With the end of daylight savings and as we approach Easter and the school holidays we note the traditional shrinkage in homes being listed for sale. Alongside this we also note an increase in the number of sales as buyers and sellers find a meeting of the minds albeit after a protracted period. These factors together may work in favour of those listing in this early Autumn period. With that in mind, here’s brief article that is worthy of considering if you are looking to sell.
I thought this piece by Tony Alexander featured on OneRoof was a great overview of the market - well worth reading.
In short, the dynamics of the market place have changed, and are changing. Those vendors that can see that will meet the current market, which may be the reality for some time.
The talk of a Capital Gains Tax now appears to be being kicked down the road and potentially watered down. This politically sensitive potential change to the Tax System will no doubt be modified in line with poll reactions. Either way for those buying and selling the family home it will have no impact. You can’t help but wonder if the unintended consequence of a CGT is that more money is invested in the family home rather than a rental investment. The double whammy being house prices increase and rents escalate?
Good News - 38% Increase in Sales!
We are thrilled to report a 38% increase in our sales numbers in the current financial year, plus a record December. Put those facts alongside the recent headlines and it begs the question – how can that be? In short, UP Real Estate started this business 25 years ago with the specific intention of providing a bespoke focused approach to every listing – we call it ‘Real Estate by Design’. It’s different, incredibly effective and brings with it significant benefits to each of our clients – the facts speak for themselves. In short, if you’re thinking of selling or know someone that is, you should find out how we can help. I’d love to demonstrate the difference.
December saw the national median increase by 1.5% from $551,750 in December 2017 to $560,000 in December 2018. Prices for New Zealand excluding Auckland increased by 6.4% to $480,000 up from $451,000 in December 2017. In Auckland, prices rose by 0.2% to $862,000 up from $860,000 in December 2017. Only one region experienced a record median price – the Bay of Plenty with a 2.0% increase taking the median to $610,000 up from $598,000 in December 2017. “Whilst the Bay of Plenty was the only region with a record median price achieved in December, in actual fact it was a strong month from a price perspective as every region in New Zealand saw an annual increase in the median price.
The last time all regions saw annual price increases was back in June 2017,” says Norwell. “Additionally, Auckland finished the year in a strong position with the highest price for the region in 9 months at $862,000.
Breaking the region down, Auckland City saw an annual increase of 7.8% resulting in the highest median price for the City in six months at $986,000 and Waitakere City had a 6.2% increase to record median price of $828,000. However, on the flip side, North Shore City median prices fell -11.6% to $980,000 and Franklin District saw a fall of -4.2% to $680,000.
Source - Press release REINZ 18/1/19
Auckland Council's chief economist David Norman argues Auckland's housing shortage will prevent Sydney and Melbourne style price falls.
The downturn in the Australian housing market is being closely followed on this side of the Tasman, with many people believing Auckland's housing market will follow the Australian market and head into a slump next year.
However Auckland Council's chief economist David Norman doesn't think so.
In a LinkedIn post, Norman said Auckland's housing market was unlikely to follow trends in Sydney and Melbourne.
"Suggestions that the Auckland housing market will follow those of the Australian eastern seaboard seem baseless," he said.
"Sydney and Melbourne are in a very different position, having not systematically under-built the way Auckland did, and thus having no significant shortfall.
"Auckland's shortfall is around 46,000 dwellings.
"Our trans-Tasman cousins' two largest cities have an oversupply of apartments, largely the result of building for the foreign investor market that is not as buoyant any more (the way Auckland overbuilt for overseas students in the early 2000s).
"This has concerned some of the banks in Australia for years and explains some of their nervousness about lending for apartment projects in NZ.
"Hopefully this chart [See below] will dispel some of their fears!"
"We need to keep building for a very long time at current rates and faster to eliminate our shortfall," Norman said.
Donna and myself wish you and your family the very best for the festive season ahead, be safe, have fun and we look forward to seeing you in 2019!!
The Inland Revenue Department (IRD) admits it can’t be certain how removing a tax break enjoyed by residential property investors will affect the rental market, as well as the property market more generally.
It can however say with a high degree of certainty that once fully implemented, the proposed law change will cost investors $190 million a year.
Currently residential property investors can use losses on their rental properties to offset the tax they need to pay on their other sources of income - wages, salaries, business income, etc.
However the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Bill, introduced to Parliament on December 5, seeks to change this.
If passed, a residential property investor will only be able to offset deductions against income from their property portfolio.
The aim of the proposed law change is to level the playing field between property speculators/investors and owner-occupiers.
By stopping subsidising investors’ mortgage servicing costs, the Government hopes their abilities to outbid owners-occupiers for properties will be reduced.
The IRD, in its regulatory impact statement, says this could “improve first home buyers’ ability to compete with investors, improving housing affordability for home buyers, and increasing the share of New Zealanders who own their own homes”.
However it has a “low” degree of confidence in this outcome eventuating.
It notes: “There is significant uncertainty about the net impact of the policy on the housing market, especially on the rental market.
“Overseas experience underlines the uncertainty in the direction and magnitude of housing market impacts. For example, negative gearing was banned in Australia between 1985 and 1987, and while rents spiked in Sydney during this period, they were flat or falling across much of the rest of the country.
“The exact relationship between the tax changes and observed changes in rent is unclear.”
The IRD also notes that "given the number of other policy and regulatory changes to the housing market, it may not be possible to isolate the impact of this proposal on the housing market".
However when it comes to the impact on investors, the IRD is fairly confident in its estimates.
It says 40% of taxpayers with rental properties record losses at any one time. And on average they enjoy a tax benefit of $2000 a year.
The IRD points out: “The magnitude of losses being claimed is likely to be dependent on changes in the housing market (for example, increases in rents will tend to reduce rental losses, all other things being equal), and interest rates.”
While this $2000 figure might sound relatively low, the IRD says reduced returns for some landlords could encourage the transfer of housing stock from investment housing to owner-occupier housing.
Given owner-occupied houses tend to have few people per house, this could put pressure on the rental market, unless there’s an adequate flow of new housing into the rental market.
“This may lead to increased rents. Landlords may also pass on their rental losses to tenants in the form of increased rents,” the IRD says.
Nonetheless, the IRD acknowledges the context in which the law change is being proposed:
“Speculative capital gain is a likely driver for investor activity in the residential housing market,” it says.
“The average return on rental property excluding capital gains is low – the average gross rental yield on a three-bedroom Auckland property is 3% per annum. This suggests investors are buying property in anticipation of capital gain.”
Revenue Minister Stuart Nash says: “In conjunction with the extension to the bright-line test [from two to five years], ring-fencing losses from rental properties would make property speculation less attractive and level the playing field between property investors and home buyers.
“The new rules will not apply to a person’s main home or a property that is rented out and used privately such as a bach.”
INDUSTRY UPDATE: With an OCR on hold and a current interbank mortgage war that is resulting in record low rates, it’s no wonder October numbers just released have resulted in an increase in the number of sales. Alongside this, the Reserve Bank have flagged their intention to review the current Loan to Value Ratios. Currently, banks can only lend 15% to new customers with less than a 20% deposit and 5% of banking to those with less than 35%.
Our observation is that in real terms there is no shortage of homes available, rather sales volumes have been and still are limited by bank funding criteria. Consequently, these two factors together should have a positive impact on market sentiment and ultimately activity.
The Auckland region favours buyers for the first time since 2011. New listings are up 14.6% across New Zealand and the national average asking price falls by 2.1%, driven by major centres.
Real-time statistics from realestate.co.nz show that our biggest region, Auckland, is looking fresh and healthy for buyers, with a large injection of new listings (up 20.1% on last year).
The total number of homes for sale is up 17.0% to 9,906 when compared to October 2017.
“Given the level of new listings, the total amount of stock for sale and a slowing of sales rates, the Auckland market is favouring buyers to an extent we haven’t seen for nearly nine years.
“It means that buyers have a lot more choice and can take a considered approach to their buying process,” says spokesperson Vanessa Taylor.
Average asking prices in the Auckland region dipped 1.3% compared to September 2018, dropping to $964,936.
This injection of new listings and increase in total stock shows us that if theoretically no new homes were to come onto the market, at the current sale rate, the total pool of houses for sale on the market would sell out in 25 weeks – which is two weeks more than the long-term average of 23 weeks in the Auckland region.
“There’s plenty of homes for buyers to choose from, without having to deal with the frantic market that we’ve seen in past years” says Vanessa.
“It’s not just the Auckland region which is alive and well,” says Vanessa.
Across the country interest is high, with 901,919 unique browsers visiting the realestate.co.nz site during October. Of this, 94,955 were searching in the Auckland region alone.
The predicted rush of listings pre-Christmas is upon us. As mentioned in previous articles those vendors who put off selling last year post election are now on the market. Just how many ‘meet the current market’ will be interesting to observe. Supply/demand ratios right now look to be favouring buyers in some quarters, consequently given the fact that many buyers are now spoilt for choice, for vendors, it may be a case of first out best dressed this side of Christmas. A note of caution to buyers: beware of indicated or estimated selling price ranges or market value ranges as predicted by algorithms on various websites. In many cases these can be over the likely selling range and in excess of the vendors’ expectation. If you like the look of a house, please inspect.
You just can’t underestimate the value of presenting your home well. It’s not just worth money, it’s also worth time. In other words, great presentation helps make your property saleable. It’s difficult to quantify this because we never get to offer the same house in two different states of presentation. However, what we do observe is the impact on buyers. ‘I really like it!’ Is a phrase that describes more than bricks and mortar, selling a home is also very much about selling a feeling. If you’re thinking of selling this year, you should start preparation now. A fresh set of eyes can help – I’m happy to volunteer!
DO YOUR HOMEWORK
When it comes to selling your home presumption can work against you. Presuming your property is compliant when it’s not produces frustration for both buyer and seller. When it comes to compliance your investigation should include – works done to a dwelling, title defects and/or outstanding issues thrown up by a Land Information Memorandum. Presentation is one thing and yes very helpful but the glitches just cited could affect buyers ability to fund the purchase of your home. In short, if you are thinking of selling, do your homework before you start. Needless to say, we are happy to help.