Thinking of objecting to your revised Capital Value?

by Alistair Helm in


This week the story that just won't disappear from the media headlines has been the new Auckland CV's (Capital Valuations). Described by Auckland Council as the most likely selling price had the property (including buildings and all other improvements on the land, excluding chattels) been sold on 1 July 2014”.

Now the fact is Auckland is not alone in being exposed to a whole new set of CV's - there are 11 councils that have or will have released rating revaluations in November alone, however the scale of property price inflation in the Auckland region over the past 3 years is what is drawing so much media attention.

Accessing this new valuation for Aucklanders has been a headache, and in many ways the archaic approach taken by their digital team to my mind reflects a somewhat archaic approach to the whole process, however that is another story and a separate article!

I have decided to object to the new Capital Value ascribed to our house and in doing so I though I would share my thinking and the process as a public service to you as readers. Our circumstances as ever, may well be very different to other people's circumstances, however I think there is value in sharing the principles of the objection. We will have to wait until mid December to see if our objection has been confirmed or rejected. Remember you have to object before the 19th December.

Out circumstances are that we purchased our property in the past 3 years since the last revaluation in 2011. This latest revaluation published this week has increased the value of our property by 14% since the 2011 revaluation. We live in Devonport. However the price we paid a year ago was actually lower than the 2011 valuation. This has resulted in our new Capital Valuation which of course is based on the Council's July 2014 notional valuation being 19% higher than the price we paid. I propose to object on the grounds that the value of our property has not increased by 19% in less than a year. It is in my mind irrelevant that the 3 year increase is 14%, what is relevant is recent sale of the property as clear benchmark to notional property value.

I therefore have objected on the basis that the new CV should be based on the last sale price adjusted for the general increase in property valuations of property in the local suburb over that time period.

The QV website has a suburb specific page within which is a chart which tracks the Median E-Valuer for the suburb going back over the past 5 years. Simply type in the name of your suburb on the home page of the website instead of your address. By hovering your mouse on a date on the chart line you can read off the median E-Valuer price for a specific month. 

In our case I selected September 2013 at $1,121,700 (we purchased the property in August so the following month figure is the most accurate) and then the July 2014 figure at $1,215,100. I therefore submit to the Auckland Council that our property has appreciated by 8.3% since we purchased the property in August last year. So applying this 8.3% increase to the purchase price lead correctly in my opinion to the view that the “most likely selling price had the property (including buildings and all other improvements on the land, excluding chattels) been sold on 1 July 2014” would be (sale price * 1.083) = submitted revised CV.

The process of objection requires you to complete a form online or on paper and by snail mail which can be downloaded from the same page of the Council website. The process requires the completion of the details for the property and then the "Contended Value" (your challenged view of the new CV). This needs to be broken down into the Land Value and the Value of Improvements. I chose to use the Land Value in the new assessment and adjust the value of improvements.

As a guide I used this wording which may be of help:


The re-valuation of our property at XY Street, Devonport has defined a Capital Value of $A . This assessment is as defined by the Council is the “most likely selling price had the property (including buildings and all other improvements on the land, excluding chattels) been sold on 1 July 2014”.

I contend that this re-valuation is inaccurate based on the property having been sold on the <sale date> for a price of $B. 

The most appropriate method of establishing the “most likely selling price had the property (including buildings and all other improvements on the land, excluding chattels) been sold on 1 July 2014”  would be to evaluate the comparable valuation of all Devonport properties in September 2013 (based on sales in August) with that in July 2014, 10 months later. 

Based on the published data from QV the median valuation in Devonport as reported at 1st September 2013 was $1,121,700 and as at 1st July 2014 it was $1,215,100. This represents an appreciation of value of 8.3% between the sale date of this property and the re-valuation date of 1st July, a period of 10 months.

On this basis the re-valuation of XY Street should be Capital Value of $C. 

Source: http://www.qv.co.nz/suburb/area-profile/devonport-auckland/2896


I should stress that this is my approach to addresses what I think is an inaccurate re-valuation of our property based on our circumstances. I recommend everyone makes an evaluation based on their own circumstances. I have no idea whether my appeal will be upheld and our Capital Value adjusted  or if we fail. I do however believe that this matter is worthy of time and consideration. I do not naturally put myself out there as an advisory or expert. I  simply want to highlight this subject and the approach I have chosen to take.

I believe this time around as compared to 2011 there are likely to be more objections lodged simply because the inflation in property prices and therefore CV's is far more significant and the knock-on effect on rates is likely to be just as significant.

To answer what might be a nagging question you might have as to why I don't just celebrate this somewhat elevated Capital Value? Simply put I have never held much sway by the CV of a property as I have expressed in prior articles. The CV will ultimately have no bearing on the  true value of our property; that will be only judged by a future purchasers, whereas Auckland Council want to levy their rates based on a formula which I judge in our situation is inaccurate.

 

 


Auckland property market shows little sign of life

by Alistair Helm in


The first of the monthly property data is in and it does not bode well for those thinking / hoping that the election in September had in some way held back the market and that the traditional Spring surge would arrive albeit late in October.

Sales as reported by Barfoot & Thompson were down on last month and last year. Now normally sales volumes in October are around 10% higher than sales than September, this year sales for Barfoot & Thompson in Auckland fell 2% compared to September and as measured against last October sales were down 22%.

October was the 9th consecutive month to show year-on-year declines in sales volumes. Measured on a 12 month moving average sales in Auckland for Barfoot & Thompson has fallen from a peak 12 month total of 13,232 in October last year to a total in the 12 months to date of 11,699.

Barfoot & Thompson is a fairly accurate bell weather for the national statistics which have seen the same trend of moving annual total peak a year ago and continue to decline through this year, resulting in what is looking to be a 2014 calendar year total sales of just 70,000 down from 80,000 in 2013.

 

Sales below $400,000

Delving into the richer analysis of property sales by price range shows a continuing trend of fewer sales in the lower price segment of the market in Auckland. Barfoot & Thompson October sales in the $400,000 and below segment amounted 126 of the 939 total sales in the month, that represents just 13% of all sales.

A year ago that segment represented 22% of sales and back in 2010 38%.


These numbers reflect the combined impact that as the median price creeps ever higher in Auckland (Barfoot &Thompson Oct '14 $655,000) there are simply less properties to buy and therefore to sell below $400,000 added to which the LVR impact has hit this segment. The $400,000 and below segment is fast disappearing from the Auckland property landscape.




The Auckland property market is cooling

by Alistair Helm in , , ,


The latest batch of property statistics provide what I think is a vital support to the view that the Auckland property market is cooling. 

A year ago the Auckland market was powering on at a pace. In its September 2013 monthly housing market update Barfoot & Thompson reported year-on-year sales up 14%, with the median sales price up 14%. At the same time the inventory of property for sale on the market as measured by the Realestate.co.nz NZ Property Report slumped to just 11.5 weeks down from 17 weeks a year earlier .

Examining each of these key metrics of the property market a year later we will see just how much as changed in the past year and supports the view in my opinion that the heat has certainly come out of the Auckland market.

 

Property Sales

Sales are the leading indicator of property demand and as the chart below shows the trend is down.

Monthly sales as reported by Barfoot & Thompson who representing close to 40% of all Auckland sales provide a robust view of the market. Their data shows sales in the 9 months so far of 2014 below the 2013 level for 8 of those 9 months, with the differential if anything growing wider in the past 3 months with September down 13% as compared to a year ago.

 

Listings

New listings coming onto the market provide a view as to the confidence in the market amongst sellers and as the chart below shows the level of new listings is down in all but 2 of the months of 2014.

From Realestate.co.nz data total listings across the Auckland region in the first 9 months of 2014 amount to a total of 30,449 as compared to the same 9 months of 2013 at 32,484 down 6%.


Inventory

With sales in the first 9 months of 2014 down 12% and the level of new listings down 6% it would come as no surprise to see that the inventory of property for sale has been rising in 2014 as the chart below demonstrates. 

This metric of inventory of property on the market uses the current rate of sales to estimate the time it would take in theory to sell all the property on the market at the end of September. It certainly shows a significant improvement in the weeks of inventory. In case you were wondering if the actual number of listings was higher this year than last year the chart below will answer that easily. It may not be as significant a rise in inventory but there are more properties for sale at the end of September this year than last and of course fewer are selling.

Sales Price

Sales price tends to lag sales volumes which tend to reflect demand and supply as measured by inventory and new listings. The chart below based on Barfoot & Thompson median sales price indexed to the January sales price in each of the past 3 years shows a strong start to this year but since April the median price has hardly moved with the September level barely up on August.

So in summary. Sales are down, new listings are not flowing onto the market as sellers lack confidence, this is lessening any pressure in the market from buyers who are subdued and as a consequence the pressure of constrained inventory has lessened and this has signalled a plateauing of property sales price. In short - the heat has come out of the Auckland property market. 


Trade Me Property assumes the mantle of data insight leadership

by Alistair Helm in ,


Trade Me Property today released a new competitive attack on its rival Realestate.co.nz with its inaugural Property Price Index. This report provides insight into the trends in asking price by region and also by property type. In my view vital information from a credible source that will be greatly appreciated by the real estate and financial community.

In launching this new report Trade Me Property has literally picked up the baton from Realestate.co.nz - a baton it seems Realestate.co.nz was only too happy to relinquish, but this may turn out to be a decision it comes to regret in time.

The NZ Property Report from Realestate.co.nz was conceived of over 5 years ago and has become a vital insight into the supply side of the property market, data that was quoted and reviewed by financial institutions and real estate industry as well as the media. Sadly the last 12 months and especially the last 6 months has seen less and less effort focused on the report by the management of Realestate.co.nz. The lack of focus started with the timeliness. When it first came out and for the first 3 years it was published on the 1st day of each month and the media become accustomed to this information which built brand profile and credibility. Latterly however it often took until the 15th of the month before being published. Added to tardiness was incompleteness and lack of openness. The release of the monthly information ceased to be a complete report and became simply a press release and just last month the data was not even published online and no access to the raw data has been made available. At this time the online source still only shows the July report. Clearly Realestate.co.nz attach little importance to being judged and viewed as a respected knowledge base and thought leader - that is the baton that Trade Me Property is grasping.

So what is there to like about this new report from Trade Me Property?

As with all things from Trade Me there is a simplicity and clarity of communication I admire, clean graphics aid comprehension.

However the real value is in the detail. They are the first source to have segmented any property information by property type. To describe NZ property sales price by one number when that number is made up of such a variety of differing house sizes and types from apartments to townhouses and units is too simplistic but that is what all the other source do - be it REINZ or QV.

Trade Me Property Price Index details the typical listing price for 1 & 2 bedroom houses as compared to 3 & 4 bedroom houses and the trend over the past year. Who would have thought that within the headline price of property in Wellington rising at an annual rate of 6.8% that large 5+ bedroom homes are down 5.2% over the past year.

 

The overriding benefit of this report is timeliness, being produced on the 2nd day of the month - ahead of all other property reports on the September data. This is how it should be as a property portal has the data at its finger tips to compute and present in minutes.

As to future wishes. I hope the raw data will be published so those organisations who have found the Realestate.co.nz so valuable will have access to this alternative data which is potentially more comprehensive as it features private listings as well as licensed agents (of course the boycott of Trade Me Property by some agencies may still limit their ability to represent the whole market but statistically this data should be representative). It will also be great to get more granular data so people can see the trend in listing price for a suburb and for 1 & 2 bedroom houses in a particular suburb over time - now that would be great.

In my view Trade Me Property has made a smart move and Realestate.co.nz have dropped the ball - let's see if there is a reaction and Realestate.co.nz realise how important this move has been.


How long has that house been on the market?

by Alistair Helm in


As an active buyer searching for your next home; in what we are constantly being told is a very tight property market, with an acute shortage of property, you might be surprised to learn that across the country half of all the properties on the market today have been for sale for more than 3 months. In fact 1 in 4 of all properties for sale today have been on the market since before Christmas!

The fact is, as with everything these days we tend to focus on the new, the latest and the current. We tend to look no further than the first page online when it comes to search results and property searching. Step beyond the first 3 pages on Realestate.co.nz and you will discover another 1,923 pages (20 properties to a page) full of properties all fighting for your attention.

I was drawn to examine the make up of the stock of properties on the market when I saw quoted the other day the fact that in the UK 25% of homes on the market had been on the market before Easter. A fact I found amazing. It prompted me to examine the extent to which this was true in NZ. The fact is in NZ overall close to 40% of all properties were on the market before Easter. 

This classic long-tail is more acute outside of the main 3 cities of Auckland, Wellington and Christchurch. Across provincial NZ there are currently over 27,000 properties for sale of which less than 1 in 5 were added in the month of September, with 6 out of 10 being listed more than 3 months ago. So much for the belief that the typical “days to sell” measure as reported by REINZ in August was 38 days! 

The fact is that a lot of properties take a long while to sell and often are re-listed more than once by a different real estate agent. It is only the final selling agent that declares to REINZ the days-to-sell as to how long it took them to sell the property from the date of the listing agreement, not how long the average house takes to sell from first listing day to final unconditional contract.

Some markets though do exhibit a very different distribution of aged-property. At the other extreme Christchurch exhibits  a very different make up of property for sale on the market. In this much tighter market where less than a third of all properties have been on the market for more than 3 months and properties listed for more than a month only represent 58%, compared to 82% across provincial NZ.

Auckland as would be expected has a high proportion of newer listings, but in fact lags considerably behind Christchurch. Again despite the constant commentary about the shortage of listings, fully 1 in 8 of all properties on the market today have been for sale since Christmas, fully a third have been on the market for more than 3 months.

For Wellington its inventory of property for sale totalling 2,362 listings has 45% of all listings - a total of over 1,000 properties that have been on the market for more than 3 months and similar to Auckland 1 in 8 (over 300 properties) have been on the market since Christmas - as yet unable to find a buyer.


Auctions are once again dominating the Auckland market

by Alistair Helm in ,


Earlier this year there were signs that auctions had lost their lustre, but examining the past 7 days of new listings coming onto the market in Auckland shows that close to half of all new listings are being marketed as auctions!

Here are the facts - between September 22nd and today (the 29th), 808 properties have been listed across the Auckland region from data on Realestate.co.nz. Of this total 400 are being marketed as an Auction. Over the month of September a total 1,113 properties on the market today are marketed as auctions which represents 43% of the total of properties listed in the month. Of course properties listed in the first week of September with a 3 week campaign will now most likely be sold, thereby explaining the difference between the c. 50% in the past 7 days and 43% for the past month.

Clearly auctions are the hot topics and the most favoured method of sale.

But as ever the question should be asked as to the success of auctions. However when it comes to the success of auctions, this is where interpretation of figures becomes something of an art form!

Last week there were a couple of media articles which showcased auction performance.

The NZ Herald on Saturday examined the Barfoot & Thompson auction in the city office and stated that they sat through 27 auctions of which 11 sold under the hammer with 10 passing in below reserve and 6 with no bids - a 41% success rate. The article went on to quote Peter Thompson reporting a 55% success rate - this number being the total of 11 sales plus a further 9 properties which had sold prior to auction. Now you can see why reporting on auction success is an art form!

The article quoted Harcourts saying that at a Christchurch auction in the week there were 23 sold from 25 presented at the Harcourts Grenadier offices in the city. Across the city another Harcourts office (Gold) reported selling 10 from 15 under the hammer.

Now none of these figures will surprise as circumstances at every auction event will be very different and so will be the outcome. However in my mind the key matter in reporting auction success is simply this. Success is defined as how many properties of those offered at ann auction event are sold under the hammer or at least within the next working day as is now the defined period under the Fair Trading Act. It is not relevant or appropriate to add to this list properties sold before the event (even if they were sold at an auction) nor properties that sold outside of this defined new time period.

I applaud Barfoot & Thompson who have embraced this new law change in their publicity of auction performance as they now simply detail (i) sold under the hammer (ii) sold prior (iii) sold by 5pm next working day to arrive at total auctions. However they have ceased to detail total passed in as they used to do.

I have been keeping a record of these monthly reports from Barfoot & Thompson for the past 18 months and as you can see they provide a vital snapshot of the Auckland market (accepting for some months of no data).

t the peak of the property cycle back in first half of 2013 Barfoot &Thompson were reporting property sold under the hammer (plus on the day) consistently exceeded 40% of all monthly sales. Through the first half of 2014 this had fallen to less than a third in March and May, although April was incredibly active and successful. The last two months though have seen a fall off. It will be interesting to see the September results.

Looking outside of Barfoot & Thompson and the Auckland market the REINZ data of auction sales is the most reliable. I would have to qualify that statement though by saying that the data of auction sale has no clear definition. I would hesitate to guess that it simply relates to the sale of properties which were listed as being an auction irrespective of how the sale  was concluded. 

The data for the past 3 full years shows this interesting trend based on the first 8 months in total for each of the past 3 years.

 

Auckland auctions rose significantly between 2012 and 2013 (27% to 37%) before easing off this year, however the focus of auctions has certainly spread outside of Auckland where now the proportion of sales represented by properties marketed as auctions has risen consistently to now represent 8.5% of the total sales outside of Auckland (equivalent to 1 in 12) in the first 8 months of this year.

It certainly appears that auctions are once again the most preferred method of sale for Auckland agents and a growing number outside of Auckland.


A lost generation of property buyers?

by Alistair Helm in


The latest report from credit ratings company Veda for the past 3 months tracking credit demand shows what they describe as Gen Y "Property Orphans" - people aged under 28 who's collective demand for mortgages has dropped by a third in the past year whilst at the same time their demand for personal loans and credit cards had increased.

When asked by media reporters about this report I stated that this was likely caused by a combination of factors, one of which was the generational change that is seeing young people question the achievability of home ownership as they in some cases choose renting as a lifestyle choice with the inherent flexibility and lower commitment to a particular lifestyle and attendant financial responsibility. 

Certainly the LVR restrictions have dampened demand as it has become harder to secure a property purchase with the more common requirement for a 20% deposit, equally recent interest rate rises have increased the costs of home ownership whereas the costs of renting have not risen by as much. There is no doubt that buyers can secure mortgages with a deposit of less than 20% but the signals and commentary in the market constantly talk of the hurdle of 20% deposit and with prices in the main cities topping $500,000 on average that is a massive ask to raise $100,000 when most prospective asspiring homeowners under 28 years are probably still encumbered with student debt.

One of the difficulties in assessing the real drivers behind decisions in the property market is the lack of granular data. We do not have accurate and credible data on first home buyers. Yet we so often see articles which seem to speak to assumptions that sales of low price property or LVR impact is a result of fewer first time buyers.

We may not have such data, however other countries do and it is timely that I found this chart from the UK which tracks the number of mortgage loans made to first time buyers since 1979.

This is quite a striking demonstration that first time buyers started to be priced out of the property market as early as 2003 and 2004 as property prices in the UK took off, that demand plummeted again during the GFC - exactly mirrored in NZ. The recent resurgence in the UK is what might be regarded somewhat as artificial as  government initiatives such as "Help to Buy" has been encouraging this group of first time buyers to get onto the property ladder with low deposit government back schemes coupled with record low mortgages interest rates. The contrast with NZ could not be more striking with LVR restrictions and interest rises of the past 12 months severely constraining first time buyers.

The only NZ data of a similar nature that might allude to this lost generation of property buyers is this recently published chart from  Core Logic which shows an extensive historical data of property sales and the representation of these sales as a proportion of all stock of housing.

The key takeaway from the chart is the shift in transaction levels over the past 30 years. Whereas 30 years ago, even 10 years ago monthly transactions represented around 0.8% of all households in the country, but that level has fallen to around 0.5% for what is closing in on the past 10 years.

It is not appropriate to draw a single conclusion from this data, that it is a function of the decline in first time buyers but it would be possible to intuit some potential impact from this trend as a reason behind the lower relative transactions as with less first time buyers creating demand to get on the property ladder leads to lower overall transactions levels.

Again we lack the granular data to be able to assess such issues with certainty, compounding this is the fact that such data only really becomes valuable when there is an extensive historical archive upon which to analyse, however if we never start recording such data no such archive will ever exist.


The seasonal factor in the property market

by Alistair Helm in ,


The belief amongst the real estate community is that the traditional spring surge in activity has only momentarily been delayed this year on account of the election. The hope is that now we have the election behind us the market will kick into gear. In my opinion there is no statistical evidence to support the view that the election has caused any dampening of the property market, not this election at any rate, there was certainly evidence in past elections.

However, irrespective of the election's impact, the reality is that the market will see a flurry of activity in the next couple of months leading up to Christmas. The fact is Spring is the most active time of year for property listings. Analysing the data for the past 7 years shows that the Spring months of September / October / November sees over 10% more properties come onto the market than would be the case for the proportion of the year made up by a 3 month period. At the same time as listings rise 10% above normal sale only rise by 3% compared to normal.

This vital insight which is presented in the chart below highlights some interesting facts about buyer and seller behaviour over the key seasons of the year.

From a buyer perspective the best time of the year is Spring as the proportional level of new listings is much higher than the proportional increase in sales as there is generally a better selection of properties on the market and less competitive pressure.

For sellers the best season is the Winter when new listings are over 10% lower than normal but sales only decline by around 4%. Equally the Autumn period is relatively good as the rate of sales increase compared to normal is higher than the rate of listings increase. It is the most active time of the year for the industry.

The Summer period is challenging for both buyers and sellers, relative sales levels are well below what would be for a normal 3 month period but listings are quite closely aligned with a similar level of drop off.

It certainly pays to think before making the decision of when to sell and when to buy. Naturally the decision of when you want to move house is more often influenced by external factors which means you don't have a choice but if you do, then choose wisely.

 


Property Dashboard for September

by Alistair Helm in


I revised the format of the Property Dashboard a couple of months ago now and have received good feedback as to the interest people have in it, how they are using it, and how it could be further improved.

One change I have made for this report and for all future reports, a change which has been forced upon me is that I have ceased to use the data from the monthly Realestate.co.nz NZ Property Report. I had been relying on this report for inventory data. However this report has become less reliable over the past few months. It was originally a report which was published on the very first day of each month as the most up-to-date view of property market trends, sadly it no longer seems to hold the same priority in the company and its publication is often the last published report of the month. For this month, it appears to have been released to the media but no copy has been published online, nor data set of tables made available.

I find this disappointing to see such a valuable insight be ignored and wither. I fortunately have been collecting for the past few months a weekly set of inventory data which I will now use as a mean inventory for each month. In this way I can publish the Property Dashboard solely from the REINZ data and supplemented by data I collect myself.


September Property Dashboard

So what can we see as emerging trends from this month's dashboard covering all of the 16 regions and cities across the country?

From a national perspective we see a market still constrained by a tight inventory of available property for sale matched to a healthy pace of sales and prices that whilst easing from higher still show an 8% year on year growth.

Here's a quick one-liner for all the regions, check out more details on each regions own dashboard.

Northland shows a stable market with just a slight concern over low inventory

Auckland is still a tight sellers' market, there is some easing but not much so buyers beware

Waikato is a very active market favouring sellers with still strong price inflation

Bay of Plenty is definitely a sellers market, its tough for buyers

Gisborne is a balanced market with some price pressure

Hawkes Bay is a well balanced market although there is pressure on inventory

Taranaki is a challenging market with high price growth despite ample inventory

Manawatu / Wanganui is a balanced market but is seeing prices falling

Wellington is a well balanced market enjoying a good pace of sales with little price pressure

Nelson is moving into a sellers' market as faster pace of sales meets low inventory

Marlborough is a well balanced market with the pace of sales picking up

Canterbury is a very strong sellers' market as it has been for a long period

West Coast is a very slow property market yet with a high price inflation

Central Otago is a sellers' market with very strong sales pace and tight inventory

Otago is a well balanced market with neither buyer nor seller advantage

Southland is a challenging market especially for sellers, buyer approach cautiously!

 


Follow the money in the real estate industry

by Alistair Helm in


As I have expounded before, when it comes to the real estate industry the subject of money is little discussed and little understood. I have sought to answer the often asked questions as to what are the real estate commissions charged by the large companies? what does a real estate agent earn? and also just how efficient is the real estate industry?

To add to this list I have for quite sometime been meaning to do an analysis to see exactly where that c.$18,000 of commission fees goes when the property transaction goes unconditional and the selling agent collects the deposit from the buyer from which they are entitled to deduct their fees.

In the calendar year 2013 the 80,119 property sales reported through the Real Estate Institute’s members generated a total sales value of $40 billion and a commission fee of $1.4 billion in residential real estate alone. The question I think should be asked and investigated as to the flow of this revenue stream as to who are the beneficiaries. I make the statement of beneficiaries not as a judgement in any way on any party to the real estate service, I merely believe it is insightful to see the flow of money.

Firstly the $1.4 billion in commission fees actually scales up to $1.6 billion when the GST is added, meaning that the average amount property sellers paid to real estate agents was just over $20,500.

As far as following the money the first beneficiary is the government - a tidy $200 million a year of GST on the transaction invoice comes right off the top the government. In fact when you add up the total tax take including GST plus notional PAYE and company tax I would conservatively say that the government coffers benefit to the tune of $400 million a year from the operation of the real estate industry. This total conveniently matches the total budget for the Ministry for Culture & Heritage with a 2013 budget of $398 million - seems somewhat fitting that the real estate industry effectively under-rights Arts & Music, Broadcasting & Films, Sport & Recreation and Heritage.  

This significant take by the government however only represents just under a quarter of every dollar that sellers pay to real estate companies, the balance - 76% or in total $1.2 billion is distributed as represented in the chart below.

The largest chunk - a total of $610 million representing $37 in every $100 paid by sellers goes to the people who provide the services to the sellers of property - the agents or more appropriately titled licensed salespeople. There are around 10,000 of them in residential sales. So the reality is that agents see only just over a third of the total money paid by the seller.

Somewhat surprisingly only $7 of every $100 that vendors pays in fees goes to the marketing of their property (or in fact marketing in general as this total of just over $100 million includes the real estate companies and agents own brand marketing) - given the desire by sellers to see the property sold which as a natural precursor requires a marketing campaign, it may comes as a surprise just how little of their money is spent on marketing.

A large portion, $27 in every $100 paid by property sellers goes to the business owners who run the real estate industry, not for those flash high street offices as this cost is separately accounted for as $5 in every $100; but to the structures and operations that support the individual real estate agents whilst they are out and about prospecting for business and negotiating the sale.


Notes: These calculations are based on the starting point of the sales data from the Real Estate Institute, to this I have added published data from some individual real estate companies (Barfoot & Thompson and Ray White) together with market share analysis of the market to create a model of the sales value by company. I have then factored in the average commission split between salespeople and offices as well as commission rates recognising regional variances and factors for median price. Lastly I have estimated the franchise fees charged by the groups based on market intelligence I have acquired over the many years I have worked in the industry. I accept that there is a lot of estimation in these calculations but as an indication I believe them to be robust enough to publish.


Just how unique is the NZ Property Market?

by Alistair Helm in ,


We are all too accustomed to articles stating that NZ house prices are “amongst the highest in the world” / “over-valued as compared to rents” / “driven up by tax advantages” / “being inflated by overseas buyers

I read these articles and accept the often highly respected authors for their bullet-proof assertions. Clearly we must be unique in the world and standing by as we witness house prices spiral out of control as according to a recent Gareth Morgan article in the NZ HeraldNew Zealand is unusual in the world in that it pretends housing isn't an asset like bank deposits or company shares”. Again I respect Gareth Morgan as a credible economist and a broad thinker, I may not always agree but I do respect his views.

So set against this backdrop of opinions and analysis I decided to seek out some data to compare NZ with other countries. The natural partner for comparison are the markets of Australia and the UK. I am grateful to the assistance of an excellent UK property commentator who helpfully pointed me in the right direction for UK data, thanks Henry Pryor.

The UK data provides a mix adjusted house price index which mirrors the REINZ Stratified House Price Index and fortunately the data extends back into the 1970’s whilst REINZ data goes back to 1992. Using the index of the 1st quarter of 1992 as the base the two markets track through the next 22 years in what is a surprisingly aligned growth path matching each other for the 22 year rise of 280% to both reach the index level of 383 in the 1st quarter of 2014.

It is worth remembering that the UK has capital gains tax, inheritance tax as well as stamp duty - none of which seem to have either depressed that market nor preferenced the NZ market by comparison. 

If we add in Australian data which provides a valuable benchmark of a similar country albeit of greater scale closer to our trading partners of Asia and the US. Australian data is not accessible back 20 years but a comparable Property Price Index is available from 2002. Given the property bubble that all markets experienced in the mid 2000’s I decided to approach a comparable index for the three countries not on an aligned time period but rather indexed on the starting point being the peak of their respective property price index before the property crash caused by the GFC in 2008/9. For NZ property prices peaked in the 3rd quarter of 2007, the UK peaked in the final quarter of 2007 with Australia in the 1st quarter of 2008.

What transpired next is ably demonstrated in the chart below which shows the shallow fall experienced in Australia before a very strong recovery at a time when the UK and NZ markets continued to weaken. The UK market suffered the worst seeing the index fall 18% before rising whilst NZ fell 10%. 

It took Australia just 5 quarters for prices to recover from the peak of the pre-GFC collapse compared to 4 years for the UK and close to 5 years for NZ. Subsequently all 3 markets have experienced resurgent price inflation that now sees the Australian market 26% up on the prior peak of 2008 as compared to 16% and 18% rises for the UK and NZ respectively.

Such clear alignment of pricing trends despite the very different tax policies designed to milk the property market or stimulate the property market would seem to point to the view from the analysis that the NZ property market is not that unique, if anything it is incredibly similar to these other markets and despite the best intentions of politicians the market would seem to move aligned to factors well outside of such policies.


The regional view of Auckland's property market

by Alistair Helm in ,


I hope I can be forgiven for focussing repeatedly on the Auckland property market. I know there are other regions of the country and they have quite unique property markets impacted by factors far removed form those of Auckland. The fact is though, that Auckland is the largest region, accounting for around 36% of all sales nationally added to which the data for Auckland is just that bit more comprehensive.

Up until now the analysis I have undertaken of the Auckland market has been restricted to seeing it as one market, however the data is available to analyse the region across what are still recognised as the historical boundaries of North Shore, Waitakere, Auckland City and Manukau. So I have crunched the numbers to paint a clearer picture of what has been going on across these four regions over the past 6 years. 

As a reference point I undertook some evaluation of the multiplicity of property data on the Auckland market recently and determined that the key data was the REINZ Stratified price index and the QV valuation index. However when it comes to the regional data there is no stratified data published by REINZ so I have used the median price data calculated on a 12 month moving average. This method provides a clearer view of trends.

But before looking at the price trends, let's start with volume sales. On average 2,100 sales a month are completed across the Auckland region with Auckland City representing the largest share at 39%.

In terms of sales trends over the past 6 years I have indexed sales to the 12 months moving average to January 2008 at 100. 

As can be seen the most active region has been the North Shore which rebounded first and most significantly from the property crash and has gone on to lead sales growth over the past 6 years. Having said that it was also the first region to peak in September last year and is now closing in on the same sales levels as 6 years ago.

The Waitakere region has seen a very strong growth in sales over the past 2 years although sales peaked in December last year and now have slipped below the base of January 2008.

The performance of the Manukau region is the weakest of the 4 regions suffering the largest fall off through 2008 and then again in 2010 and has not attained the level of sales achieved through the 12 months to January 2008. 

In terms of price appreciation I have used the same method I use for the Property Dashboard which is to calculate the variance between the current 12 months moving average median price and the prior 12 months moving average median price.

The chart below tracks the 6 years from January 2008.

The most significant region is Waitakere which has witnessed a recent marked rise in property prices starting in December 2012 at 5% year-on-year growth and rose very steeply for 12 months to hit 20% year-on-year growth before tailing off in the past 6 months.

The other regions have equally seen price appreciation rises of up to 15% over the past 2 years although all have seen a tailing off of growth. As with sales performance the Manukau region continues to lag the other regions of Auckland.

 


July Property Market Statistics

by Alistair Helm in ,


graphs iStock_000015752104Small.jpg.png

The latest set of data released by the Real Estate Institute provides a further update on the state of the property market around the country. I have taken the details of sales volumes and prices and inputed them into charts to provide some clarity around the key trends and what that can tell us about the current market and the outlook for the next year.

 

Sales Trends

In terms of property sales the number of sales per month keep slipping - 5,893 properties sold in July, down 13% as compared to July last year. This takes the total for the first 7 months of the year to 42,057 as compared to the first 7 months of last year with a total of 47,423 a decline of 11%. 

The market peaked in October last year when the moving annual total hit 80,677. The current moving annual total has slipped to 74,753 as shown in the chart below.

Property sales are the lead indicator of the market and as such tracking a trend in sales is key to the potential future outcome of the market in price movements. As such the next chart is important as it looks at a 3 month moving average period of sales data. This is showing a change in the trend in sales volumes as the rate of decline is reversing and potentially in a couple of months we could well be seeing year-on-year increases again.

The factors behind this reversal of the decline in sales is a shift in the balance between the positive effect of the broader economic growth pitched against the financial constraints placed upon the market by the combination of LVR and rising interest rates. There is no doubt that the latter has had a major impact on sales coming as it did (far from coincidentally) starting in October of last year. However I suspect that the improving sentiment around recent references to delays in future increases in interest rates and potential loosening of LVR policy may be bringing about this reversal with the underlying economic strength winning through.

 

Price Trends

Pricing as stated earlier is more of a lag indicator of the property market and this is seen in the latest set of statistics of the Stratified Median Price Index from REINZ. The data is reported monthly for each of the main 3 metro areas as well as the whole of NZ and the balance of the North Island and the balance of the South Island excluding these main cities.

Detailed below are the chart for each of these 6 views of the property price trend covering the past 7 years tracking the latest data for July matched to the peak of the market pre-GFC and the bottom of the market in late 2009.


New Zealand


Auckland


Wellington


Christchurch


Other North Island (excluding Auckland / Wellington)


Other South Island (excluding Christchurch)


Does the General Election impact the Property Market? (Updated)

by Alistair Helm in ,


It is a question that I have often heard asked.As well as being a regular explanation made when laying the blame for a period of quieter sales leading up to the general election.

So the question is - are there any facts that can be brought to bear to substantiate or dispel this belief? I have never seen any factual analysis - that is until now!

There have been a total of 7 general elections held over the past 22 years for which accurate property sales statistics have been kept by the Real Estate Institute. That should be sufficient data to provide some insight.

The question is then how to evaluate the period running up to the election as compared to a normal period to see if there is an effect? A further and broader question: is when is there ever a normal period in the property market with so many variables at work? In my view looking at year-on-year sales volume variance is not robust enough; whilst it deals to the seasonal factor it is open to the influence of different stages of the property market cycle.

The measure I have came up with is a seasonal comparison. It uses the 3 preceding months leading up to each general election date and calculates the representation those months were of the total sales for that year. I then compared that % representation as a single figure against the normal for the same 3 months of the year based on a larger set of preceding data going back to 1992. In other words to take the example of the last general election in November 2011; I took the sales for the months of August / September / October of 2011 and calculated that against total sales in 2011 which was 8.84% I then compared that to the normal average of the months of August / September / October across all years from 1992 to 2010 which was 8.59%. So in this particular case I would say that that election in 2011 saw no negative impact on property sales in the lead up to the election, in fact sales were slightly ahead of normal.

Here is the result of this analysis for each of the 8 general elections since 1993.

What to make of these results?

You could say that on average general elections depress property sales as 5 of the 8 elections caused property sales to decline as compared to normal. However there is no real consistency. The completely and significant opposing variance in the results for 1993 and 1996 are too significant to ignore.

I did look at the issue of political leaning of elections as a factor. National won the '93 & '95 elections and the '08 & '11 elections which saw varied outcomes, whereas Labour's impact in winning the other elections all of which lead to falls in sales - maybe the political factor is key?

Without a convincing answer I reflected on the impact economic sentiment has on the property market at the time of each election. I plotted these variance to the norm for the 3 months run up to each election against the GDP trend from Reserve Bank data.

Now in my view this correlation makes sense and aligns the election to the cycle of GDP as follows:

1993 - GDP on a surge, economic optimism = 14% rise in relative sales

1996 - GDP declining, economic pessimism, compounded by first MMP election = 19% decline in relative sales

1999 - GDP starting recovery from Asian crisis, economic caution = 7% decline in relative sales

2002 - GDP cautious recovery from post 2001 falls, economic caution = 2% decline in relative sales

2005 - GDP declining, economic caution = 1% decline in relative sales

2008 - GDP collapsing, economic pessimism = 5% decline in relative sales

2011 - GDP recovery, growing economic confidence = 3% rise in relative sales

So it would be safe to say that not surprisingly the impact of an election on the property market is more a reflection of the economic confidence at the time than any across- the-board view that elections dampen property markets.

As to September 2014 well with one month's data in the system, I am sorry to say for all those looking to blame the election for a dampening of sales results - doesn't look like it!

 


Detailed below is the full table of data:

Date of General Election3 months preceeding election     Avg of 3 monthsVariance to the normWinning partyTermNotes
            
6-Nov-93Aug Sep OctActual monthly representation9.35%9.34%9.60% 9.43%14%National2nd termSwing to Labour
 NormControl norm8.14%8.14%8.45% 8.24%    
            
12-Oct-96Jul Aug SepActual monthly representation6.20%7.27%7.41% 6.96%-19%National3rd term1st MMP election
 NormControl norm8.25%8.67%8.80% 8.57%   Weak National
            
27-Nov-99Sep Oct NovActual monthly representation7.99%7.89%8.51% 8.13%-7%Labour1st termSwing to Labour
 NormControl norm8.35%8.75%9.21% 8.77%    
            
27-Jul-02May Jun JulActual monthly representation8.92%7.36%7.67% 7.99%-2%Labour2nd termWeak National
 NormControl norm8.52%7.89%7.93% 8.12%    
            
17-Sep-05Jun Jul AugActual monthly representation7.68%7.79%8.22% 7.90%-1%Labour3rd termResurgent National
 NormControl norm7.90%7.91%8.23% 8.01%    
            
8-Nov-08Aug Sep OctActual monthly representation7.52%8.02%7.96% 7.83%-5%National1st termStrong National
 NormControl norm8.14%8.14%8.45% 8.24%    
            
26-Nov-11Sep Oct NovActual monthly representation8.54%8.17%9.81% 8.84%3%National2nd term Defeated Labour
 NormControl norm8.14%8.45%9.17% 8.59%    
            
20-Sep-14Jun Jul AugActual monthly representation8.12%   8.12%1%TBA  
 NormControl norm7.99%7.94%8.14% 8.02%   



Update: 22 September

With the election now over it is useful to add in the remaining months of July and August to make an assessment as to whether the 2014 election did impact the property market.

Sales in June as detailed above equated to 8.12% of the year, July equated to 8.36% and August 7.64% - these results take the average for the 3 month lead up to the election to 8.04% which is just slightly ahead of the expected 8.02% - that would seem to indicate that the property market was not effected by the election.



What's behind the banks approach to LVR policy?

by Alistair Helm in ,


Image courtesy of the Reserve Bank of New Zealand

Image courtesy of the Reserve Bank of New Zealand

It is now 10 months since the Reserve Bank implemented its LVR policy, the macro-prudential tool designed to bring a cooling effect to what was clearly a heated property market, especially in Auckland. 

Ten months in which the property market has seen a significant turnaround. The market was already loosing momentum during the winter of 2013, having seen over two and a half years of volume growth when sales had risen on a moving annual total from 55,000 to 80,000.

NZ sales MAT Jun 2014.png

However the impact of the LVR policy by the Reserve Bank in October last year effectively stalled the engine of the property market. From a peak of 80,677 in October last year the annualised total of property sales has already fallen to 75,637 and year-on-year monthly growth has been negative since October plummeting to a 20% fall in April.

Prior to the implementation of the LVR policy limiting lending above 80% loan-to-value to 10% of the total loan pool of the retail banks, this higher risk / low deposit sector was accounting for upwards of 25% of the total lending - at least that was what the data released by the Reserve Bank showed for the months of August and September of last year. Now I can fully believe that these months were somewhat inflated as those prospective buyers with low deposits rushed to take advantage before the door closed on these 90% and 95% mortgages.

The make up of the customer base of these high loan-to-value loans is hard to accurately identify. Certainly there would be 1st home buyers, however there is no way that close to 1 in 4 of property buyers were at anytime 1st time buyers, more likely would be a number around 10%. The other customers of these high loan-to-value mortgages would be a mix of investors and speculators. 

Investors like to leverage their purchases allowing them to acquire a portfolio of properties whilst maintaining an available cash pool for future opportunities so they like 90+% loan-to-value mortgages - the low deposit multiplies the appreciation of the property in relation to their return on investment.

Speculators also like high loan-to-value mortgages as it frees up cash for property renovations and improvements without having to constantly go back to the bank for progress requests for additional funding - speeding up their process of renovation and subsequent sale. 

There is no doubt these 3 segments of the property market were active in the the period of 2011/2012 as these 3 groups and particularly the latter two are generally good at reading the market and getting in quick before the market rises and then sticking or flicking (in the case of speculators) as the market ramps up.

The subsequent months since October of last year have shown a significant slowing of the lending to these 3 segments.

As the chart shows the subsequent months (with the exception of October) has seen the retail banks lend considerably less than their allowable quota of 10% of all loans (based on a 3 month moving average). 

Now here is the question. How complicated is it for the major retail banks to manage the lending to optimise this segment of the market whilst at the same time ensure that they do not breach the 10% threshold?

You would think that given retail banks make profits from lending rather than hoarding they would be keen to continue to lend high loan-to-value mortgages to these customers based on the situation that if they did not, then some other bank might, after all they do operate in a highly competitive marketplace. Certainly the banks have advanced computer systems, modelling capability and staff to be able to manage that threshold day-by-day and hour-by-hour to ensure that they leant exactly 9.9% of their loan book each month. So why is it that over the course of the past 10 months instead of lending $3.9 billion of high loan-to-value mortgages they have only leant $2.7 billion? - they have in effect collectively denied themselves the opportunity of lending an extra $128 million per month for 10 months!

The answer to the question may lie in two alternate scenarios:

Scenario 1 - Banks hide behind Reserve Bank

Retail Banks despite their commercial imperative are conservative businesses and they mitigate risk. They also operate within a highly regulated industry. Their objective is to defray risk by ideally lending to low risk borrowers at higher rates than they pay to depositors on safe assets. Now property, especially residential property is generally regarded as a low risk asset. However the past decade has taught us all to regard nothing as low risk. Whilst the worst of the excesses of the sub-prime mortgage market was never close to our shores, the ripple effect was felt and has created a sense of caution in the banking industry. 

The Reserve Bank action in implementing its LVR policy effectively provided the retail banks with a legitimate escape card to which all of them could with one voice state that prospective customers should take more responsibility for the asset they wanted to buy by having a greater deposit than the traditional 10% or 5%. In one fell swoop the retail banks managed to avoid a great chunk of risk. Sure the impact was a collective loss of lending opportunity but given the favourable underlying economic conditions and the fact that the impact fell evenly across all banks there could be argued a view that the banks collectively were happy to shave a small amount off their earnings for a significant reduction in risk.

This is merely a hypothesis but one that to me, has a degree of logic, I am not an economist but I feel there could be a part of the rationale at work within the retail banking industry over this issue.

 

Scenario 2 - Banks can’t sell these high Loan-to-value mortgages

An alternative scenario is one that I have not heard voiced, so I’ll give it a go!

There is actually insufficient demand to fulfil the supply side opportunity of high loan-to-value mortgages at the current 10% threshold

This logic relies heavily on a recursive argument that the impact of the announcement of the implementation of the LVR policy certainly can be seen as having a rush-for-the-door effect before the 1st October deadline and that mild panic matched to a clear media messages after the fact that banks were becoming highly restrictive of such high loan-to value mortgages would have had a dampening effect on demand.

That dampened demand certainly lead to a slowing of sales, which was quickly reported in the media, which in turn lead to talk of the deflation of any property bubble, which whilst in principle a signal that should send a message of comfort to the market, actually caused a reaction from a core target market for these loans (being primarily investors and speculators) who believing that the market had peaked. They then judged that this was the time to exit the market, either through consolidating their portfolio or selling properties. This action suddenly and significantly depressed this segment of the market, possibly from a level of 15% - 20% of the market down to 5% of the market.

Add to this behaviour another key issue of the Reserve Bank data as presented in the charts and numbers - the total value of mortgages each month as reported by the Reserve Bank is defined as ‘Total New Commitments’ - this sum $4,499 million in the case of June is the total value of all new written mortgages and includes refinance mortgages, especially including a significant component of moving from floating to fixed rate mortgages.

The fact is over the past 10 months and especially the past 6 months with the clear signals of impending OCR increases the residential mortgage market has transitioned back to fixed term mortgages. This will have driven the total of 'new commitments' and therefore will have had a depressing factor on the percentage of high loan-to-value mortgages.


So having presented the two scenarios I take the view that what we have seen in the market is probably a combination of both scenarios. Banks like to negate risk, it is highly probable that investors and speculators have moved to take a back-seat int he market and the re-mortgaging factor has also been at play.

The only party therefore who have been a pawn in these moves has been true first home buyers who have been significantly effected by the LVR policy and also by rising interest rates. As to whether they are heading back into the market as witnessed and reported in the media, I doubt it and sadly there is no accurate data to back this up.

 

 


Auckland property prices - so much data!

by Alistair Helm in


There are now 6 separate sets of property price measures for the Auckland market. All of which are seeking to provide an insight into the trend of price across our largest city. This barrage of statistics published in our daily newspaper is enough to confuse at best, and paralyse at worst, the most ardent of property buyer / seller / investor and even agents!

Here was how the first 2 weeks of July appeared in the Herald:

2 July: Barfoot & Thompson - Auckland's biggest real estate agency has this morning released sales data for June, showing a slight decline in sales volumes but average sale prices up $11,088 in the 30 days - which equates to a daily price rise of $369.60.

7 July: QVQV said the Auckland region as a whole had increased 2.7 per cent over the past three months and 12.3 per cent year on year

14 July: Realestate.co.nzThe country's largest house sales website showed Auckland's asking price hit a new all-time record of $732,240 last month.

14 July: REINZ - The stratified median housing price index showed that in Auckland, prices rose 1.6 per cent in the month

Fair to say that an average person could walk away from reading these reports from the first 2 weeks of the month with a sense of confusion as to which set of data to trust and belief. Sure they all point to rising prices and some speak to hitting a peak, but the margin of increase varies considerably as does the indication of a trend.

Charting these separate measures produces a chart that is worthy of some analysis and commentary.

First let me explain the format of the chart. All of the price data has been indexed to a base of January 2008 = 100 and all monthly data has been computed on a 12 month moving average which makes it easier to view in terms of trends and also excludes the seasonality that impacts all property stats.

As you can see there is a fairly significant disparity between the highest index in June (REINZ median price at 136 as against the lowest being the Realestate.co.nz Asking price at 126. Equally as you will see the path of the index through the property crash in 2008/9 saw some of the measures drop by 10% (QV) whilst others barely dipped into negative (REINZ median price).

Examining each of these as to their composition provides a method of evaluating the value and relevancy of each.

1. Realestate.co.nz Asking Price

This measure is actually the odd-one-out within this group as it measures the advertised price or advertised search price of property coming onto the market, whereas the other sets of data analyse the outcome of sales. A noticeable aspect of this measure is 'consumer sentiment' which tends to result in over estimated values in down-turns and under estimated values in up-turns.

This may seem counter-intuitive as you would expect to see over estimation of value - the 'over-inflated expectation of sellers' in bubbly markets as we have been in in Auckland. The reality though is that whilst the vendors may genuinely have inflated expectation, their agents tend to price for search online at more conservative levels as we have seen recently.

So tracking the path of the index of Realestate.co.nz Asking Price shows it currently tracking at the lowest of the 6 indexes over the past 6 years.

 

2. Barfoot & Thompson Average Sales Price / Median Sales Price

The data from Barfoot & Thompson whilst not reflective of the whole of Auckland is more timely than the others and with close to 40% share of the Auckland market and representation in all suburbs, does afford it credibility.

The average sale price though is an imperfect measure of property prices as it is open to skew if the composition of sales in a month changes significantly. For this reason Barfoot & Thompson has started publishing a median price which is a more statistically valid measure of property prices. It is though interesting to see that the median price has crept ahead of the average price over the past 2 years. This situation would tend to occur when sales volumes of extreme high value properties slows in proportion  to other segments of the market. This though would seem to be contrary to the data which shows $2m+ properties have doubled in each of the past 2 years, whilst sales of sub$400k priced properties have fallen off. More likely is a situation where the majority of sales in the $500,000 to $1,000,000 bracket have edged up significantly driving that median from $450,000 to $625,000 in the space of just over 3 years.

 

3. REINZ Median Sales Price / Stratified Median Sales Price

The data collated by the Real Estate Institute is the most comprehensive and timely data in that it aggregates sales records from its members as licensed real estate agents who account for around 90% of all transactions each year. The data is of unconditional contracts and thereby is recorded closer to the date of transaction than settlements registered at LINZ and utilised by QV for their data. 

The REINZ median sales price has been reported monthly since 1992 and is one of the most complete data sets for the whole country. However as presented in this chart, the index is the highest of all the data sets presenting what from outside would seem to be an optimistic view of property prices as it hardly reported a dip in sales price in 2008/9. 

The reason that the median price in Auckland as reported by REINZ is so out of kilter from the other metrics is exactly the reason why REINZ implemented the Stratified Median Sales Price in 2010. The Stratified price index makes adjustments within the market to ensure the composition of suburb sales is representative when the market tends to skew towards certain suburbs as has been the case in Auckland over this 7 year period. For this reason the Stratified price index provides a much more accurate representation of true price movements and the trend on the chart certainly bears this out.

 

4. QV

The data from QV is in many ways the most accurate, yet it does suffer somewhat from lagging the other data sets, requiring as it does the data from property settlements and title changes to be registered at LINZ. Something that largely happens online nowadays and thereby removes some process time delays.

The data is not reported as a median or stratified median but is analysed to assess the actual sales price of each property sold against the estimated property valuation that QV has on record for every property in NZ. So their system and the resulting valuation index is a closer evaluation of the trend in core property values and takes into account the improvements and developments that are undertaken on properties that do materially effect the value of a property which are not accounted for in any of the other data sets and can cause skewing of data. This factor has been a driving component of the Auckland property market for many years as the pace of gentrification of the inner suburbs has seen extensive renovations drive enormous price movements


One of the benefits though of these numerous data sets of property prices in Auckland is the ability to see the variance between these data sets on the chart and also to provide the ability to visually see the the set or sets of data that are in someways the midpoint and therefore the most likely to be the most accurate. From my reading of the data this would be the QV valuation data and the REINZ Stratified median price. Both of these data sets benefits from computational analysis by qualified and trusted professionals. In the case of the REINZ Stratified price with the assistance and guidance of the Reserve Bank and in the case of QV the professional teams of valuers and the resources and skills of Core Logic.

What I find very interesting is that it would appear that the Barfoot & Thompson median price data tracks very accurately to the trend of these other two. It may still be a bit too early to tell for sure, but the indication is clear. This could well be the result that Barfoot & Thompson sales are a true representative sample of Auckland property without extreme outliers.




The shortage of property myth

by Alistair Helm in , ,


It has been a constant refrain of the property market commentary for many years - "there is a shortage of property on the market"; "property shortages driving up prices" etc.

The reality is that compared to 2008 there is a shortage.

In that year there were 163,488 properties listed for sale and sales totalled 56,071 indicating a clearance rate of just 34%. Compare those figures to the latest data showing that in the past 12 months just 130,307 new properties listings were added to the market. Sales over the past 12 months to June 2014 have totalled just 76,637 indicating a clearance rate of 57%. Simply put more of the properties that are listed today are selling than in 2008 and the number of properties listed is down significant;y.

However as with all statistics, every conclusion you draw is influenced by the data set you choose. 2008 as we all know was the start of the Global Financial Crisis and the worst year for NZ property for many generations. Judge anything against those days and the picture will be skewed.

If on the other hand you line up the data for the first 6 months of each of the past 7 years for which data is available, the picture is very different. (Note there is no listings data prior to 2007).

Total property listings for the first 6 months of each of the past 6 years have barely changed. This year, total listings have reached 63,436 properties listed for sale; hardly any change from last year or the prior year, 2010 saw a bit of a rise in listings. So to say we have a shortage of listings is stretching the truth.

The fact is that we now operate in a very stable supply market. Much as real estate agents may wish to see more properties on the market, the fact is levels in 2007 and 2008 are purely historic fact not a target to be achieved.

Even in Auckland where the pressure in the property market is judged to be felt the worst, listings are barely changed comparing this year to last or in fact any of the past 6 years - the Auckland property market is experiencing a steady supply of new listings. So steady that you could be fairly confident that the balance of 2014 will see a further 22,000 properties listed between July and December.

New listings Auckalnd Jan June.png

Clearly the number of new listings alone does not tell the whole story of the property market, especially in regard to pressure of demand on even a stable supply and so to the above stats you need to represent the level of property sales as in the chart below.

Across the country in the first 6 months of this year total sales have reached 36,164 down 11% as compared to the first 6 months of 2013, whereas listings have barely changed. In terms of a clearance rate in these first 6 months of this year the total sales of 36,164 represent, as noted earlier 57% of the new listings. A year ago the figure based on the first half of 2013 was 62% indicating that there is less success in property sales and therefore clearly no shortage.

Focusing on the Auckland market there is no doubt that here the clearance rate of property is far higher. For the first 6 months of this year a total of 15,090 properties have been sold with a total of 21,002 new listings - a clearance rate of 72%. The same time a year ago the clearance rate was 78% indicating the easing in any pressure in this market over past year with that steady supply and slowing sales - therefore no shortage! 



Property websites becoming more and more valuable

by Alistair Helm in


Imagine a property website dedicated to the Christchurch market, not the whole of Canterbury, but just serving the Christchurch market, a population of around 350,000 people. A nice tidy little business especially if it was the website of choice for buyers, sellers and renters in Christchurch.

Now imagine if the news tomorrow stated that this website was just bought by Fairfax media for $53,000,000!

In effect this is what happened today, not in NZ but in Australia as Fairfax owned Domain (the second player in the Australian market behind Realesatate.com.au) acquired the website of AllHomes. It serves the Australian Capital Territory - a region of 381,000 people. 

The website is the leader in this market. It is forward thinking as it has moved beyond a subscription service to charge a listing fee of not $159 per listing as Trade Me is now charging but upwards of A$600 a listing.

Certainly Fairfax is paying a fair premium to achieve consolidation in this market in order for it to better challenge the supremacy of Realestate.com.au. It will have to be seen as to the success it has in running the site as a separate business before integration into the Domain stable.

Benchmarking this acquisition is difficult as city specific property portals are rare. However on a population basis this acquisition values the Allhomes business at $139 per person in ACT. This compares with a current valuation for the REA Group which owns Realestate.com.au edging over $6 billion which equates to $277 per head of population in Australia. Both of these far surpass the collective value though of the two powerhouse property portals in the UK Rightmove and Zoopla which with a combined market capitalisation of over $6 billion equates to a value per head of population of just under $100.


New Property Dashboard brings greater clarity to the state of the property market

by Alistair Helm in , , ,


The current Property Dashboard has proved to be of great value to buyers, sellers and agents alike as over the past 15 months it has grown to be one of the most accessed (and thereby hopefully valuable) parts of this site.

However I have felt that whilst its simplicity of design has been appealing, its measure of the market based purely on inventory was somewhat limiting. To really get a sense of "what's happening in the property market?" needs a view into two other key metrics to add to the available inventory of properties on the market. These are the pace of the market and the trend in prices.

I have therefore undertaken an upgrade to the Property Dashboard and extended it from a single gauge to 3 gauges.

I have in addition to adding these two new gauges for 'pace of the market' and 'price' adopted a consistent approach to the colour segments so a to ensure that each colour represents a consistent state of the market seen across the three measures of the market as detailed below:

Properazzi Property Dashboard - June 2014.png

I have at the same time undertaken more analysis of the 5 years of data from Realestate.co.nz from their monthly NZ Property Report and the REINZ data for the same 5 year period to ensure the segments of each gauge reflecting the Stable Market / Declining Market / Heated Market are reflective of the current state of the market

An important differentiation of the new Property Dashboard is that the core data-set for price trend and pace of sales uses 12 months moving averages. By use of this measure, the dashboard will not present erratic swings month-by-month but will reflect a trend that can be seen month-on-month providing a better evaluation of the current state as well as the emerging trend of each market across the country. 

The new Property Dashboard is published for each of the 16 regions of the country for where consistent data is available from REINZ and Realestate.co.nz. Unfortunately due to changes made to the monthly reporting by REINZ, regional data for dashboards of the Coromandel region, the Wairarapa and the Central North Island regions are no longer available.

The Property Dashboard will be updated monthly upon the release of the relevant data from REINZ and Realestate.co.nz which is likely to be around the middle of the month.

 

Property Dashboards for all regions of New Zealand



The real estate industry's transition to digital marketing

by Alistair Helm in , ,


Walk past any real estate office and you will likely see a couple of wire framed baskets chocked full of the latest copies of the local property magazine - in Auckland these tend to be for Property Press, The Herald Homes and then there are some other local options and usually these days a Chinese language real estate magazine.

I don't need to procrastinate on the visual pollution these create on the high street or the lack of value they represent, nor the fact they never seem to diminish in number of copies until the next week's edition rolls in. The fact is the world over real estate marketing is going digital - it's only a matter of time until we see less of these publications cluttering up our footpaths.

The scale and pace of this transition is something I am often asked about when providing advice and consulting to businesses. I hold a fairly detailed and what I think is accurate picture of this for New Zealand. So it was with great interest whilst reading the Prospectus for the IPO for Zoopla Property Group the operators of the UK property portal Zoppla that I found data for the UK market on just this subject.

Quoting from the report:

According to Ender’s Analysis, total UK classified property advertising spend was £389 million in 2012,
comprised of a 45 per cent and 55 per cent split between digital and print advertising, respectively
— Zoopla Property Group prospectus (page 48) - June 2014

It is anticipated that during the current year in the UK year the total spent on digital marketing by the real estate industry will for the first time exceed that spent on print advertising. In total the UK real estate industry will spend  £427 million on advertising this year. The future trend estimates for the next 3 years clearly show an accelerated divergence between print and digital with digital set to grow by 50%.

Screenshot_10_06_14_10_34_am.png

In New Zealand the make up of the spend by the real estate industry is somewhat different. Print media has done a laudable job of defending its position and through its relationship with the major franchise groups has constrained the digital media spend to less than 20% at this time, although it is, like the UK forecast in my estimation to grow significantly in the coming years. It is though not expected to exceed the print media spend in the next 3 years.

Clearly the drive for the cannibalisation of the print media across the globe holds the prospect of a significant pot of gold for the challenging companies in each country which more and more these days are publicly listed companies of significant value; be that Rightmove and Zoopla in the UK, Trulia and Zillow in the US or REA Group and Domain in Australia. Each is fighting for an ever greater share of the cake of advertising dollars of its customers - the real estate agents of each respective country. In New Zealand we have the challengers of Realestate.co.nz and Trade Me Property - a duelling pair, however the pot of gold for which Trade Me aspires may not be the same reward sought by Realestate.co.nz as an industry owned portal.

Comparing such data of advertising dollars between countries is hard to undertake unless some benchmark can be established. For this analysis I have chosen to index the NZ and UK real estate digital marketing spend by an index to the number of property transactions in NZ$ terms. Presented below is this analysis showing the extent of advertising spend per country over the past 7 years per property sale. In the UK total property sales over this time peaked at 1.23 million in 2007 before falling to 616,000 in 2009. In NZ over the same period sales peaked at 92,000 in 2007 before falling to a low of 56,000 in both 2008 and 2010.

Interesting to see the NZ real estate industry spends more per sale than their UK counterparts. The relative difference in the digital spend is staggering - a two and a half times factor. It makes the whole discussion around the relative cost / value of a charge of $159 per listing from Trade Me seem a bit moot!

The other point to note in this index comparison is the fact that the total of NZ$1,065 spent per property sale by the UK real estate industry comes straight out of their commission margin where average commissions on sale are around 1.5% whereas NZ agents who charge around 3% commission on sale price secure around an average of $200 per sale of vendor marketing contribution to offset their average spend of NZ$1,244.