen skilled labour shortages re-emerge, with anecdotal evidence showing some industries are having difficulty finding necessary labour.

Looking to the new year, a variety of factors appear to support business growth some of which include easing monetary policy, further stimulus by way of loan extensions and a huge uptick in spending on infrastructure and new community projects which will create jobs and prosperity.

Financial conditions

Favourable lending conditions driven by record low interest rates have been the leading factor driving the positive performance of New Zealand’s residential property market.

Never in our financial history have retail interest rates fallen below three percent and all signs from the Reserve Bank of New Zealand (RBNZ) indicate a preference for keeping these rates low, for longer to continue to stimulate the economy.

Never in our financial history have retail interest rates fallen below three percent and all signs from the Reserve Bank of New Zealand (RBNZ) indicate a preference for keeping these rates low, for longer to continue to stimulate the economy.

Responding swiftly to the COVID-pandemic, the central back also removed loan-to-value (LVR) restrictions for 12-months, to stop Kiwi households that utilised the mortgage deferral scheme from becoming compromised under existing rules.

For first home buyers and investors, this has been an excellent aid, allowing a higher proportion of high LVR lending, and customers with smaller deposits an opportunity to get a foot on the property ladder.

However, given the recent strength of the property market, some expect to see limits reintroduced in the new year.

The RBNZ has been clear about its intention to support the residential property market with comments from officials indicating that falling property values would be a ‘worst-case scenario’ for our economy as it recovers from this recession.

Fiscal policy including the expansion of the Large-Scale Asset Purchase programme (LSAP), a Funding for Lending Scheme (FLP) and the use of a negative Official Cash Rate (OCR) continues to offer the potential for further monetary stimulus while affording an air of confidence to the market, which continues to support asset prices – including residential property.

Fear

Recent market buoyancy continues to feed a fear of missing out, and Bayleys’ salespeople are seeing a high proportion of inquiry from buyers that want to act now to avoid missing the boat as prices rise and the availability of stock dwindles.

Recent market buoyancy continues to feed a fear of missing out, and Bayleys’ salespeople are seeing a high proportion of inquiry from buyers that want to act now to avoid missing the boat as prices rise and the availability of stock dwindles.

Where the Real Estate Institute’s (REINZ) Housing Price Index (HPI) for September showed the value of New Zealand’s housing market to have recorded its highest pace of inflation since February 2017, buyers are now scrambling to take advantage of favourable lending conditions before the landscape changes.

While supply chain disruption by way of a backlog for appraisals, valuations, finance approvals and conveyancing has introduced extra considerations for both buyers and sellers, those serious about the market know the current climate requires decisive action and having all ducks in a row before trying to make a move.

Despite the number of new listings coming to market, it has not been enough to keep pace with demand and the biggest question facing sellers has been where to go next?

The Government’s focus on infrastructure and a record number of building consents issued are reassuring for those that may be looking to take advantage of their sale profits and build their dream home, however with the average cost of building increasing by close to $100,000 in the four years to 2020, the fear of missing out continues to create urgency.

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