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. 


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!

 


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.

 

 


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! 



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



Is there really a shortage of properties for sale?

by Alistair Helm in , ,


We have been seeing statements in the media for years now, stating how we have a shortage of properties for sale - ever since the property crash in 2008 in fact. However the question I constantly ask (myself as much as anyone) is, if this were a real issue then how come it could continue to be a real issue 6 years later?

I wonder if this issue is as much a function of available data as an intrinsic problem. Prior to 2008 there was no available data on inventory or new listings - the supply side data of the property market. Up until that time the only available data on the property market was transaction data on sales volumes and prices. Then in April 2009 Realestate.co.nz published the first NZ Property Report covering the market in March 2009 looking back 15 months to January 2007. This report provided a whole new set of data particularly centred around new listings and inventory as well as asking price.

The data set of the NZ Property Report covered the period from January 2007 as this was judged the most accurate starting point, due to the fact that the database for the website was truly reflective of the whole market from late 2006 - the inaugural year of the website.

The problem is that without data from say the nineties and early years of this century we have difficulty in accessing what a normal market was, as 2007 was the last of the froth of the property market before the crash and subsequently the market has moved into very different modes over the past 6 years.

I thought I would look at the core data and see what components are valid and what we may be able to shine a light on to see a clear picture of the market to be a true indicator of trends and to answer the question as to whether there is a shortage of property for sale.

 

1. Inventory data

The actual level of available property for sale on the market over the past 6 years has not changed that much.

Screenshot_11_04_14_7_26_am.jpg

It has been as high as 53,000 properties and as low as it is today at 39,000 properties - but then at 39,000 properties that is nearly half of the total current annual sales. Certainly buyer and real estate agents would love to see more properties on the market, but 6 months stock is a pretty good level and in relative terms the availability is pretty consistent.

Inventory on its own does not really help us understand the trends in the market

 

2. Sales and New Listings data

The supply side data of inventory and new listings, takes on a greater relevance when assessed against the rate of sales through the addition of the monthly sales data which provides a greater contextual insight.

This chart whilst a little confusing with dual axis tries to capture the key data sets and align them to provide insight. Inventory as per the previous chart is measured in actual monthly levels in the grey area at the base of the chart. The red and blue lines measure listings and sales respectively - both are reported on a moving annual total basis. This method of reporting removes the seasonality, so much a component of property data.

The take out from this chart is the almost flat level of new listings coming onto the market over the past 2 years - steady at around 130,000 per annum. Whilst at the same time sales have risen over the same period from an annualised total of 55,000 to 80,000. This shows clearly the component of demand in the market. That demand has not driven more listings to come onto the market despite all the communications from within the real estate industry and yet despite this, inventory has not actually fallen that drastically. This indicates more of a 'liquid market' where sales occur more quickly.

These charts which to me provide insight I know are to many confusing and I have been looking for ages for a simpler indicator of the overall sentiment of the market in regard to supply and demand - something that better answers the question as to the pace of the market and whether there is a shortage of supply. I will note here that I hold the view that price is a lagging indicator and as such tracking the market sentiment of supply and demand will provide the key to future trends in price.

I recently saw this chart from the UK property market showing actual inventory (green bars) matched to monthly sales (blue line).

It got me thinking that this measure had relevance tracking the effective rate of sales each month as a proportion of the available stock.

Producing this chart for the NZ market shows somewhat of a different chart. The seasonality of home sales in NZ seems far more pronounced than in the UK and therefore it is harder to determine easily a trend, whereas I would judge that there are key trends easily determined in the UK data - significant rising sales in the past months matched to falling inventory.

So how to present this data in a meaningful and simple way was the challenge, as I sensed the data contains the core insight needed. Especially at this time where I see the property market slowing and a lack of inventory is not the real issue or the driving factor. 

It came to me! - inventory and monthly sales - what we are really looking at is "Property Clearance Rate" - what percentage of the available stock of properties on the market in a month are sold in that month. A quick analysis produced this chart which shows the ratio of sales to inventory.

Again the seasonal volatility makes it hard to see a trend - the dotted line is a trend line overlaid, but as we all know applying a different fundamental equation to the trend line could produce a different picture! 

Then it came to me - take the 12 month moving average monthly sales and apply it as a percentage to the available inventory and I think we have what to me is a very relevant picture of the NZ Property Market.

Now I could be guilty of endlessly seeking data to fit a story, but in my mind this is a visual of the property market that to me makes sense. It uses the current rate of sale (adjusted to remove the seasonal fluctuations and short term movements), combined with the available stock which is itself the function of existing unsold inventory, new listings and sales.

The telling image from this chart is the sharp rise in the clearance rate once the property market got into gear around 2011 - that rise, from 9% to 19% speaks to the dynamic market we have seen over this past two and a half years. However what this chart graphically shows which I have sensed is that the market has turned. It turned even before we saw the LVR restriction introduced in October as this chart shows the turning point in August / September of last year and the latest data from REINZ on sales in March only reinforces this fact. 

So in my opinion given this declining clearance rate is the key trend and talk of a shortage of properties for sale is nothing but a red herring!

 

 

 


NZ's aspiration for new McMansions wanes

by Alistair Helm in ,


At one time we seemed as a country to be building what the American's describe as McMansions - houses that take on the girth so much a part of modern society. Certainly through the early years of the 1990's we saw average size of new houses built rise from 125 m2 to 170 m2, but of late the average size has been waning.

Screenshot_3_04_14_7_23_am.png

In fact in the last decade based on building consent data we appear to be revising our ambitions or at least realising the impact of greater urban intensification we have hardly seen the average size of new homes change. For a time the average new home did break through 200 m2 but that did not last long.

Now compare this trend with the comparable data from the US over the same 15 year period.

In that time the average US new built home has grown from 204 m2 to the latest data showing that new houses have grown in girth to over 250 m2. A lot of this growth has occurred in the past 5 years - a time when US house building has been in the doldrums after the GFC - that might well identify as the article from which this data was collected identified that "Americans Are Increasingly Buying Bigger, More Expensive Houses".


Latest census provides valuable insight into property in NZ

by Alistair Helm in


The 2013 Census data is being released in tantalising nibbles by Statistics New Zealand over the next 12months. I make no criticism by this comment, I am just eager to see what we can learn from this long awaited census data delayed by 2 years as a function of the Christchurch earthquake.

The data set on households and housing makes very interesting reading and I have distilled what I think are the pertinent facts.

The headline grabbing number that has been capturing the media’s attention is the fact that in 2013 the proportion of the population that occupy a property that they own or partially own as their usual residence has fallen to below 50% - leading to the statement that there are now less people living in their own home than renting. This is significant and a trend that has been accelerating over the past decade. In absolute numbers, the number of people living in their own home grew just 1% between 2006 and 2013 at 1,590,546 whilst the number not living in a home they owned (or partially owned) grew 16% to 1,603,011.

This statistic of more than half the population living in a home which they did not own seemed to be out of alignment with a commonly held statistics of “home ownership” at around 65% which is often quoted. I did find within the Census data the fact that 64.8% of households (of which there are 1,549,890 in NZ) live in a house which they own or partially own. So just to be clear; just less than half the total population now live in a home they own, whilst just under two thirds of all households own their own home. From this we can also infer that the average household not owning their own home consist of more than the average 2.9 people per household - interesting.

Of somewhat greater significance is the age disparity of property ownership. In 2013 the proportion of people aged 20 - 29 years that are living in a property they own dropped to just 27% - 12 years ago in 2001 that figure was 47%. Similarly a significant drop was seen in the 30 - 45 year age bracket down from 84% in 2006 to 75% in 2013. In fact within this age bracket over the past 7 years the number of people living in a home they own dropped by over 86,000.

 

Looking at other insights from the data. The total number of dwellings has risen 7% since 2006 to 1,756,143 of which 185,448 were classified as unoccupied, up 16% from 2006, a further 9,756 properties were under construction.  

This growth in the number of dwellings is lower than the growth between prior census periods which has been of the order 8% - those being 5 year periods where of course this is a 7 year period, further demonstrating how the shortage of new house building has effected the property market.

A continuing trend seen in the census data is the household occupancy rate. This has continued to fall to a new level of 2.87% reversing a small rise between 2001 and 2006.

Finally the composition of the housing stock is gradually changing. The predominant type of property is a standalone house representing 76% of all occupied dwellings, down very slightly from 2006. Within this type two storey properties are growing faster (up 12%) than single storey (up 4%).

Apartments and Townhouses represent 17% of all dwellings, however when it comes to Auckland the figure is 23% and in the inner city centre in the Waitemata Board area the predominant type is not the standalone house, but apartments and townhouses representing 65% of all dwellings up from 57% just 7 years ago. 


Adjusting to a new normal in the property market

by Alistair Helm in


The latest monthly report from Realestate.co.nz tracking the supply side of the property market headlines a story that has been consistent for well over 2 years now. Step back to December 2011 and the report headlined "Active property market still favours sellers". The fact is we have been experiencing a property market with what we constantly describe as a shortage of supply for close on 3 years now. 

At some point you have to ask are we merely living in an aberration of the norm, or is this the norm?

The chart below ably demonstrates the supply constraints which the market has experienced as measured by the availability of houses for sale set by the number of weeks it would take 'in theory' to sell all the current stock based on current rate of sale per week.

Inventory Nov 13.png

We certainly experienced a period when inventory levels exceeded a full year and topped 60 weeks back in 2008, but for the period of the last two and a half years the level of inventory has settled to around 6 months levels.

The fundamental problem we face in analysing the property market is access to data. In regard to sales data we have through the Real Estate Institute sales data by month going back to 1992 which allows us to identify the cycles of the market - the highs of the mid 90's, the lows of the late 90's the bubble of the mid '00's and then the crash and subsequent recovery. However when it comes to supply data we are limited to the past 7 years as the database of Realestate.co.nz only really became reliable from January 2007.

It is therefore somewhat risky to assume that the levels of inventory below the 26 week level is exceptionally low and assume that the 7 year average of 37 weeks is the norm. It is quite likely that the norm may actually be 26 weeks and the 50+ weeks levels the aberration. In fact from a cursory reference to some overseas markets 26 weeks seems to be the norm.

Supporting this proposition is a further analysis I have undertaken on available data examined the trending of both sales and listings across the country over the past 5 years using a 12 month moving average to eliminate any seasonality and look to see a long term trend. The insight is valuable.

NZ sales & listings trennd Nov 13.png

This chart highlights in grey the fact that the variance trend in sales is more significant than that in listings - not surprising to some extent as listings volumes have tended to be around twice the number of sales, but what is very interesting is the past 6 months right up to November where there has been effectively no growth in the 12month average number of listings yet sales continue to growth on a moving annualised basis of over 10% - so we continue to see sales rising far faster than listings.

With this as an interpretation of the status of the property market it would now seem to be illogical to constantly scream that listings are in short supply - are they really?!

I am now more than ever convinced that what we are really seeing here is a maturing of the interpretation of the data around listings and inventory such that in overall terms I judge that the NZ property market is actually pretty well balanced with 26 weeks being the norm and the current level of 24.8 weeks being right on the norm. After all if this was a supply constrained market would we not expect to see either of growing listings or erratic buyer behaviour (although I suspect some would argue the rise in price is just such an erratic behaviour).

Clearly taking this approach to a new norm would mean that some regions are actually in buyers' markets whilst other are actually less likely to be in severe sellers' markets. In terms of the Property Dashboard could this actually be a truer reflection of the NZ property market?

Untitled-10.png

 

 


Are we building enough new houses in NZ?

by Alistair Helm in


iStock_000001524668XSmall.jpg

The latest data of new building consents for July issued by Statistics NZ showed that there were 1,893 new dwelling consents issued in the month, taking the moving annual total 19,146. This is the first time that the 12 month total has exceeded 19,000 since November 2008.

However the release of the data whilst recognising the volume of activity is up 71% from the low point of March 2011 was showing a general easing in the rate of growth with a seasonally adjusted fall from June.

The scale of construction is stronger than it has been for many years but far short of historical highs, back in the 1970's annual totals exceeded 35,000 new dwellings, in the 1980's 24,000 new dwellings a year was normal and in the early 2000's we were building over 30,000 new dwellings a year.

The industry, we have been told needs to get into gear in order to respond to what has been described as a housing crisis, especially in Auckland where demand for new housing is far in excess of supply.  Over the past year commentators and politicians as well as economists and statisticians have predicted that up to an extra million residents will require over 300,000 new homes to be built in Auckland alone over the next 25 years to meet this demand. This has, as we have seen heightened the debate about issues such as freeing up more land and more intensification in our major city.

Such numbers of new builds are staggering, especially when you look and see that the total new building consents issued over the past 20 years amount to 445,000 for the whole of New Zealand. So to build 300,000 just in Auckland in the next 25-30 years when we have only built 5,000 in Auckland in the past 12 months demonstrates the massive mobilization of construction resources that will be required.

Such numbers always prompt me to have a look deeper into statistics to see what insight I can discover from pairing together information. This has been my exercise this week – examining new building consents and the demand for property in NZ.

The trend of new construction over the past 20 years has very much followed the economic cycle of the country as represented in the chart below which tracks the moving annual total of new construction consents for residential property. The highs in the early 2000’s to the lows in the post GFC crash in 2008 with the stuttering recovery to a level now of around 19,000 consents per year – for the whole of NZ.

 

Building consents 2013.png

What is interesting is the mirroring of the trend of new build consents for residential property to sales of residential property. The chart below overlays the REINZ sales stats using the same moving annual total perspective. Effectively new residential consents track the trend of property sales with a lag of 3 to 6 months.

 

Buidling consents and sales 2013.png

What is important to note here is the fact that the trend of consents is not the supply of new homes, more it is the intention to supply – the likely supply flow of new homes would probably on average add another 6 to 9 months to this lag. So it would seem that the level of planned new property development is closely aligned to the trend of property sales as a surrogate for true demand.

The true measure of demand is driven by the population trend and also household composition - that is to say the average number of people per household. This household composition number had been falling through the 1990's as social influences and economic wealth saw smaller households. 

Household composition.png

Interestingly the economic austerity as a fall out of the GFC saw a reversal of this trend as younger people stayed at home rather than seeking rental property or a first home. We may begin to see a return to the long term trend in the coming years.  

Analysing this data got me thinking as to the matching of new builds to the growth in population over the past 20 years, for in that time the population of NZ has grown from 3,552,000 to 4,470,000 and 500,000 new dwellings have been built to house this additional 918,000 rise in population which equates to around 2 people per household which would seem to imply we did build sufficient properties over the last 20 years. However there is always the ability in the long term for net surpluses and deficits to cancel each other out and yet still cause problems. Let me explain in the chart below.

 

New build demand and supply correlation 2013.png

This chart tracks the annual balance of new building consents to demand for property. The demand for property is calculated as the annual increase in population adjusted for household composition for that year. To that figure of new property demand is added a quantity of new builds required as a function of natural obsolescence or destruction of the existing stock of properties. I have not factored in the Christchurch earthquake, but I have factored in a rise due to leaky homes over the past decade.

The chart shows fairly effectively the over supply of new builds in the period of late 1990's early 2000's and then the significant under supply from 2009. That shortfall would seem to have been reduced in 2012 but 2013 is showing it increase again. That collective shortfall over the past 4 years amounts to over 38,000 properties.

Clearly we do need to be building more homes, without such supply we will continue to see upward pressure on existing property prices. 

 


At last some easing in the property market

by Alistair Helm in ,


The latest NZ Property Report released today by Realestate.co.nz for the month of July for the first time in what seems like an eternity shows that the pressure in the property market caused by a shortage of listings may be easing.

In July 9,857 new listings came onto the market, which compares with 9,411 in July last year. Not much of an increase you might well say but given the fact that the past 5 months have all seem lower numbers than a year previous – it is good to see greater choice.

This increase in new listings however did not actually increase the available stock on the market. At the end of June there were 37,615 properties on the market, by the end of July that had fallen by 1,383 to 36,231. However available stock of property on the market is not the true test of the state of the property market; for that you need to look at the rate of sale. For June the sales on a seasonally adjusted basis were down from 6,748 to 6,217.

So with an increase in new listings matched to a slower sales, the inventory as measured by the number of weeks of equivalent sales actually rose in July. The Property Dashboard for July shows a level of 26.7 weeks  - still placing the market firmly in favour of sellers but some easing does bring some hope for buyers.

Across the country the picture reflected the national trend with 9 regions experiencing a sellers’ market as compared to 13 last month. For the first time for quite a while one region – the West Coast of the South Island is showing a buyers’ market.


Long term property investing reduces volatility

by Alistair Helm in , ,


House prices.jpg

The headline may be a case of deliberately stating the obvious, after all, economists will always tell you that investments of any shape or form; whether shares or property perform well in the long term, their advice is be patient, stick with it.

No; my interest was not in a catchy headline. I wanted to examine the data behind the claim that longer term investing in property from a rental business perspective is less volatile, especially when compared to shorter term investing. To be clear I judge short term to be 3 to 5 years with long term being 10 years. 

The ability to undertake a detailed analysis of the investment returns of rental property has been greatly assisted by the Ministry of Business, Innovation and Employment who have released online the full data set of rents by Territorial Local Authority (TLA) by month going back to 1993. The data set identifies the mean rents and the lower quartile rents.

I have used this data set and mashed it together with the REINZ median house price data going back to 1992 and the Reserve Bank of New Zealand data on mortgage interest rates for the same period. This collection of data has allowed me to build a model that shows the real rate of return based on the median house purchased and rented with a notional 100% mortgage paying the monthly variable rate of interest on the mortgage. The rate of return is based on the selling price at the end of an investment period being the median price at that month, plus the monthly rental income, less the mortgage payments, less the original purchase price at the start of the investment period based on the median price at that month. Note that mortgage payments are only the interest component.

Before detailing the presentation of this data I thought a couple of preliminary charts might be of interest. The first is the indexed growth of property prices and rents over the period since 1993. 

House prices have far outstripped rents.png

Not surprising here. Property prices have soared ahead of rents. Given the often quoted economists view that property prices need to reflect fundamentals of the comparable cost of renting, the message clearly have not got through. The massive divergence of the indicies from 2003 onwards is so clearly seen in the chart. There was some adjustment as property prices eased back in 2008 but the recent resurgent property market now sees property prices at an index of 350% of where they were in 1993 with rents at 232%.

Looking at the financial performance of rental investment, a simple judgement of the investment is to see how much of the monthly mortgage repayments is covered by monthly rents. The chart below details this as a trend line by month from 1993 to date.  

 

Rents as a of mortgage.png

As can be seen the fact is that at only two occasions over the past 20 years has the the mean rent actually come close to covered the monthly mortgage. Towards the end of the 90's when property prices stagnated and interest rates fell as a function of the Asian Crisis and then again in 2002 jus before the massive surge in property prices again at a time of low interest rates. However in today's world when interest rates have never been lower for longer the rental income barely covers 80% of the mortgage repayments as property prices continue to grow. 

So having provided some contextual data for the mean rents, property prices and mortgage rates here are the charts which show the actual financial return in dollar terms for rental property invested over a 3 year / 5 year / 10 year period for each month right up to June 2013.

 

3 year investing.png

Over the 3 year horizon the significant returns achieved by buying in the early 2000's are not even close to being achieved again at this time and clearly the worst outcome would have come from the net losses attained in the period of 2009 to 2011.

5 year investing.png

The 5 year horizon resembles very much the 3 year investing picture, with slightly higher returns for those exiting in the perfect position of the peak of the market in 2007 - again recent returns based on a 5 year investment come nowhere close to those levels.

10 year investing.png

The 10 year investment horizon demonstrates the value of long term investment which is always around $70,000 for the 10 year period. What is interesting is despite the recent low interest rates and rising prices the recent level of return is declining and is likely to continue to show lower returns on a 10 year horizon as the purchase period slips into that period that saw the greatest rise in property prices. So the guidance would be - hang on in their for the long term.

The short term investment of 3 or 5 years can achieve excellent returns but as ever you have to time the market perfectly and this is only ever really seen in hindsight. The current return on all 3 periods shows a level lower than the peak and the average. 


Leasehold property makes for an interesting option

by Alistair Helm in


For Lease.png

The article in this week’s NZ Herald titled ‘Buyers wary of house bargain’ got me thinking of the subject of leasehold property.

Leasehold residential property is certainly a rarer commodity than in other countries; I always marveled at the concept of a 99 year lease for London property when living there, imagining the world in 2087!

We do have a few such properties in NZ but I think we have even less understanding of the concept of leasehold and recent stories has probably only added to a sense of apprehension in them and a sense of “steer a wide berth” and stick to freehold properties.

The property in question in the article which is for sale in Greenlane, Auckland is a substantial 4 bedroom home on a large quarter acre section of 1,093 m2 on the edge of Cornwall Park. The property has a ground rent fixed until 20127 at $30,000 a year. It is being sold with an asking price of $475,000.

The Auckland Council in their rating assessment value the land at  $830,000; with the improvements (being the building itself valued at $460,000). This is one case where the Current Capital Value actually bears relevance to the value of the land and property. The land rent of $30,000 a year represents a 3.6% yield on the value of the land at $830,000. The selling price of the improvement at $475,000 is in line with the assessment of $460,000.

So why is the property, as the article says, attracting so little interest in what is a very hot and active property market in Auckland; a market where as we constantly hear demand is very strong and supply very weak?

Simply people in my view, cannot rationalize the inconsistency of a property of this size being sold for less than half a million dollars when other similar properties in the same area attract prices well in excess of a million dollars. It has all the hallmarks of “too good to be true”! Equally I believe they perceive that the ground rent will suddenly and unexpectedly double overnight without any notice and lastly I think they believe that in 5 or 10 years the property will be worth nothing at all and they will have lost $475,000.

Lets look at the reality of the situation and in doing so expose what might actually turn out to be a great financial decision for a prospective future owner.

I have not examined the actual lease document for the property but the listing advert states that the ground rent is fixed at $30,000 a year until 2027, 14 years from now. Real estate agents have a legal responsibility to provide such information with full accountability so I would believe that as an owner you will be liable to pay $30,000 in 2014, 2015 and so on through to 2025, 2026 and 20027. No adjustment, no inflation just $30,000 a year.

As to the residual value of the property – well the value of the physical property, described, as the improvements in the assessment are valued at $460,000 now. The owner of the land who is providing the lease for the property has no right or ownership in the property. It is very likely that in 2027 the owner of the land will have little or no interest in the land aside from continuing to lease it. I do not know, but would doubt that the owner of the land has any prior right to occupy the land (they would certainly have no right to occupy the property as it is not theirs). So the property will always have a residual value in 2027 or anytime between then and now.

So armed with these facts lets look at this property not so much as a property to buy at $475,000 with a annual leasehold cost of the land of $30,000, but rather as a rental property that costs $577 per week to rent.

This level of rent is considerably cheaper than the market rent in the area which for this type and size of house is more comparable to this house for rent in the same area at $800 per week. However to be able to rent this 4 bedroom house at $577 a week you have to pay a bond, a pretty significant bond of $475,000. That bond has benefits:

  1. You have complete right of tenure – for the next 14 years

  2. You have a fixed rent per week that will not rise by any form of inflation for 14 years – you will pay $577 a week in 2027

  3. You can do what ever you like to the property in the form of improvement without any recourse to the landlord

  4. You can at any stage decide to move house – cancel the lease and recover some or maybe the entire bond

Seen from this perspective the leasehold property takes on a somewhat different perspective. In terms of financials it could be a smart decision as the following scenario shows. I have assumed that a prospective buyer has $475,000 in cash. As i see it there are 3 options to live in this area in a 4 bedroom house:

 

  1. Buy a property with the $475,000 as a deposit and finance the balance of the $1.2m purchase price with a 20 yr mortgage – assume rate of 6.6%

  2. Rent a property at $800 a week with a rent inflation of 4% per annum with the $475,000 being invested at 5.1% on term deposit

  3. Buy the leasehold property with the $475,000 and pay the annual fixed lease of $30,000

 

Monthly.png

In terms of monthly costs the leasehold property costs significantly less than buying an equivalent freehold property: $2,825 as compared to $5,773; however if the option 2 was taken and a rent of $800 a week was paid and the $475,000 invested the net cost would be the lowest of the 3 options at $2,054 per month.

However what is more useful to examine would the comparable situation set over a 7 year period, that being an average occupancy period for a property.

As the details show below the cost of the outright purchase of a property is the most expense option at $488,449 over 7 years with the rental costing a net cost of $212,935 after recovery of interest; whilst the leasehold net cost is $240,817.

 

Scanarios over 7 yrs.png

Now of course this assessment would not be complete without looking at the true impact of the investment of the original $475,000. As the spreadsheet shows with a property price appreciation of 4% per annum the outright purchase option shows an increase in asset value of $388,270 on top of the original $475,000 this being the increase in value of the property plus the repayment component of the 20 year mortgage after 7 years. Taking this into consideration the outright purchase over 7 years costs just $100,179.

The option 2 of renting and investing the sum of $475,000 sees a compound asset appreciation of $115,634 which means the net cost is $212,935 over 7 years.

The third option of the leasehold property has a gain in asset value of $35,943. This has been assessed as being the apportionment of the 4% of the property appreciation per year applied to the improvements; the land equally will increase by 4%. Allowing for this asset gain the net cost over 7 years of the leasehold property is $204,874, less than for renting but twice the cost as for outright purchase.

Out if interest I did an extreme scenario to see what would happen if say rents rose at 6% a year as opposed to 4% and at the same time property appreciation only rose at an equivalent of 2% per annum. Based on this situation the differential becomes much closer with a 20% variance between all 3 scenarios.

What I think this shows is that the cost of property ownership / occupancy can in theory be pretty similar based on the options of rent, buy or lease if property appreciation in the long term is on average low – if that takes off to anything well over inflation the leverage factor of borrowing certainly benefits purchasing a home. For leasehold property – this analysis shows that certainly it could be considered as an option, especially if you do not have the income to support this scale of mortgage.

 


Potential impact of policies to address the 'hot' property market

by Alistair Helm in , ,


Real estate agents might be urging the government to "be careful what you wish for" in regard to any government or fiscal intervention  in the NZ property market -  especially if they have read about their colleagues in Hong Kong!

Bubble iStock_000006996157XSmall.jpg

With further evidence that the NZ property market is building up a significant pressure bubble – the ever-present question is whether that bubble will see the pressure released slowly or just simply burst with negative repercussions. 

Measured on a 5 year basis the REINZ Stratified house price index shows a 17% increase, with over half of that gain in the past 12 months! This has prompted extensive calls for some form of non-monetarist intervention via the Reserve Bank to focus on LVR and also calls for controls on overseas buyers.

With this as a backdrop it is worthwhile to compare and contrast the NZ market with the Hong Kong market given its topicality. Accepting the Hong Kong market is a very different market; the choice is a result of the fact that the local government has recently introduced far-reaching controls to bring some reigning in of a super hot market that has seen property prices rise 120% since 2008.

These new measures coupled with the tightened of existing policies is an attempt to make property, especially apartments more affordable – now where have we heard that cry before?

However to begin with there is an important perspective that needs to be seen when comparing the Hong Kong market with the NZ market. We are so often told that NZ and again particularly Auckland has some of the most unaffordable property in the world when comparing house prices to salary. The NZ ratio has house prices close to 5 time the average salary – that pails into insignificance as Hong Kong sits at a whopping 12.6 times average income!

The measures brought in include a doubling of stamp duty to 8.5% for property over HK$2 million (NZ$330,000) . I was interested to read in the South China Morning Post article of what I would consider as the most appropriate measure, being the requirement for banks to assess the ability of borrowers to manage a three percentage point increase in mortgage rates, up from the prior test at two percentage points. Additionally a stamp duty has been introduced to curb speculation payable by sellers if properties are sold within 3 years – the duty is now between 10% and 20% of the selling price. Lastly the measures also include (which will be of interest to NZ) a 15% levy on non-local property buyers!

All in all some very stringent measures, which from the data published in the article shows the policies appear to be making an impact as property sales collapse.

  Estate
agents march in protest at moves to control sky high Hong Kong property prices  






  
  
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 Estate agents march in protest at moves to control sky high Hong Kong property prices

This collapse is having its effect on the industry of over 40,000 real estate agents in Hong Kong  which interestingly equate to 1 agent per 175 of population, compare that to NZ with 1 agent per 440 of population. These agents are up in arms as the slowing sales cuts their income – so much so that these agents association are marching on Government headquarters to have these policies reversed – could this end up being the case in NZ if proposed government and Reserve Bank measures cool the NZ market ending it backwards and jeapodising the income of 10,000 agents? – it will be interesting to see!

 


The NZ Property Cycle - 4 years to June 2013

by Alistair Helm in , ,


The Properazzi Property Dashboard portrays the barometer of the regional property market which is very firmly in favour of sellers

The Properazzi Property Dashboard portrays the barometer of the regional property market which is very firmly in favour of sellers

Property markets move in cycles. The current market is firmly established as a sellers market. This current state is widening, in the sense that the total market when seen by region is gradually migrating in the direction of more and  more favouring sellers. 

In order to present this analysis of the market I have created a series of 4 charts which show the picture of the NZ property market by region for each of the past 4 years 2010 - 2013. I have used the measure of inventory as presented by the NZ Property Report from Realestate.co.nz which each month assesses the market in each region measuring the available inventory of property on the market and dividing it by the average weekly sales for the past 3 months using the REINZ sales figures. This computation generates an inventory; not as an absolute number, but as an equivalent stock in number of weeks based on the current rate-of-sale.  

I very much favour this approach as it reflect the key driver of the property market which is supply matched to demand. As sales increase and inventory is slow to respond, as has been the case for the past two years the inventory measured in the number of weeks of equivalent sales falls sharply.

These monthly statistics of available inventory drive the Property Dashboard which is presented by Properazzi each month in the form of a barometer of the market visually showing the degree to which each region of the country is experiencing a buyers or sellers market. 

The four charts presented below present the inventory at June 2010 / June 2011 / June 2012 and June 2013 and clearly show the trend. The trend which over the 4 years has seen a situation where in 2010  4 years ago, all but 4 of the 19 regions were in a balanced or buyers market to where today in 2013 only four regions are in a balanced market with none favouring buyers and the majority in a moderate or extreme sellers market.

 

 

NZ regional inventory cht June 2010.png
NZ regional inventory cht June 2011.png
NZ regional inventory cht June 2012.png
NZ regional inventory cht June 2013.png

Property market interview - TV9 Finance Weekly

by Alistair Helm in , ,


I was recently interviewed by TV9 for their Finance Weekly spot with Brenda Lee. In this interview I cover a wide raft of property market related issues: 

  • Property prices, are prices becoming unaffordable?
  • International property trends vs NZ  
  • Forecast for the next 6 months - will the market continue to see prices rise?
  • Houses not unaffordable - we don't pay ourselves enough
  • Struggle for first home owners - plea for baby boomers to release equity to assist first home buyers
  • The auction selling process

Asian interest in NZ property is strong

by Alistair Helm in ,


The latest survey carried out by the BNZ through the real estate industry into the proportion of sales being made to overseas buyers shines a powerful light on Australians as the number one overseas buyer group. The survey found that Australians are the biggest single group of overseas buyers with 22% of all property purchases by foreigners. Chinese are second at 20% and British at 13%.

However there is further insight to be gained on this subject from within Asia through the real estate websites in the region who carry out their own surveys.

One such website group is PropertyGuru which is Asia’s leading online property group and operates in Singapore, Malaysia, Indonesia and Thailand. The company undertakes regular property sentiment surveys, the most recent of which is the Property Affordability Index for Q2 2013 which provides a benchmark for property affordability in PropertyGuru’s four key markets. The survey takes into account survey measurements for overall satisfaction, future price perceptions and intention to purchase property as well as perceived government effort. The survey also identifies interest in overseas investment sentiment based on the 1,282 respondents to the survey who indicated intention to purchase overseas properties in the next six months. This interest is especially strong for Australian properties amidst growing concern over expensive domestic property prices in Singapore, Malaysia, Thailand and Indonesia. The survey also includes questions in regard to New Zealand property investing.

The trend to invest in NZ is not as strong as that of investing in Australia, but there is still demand especially from Malaysia and Singapore. Out of all respondents from Malaysia and Singapore who are looking overseas to invest, 1 in 5 have indicated that they are looking to NZ.

In terms of ranking, Singaporeans rank NZ in 5th place after the perennially favourite markets of UK and Australia and the recently booming property markets of Thailand and Malaysia.

In the case of Malaysia, NZ was placed fourth after Australia, UK and the neighbouring Singapore.

 

Property Guru Q2 2013 index.png

For Thailand and Indonesia investors are far more focused on investing within the South-East Asia region before considering NZ or Australia.

The commentary to the report indicated that demand for overseas investing is also driven largely by growing dissatisfaction about real estate in each of the local markets. In particular, 3 out of 4 respondents have highlighted overpriced properties and an expectation of further property price increases as the main reason that fuels interest in overseas investments. The exception is in Singapore, where despite prices for all property types are seen as costly, 40% of Singaporeans do not anticipate a further increase within the next 6 months as a result of the introduction of government policies on property in the country in Jan 2013.

Steve Melhuish, CEO of PropertyGuru Group “As South-East Asia becoming more affluent, increased property buying, selling and investing will inevitably drive property prices up and creates a ripple effect where investors will set their sights beyond their borders for cheaper alternatives”

PropertyGuru developed and started tracking the Property Affordability Index in 2010. In collaboration with Added Value-Saffron Hill, a Singapore based independent professional research agency, the quarterly survey aims to provide insights into the local property market through the consumers’ perspective and shed light into how property trends affect their property decisions over time. These perspectives are based on a representative sample of 4,062 online respondents aged 21-69 across Malaysia, Indonesia, Singapore and Thailand who are influencers or decision makers on property.

 


Auckland inventory levels plummet

by Alistair Helm in ,


iStock_000006291799XSmall.jpg

It may be hard to believe but a year ago there were 11,272 properties on the market for sale across Auckland. At that time an average of 2,000 properties a month were sold across the region. Leap back to the current time - May 2103 and there are now just 7,557 properties on the market across Auckland, a drop of nearly a third in just 12 months. Over the same period sales have risen over 20% on a moving average to around 2,500 per month.

Auckland is very nearly running out of properties to sell.

Based on the seasonally adjusted sales matched to available inventory if no new property came onto the market, the Auckland property market would stall, with the very last property being sold on 23rd August, just 12 weeks away!

Now this is a hypothetical calculation but for context look at the Auckland property market over the past 5 years as seen in the chart below tracking sales on a 12 month moving average and the representation of inventory using the Property Dashboard from that time.

Akl MA sales & inventory dashboard May 2013.png

Five years ago in April 2008 you couldn’t give property away! – there were 18,266 properties on the market, which is virtually two and a half times as many as there are today. That total at the time represented over 60 weeks of equivalent sales. From 60 weeks to 12 weeks in 5 years, how the property market has shown its cyclical nature!

Whilst this is the current picture, the real question looking forward is – when will things improve?

By the nature of cycles they do self-correct and tend to overcompensate, so at some stage the Auckland market will move out of being a sellers’ market. However don’t wait for this flush of new building (estimated at 30,000+ over 3 years) to ease the problem, the issues are more immediate, new builds take 12 to 18 months before they appear in inventory in a best case situation.

The picture tracking new listings and sales looks pretty dire as the chart below shows – sales are growing at a year-on-year rate of 20% whilst listings are falling on a comparable year-on-year rate of over 25% and actually getting worse!

 

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This decline in listings is actually the result of the low inventory in what is becoming in my opinion a downward spiral. Property owners, ready to sell, know full well now that property sells quickly in this sellers' market, yet at the same time they also know that such a tight market with rising prices means that they are being held back from selling because they fear not being able to buy.

This problem is also potentially being exacerbated by the focus on auctions as the predominant  method of sale. Whilst auctions might well favours sellers, they do not suit buyers who themselves need to sell their house in order to complete the desire transaction.These buyer/sellers' therefore are cautious about making unconditional offers and finding the necessary 10% deposit when there own house is not sold, or even on the market.

How to unblock this log-jam? 

This situation could be alleviated by agents moving away from auction as the preferred method of sale. Not a likely scenario as it is their own favoured method. What is more likely to happen is that at some point, and in my view we have reached this point within the inner ring of Auckland suburbs, auctions will start to falter, resulting on property moving to ‘sale by negotiation’ which then suits conditional offers thereby allowing those buyers to then put their house on the market and create some liquidity in the market.

What we have witnessed in the Auckland property market over the past 18 months to 2 years has been a kind of tidal wave of property activity and increasing prices which started in the top suburbs, the inner ring of city suburbs and is moving out to the outer suburbs now. This tidal wave heightens demand and sales volumes which sucks up inventory driving prices, before we see this situation self-correcting as property sales stall and inventory rebalancing.

Data for this analysis is supplied from the Realestate.co.nz NZ Property Report


Auctions causing buyer frustrations – I blame technology!

by Alistair Helm in , ,


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As someone who has spent over 7 years advocating the adoption of technology by the real estate industry in NZ, I must now adjust my position and state that I believe that it is technology that is frustrating buyers in the stressed Auckland property market.

The stories have become so commonplace that I sense we feel like we have almost been with these buyers in some vicarious way at their endless frustrating auction.

The young couple with the necessary deposit and pre-approved mortgage eagerly awaits the auction of their chosen dream home. The research tells them that the property is within their means with a maximum budget of $475,000, the property has a CV of $410,000 and the agents tells them that at their budget they should certainly be bidding. However the bidding exceeds their budget with the property selling for $585,000.

So what’s going wrong and why blame technology?

 

Simply put the web is the first and only place people look for property. It’s logical, buyers love the ability to search around their chosen parameters of location, size and price. However the greatest attribute of the search process turns out to be its greatest downfall – the search range of price.

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Take this scenario of our hypothetical couple – they have a budget with a max of $475,000 so on Trade Me and Realestate.co.nz they search within their chosen suburbs with the range of $400,000 to $500,00. Website have price bands of $100,000 increments (Trade Me does have $50,00 increments up to $450,000). Their dream home came up in this search because the agent had included in the property details sent to Trade Me and Realestate.co.nz a 'Non-Display" search price of $500,000. The property was being marketed as an auction and therefore the agent did not want to display a price on the website, but it is mandatory for all listings on property websites to have a search price which is not published to power the search function.

It is my view that these wide price ranges are creating a false expectation amongst buyers and potentially misleading the public. To back up this view I have done some research to test my thinking.

I took a random sample of 10 properties on the market today, all marketed as auctions in Auckland City. These properties were in suburbs such as Onehunga, Mt Wellington, Mt Roskill, Blockhouse Bay and One Tree Hill. All properties were identified through the search price range of $500,000 to $600,000 being the average property price in Auckland today. I then went about undertaking a process to identify the exact search price or search price range for each property as inputted by the listing agent. To do this you need to use the Advanced Search feature on Realestate.co.nz which allows you to specify your own chosen price range in increments of a dollar; by doing this I was able to see at what price these properties appear or disappear from results. Also for reference and a sense of benchmarking (despite my dislike for CV’s) I got the Auckland City Capital Value for each property.

The results of this analysis were very interesting. Eight of the ten properties had a single search price inputted by the agent. The search price as compared to the current CV varied widely from 3% below the CV to 47% above the CV. The average was 23% above the CV.

 

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However the thing that was most interesting to me, and what could potentially be construed as misleading, was the way these property appeared in a wide range of search results based on price ranges. Remember all of these properties appeared in the search range $500,000 to $600,000.

Property #1 with a CV of $470,000 appeared in all 3 searches from $400,000 to $700,000 as the agent had specified a search range of $500,000 to $600,000.

Three properties (#4, #5, #7) with CV’s from $410,000 to $440,000 appeared in the range $400,000 to $500,000 – all had a search price by the agent of $500,000 so clearly the agent was indicating a sales price of over $500,000 yet if you had a budget of say $425,000 these 3 properties would appear to be within your range.

Property #6 with a CV of $620,000 appeared in the price range of $500,000 to $600,000 as the agent had chosen a search price of $600,000, yet clearly the expectation was a selling price of over $600,000.

It is clear that the current wide price range search parameters could be leading to misinterpretation by buyers. To fix it the websites concerned could offer more options with smaller price ranges, as noted Realestate.co.nz in their advanced search function does allow for individual discrete price ranges to be entered. However there is a simpler solution.

Real estate websites could make a slight adjustment to the underlying code of search results so that search increments become $99,999 instead of $100,000. This would mean that when a search is made in the range $400,000 to $500,000 it only returns property with search prices between $400,000 and $499,999, thereby ensuring that a property for which the agent has selected the search price of $500,000 will not be found in such a search. In that way technology could help home shoppers match expectation to realistic budget better.