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- Kelvin Davidson

A recent ‘on-the-ground’ tour around Auckland revealed that new housing construction is moving ahead with infill development a rising trend. KiwiBuild will help to drive even more infill housing, making more efficient use of inner city land (not to mention removing some poor quality housing). However, new sections still seem pretty expensive and transport infrastructure is a problem.

CoreLogic research analyst Kelvin Davidson writes:

The shortage of housing in Auckland is clearly one of the biggest issues in NZ’s residential property market at present (and it will probably remain one of the biggest issues for some time to come). This Pulse sets out some observations from an ‘on-the-ground’ look around Auckland’s various sub-markets last week; some positive surprises, but also some reasons for concern.

 
Firstly, contrary to perception that Auckland has been at a supply standstill for many years now, a huge amount of development has actually already taken place, both for standalone houses (e.g. Pokeno) and townhouses (e.g. Stonefields). The scale is huge compared with any other part of NZ and, without it, the housing affordability problem in Auckland would be even worse. The Stats NZ figures clearly illustrate the relative shift towards smaller dwellings in recent years (see first chart), with apartments/townhouses etc. now outnumbering houses.
 
Auckland dwelling consents, annual running total
(Source: Stats NZ)
 

 

On top of that, it’s easy to see that infill development is on a rising trend. And that’s backed up by our data. As chart no. 2 shows, five years ago, the change in the dwelling stock in Auckland over a 12-month period was similar to how many dwellings were consented. Lately, however, the stock has been growing more slowly than dwelling consents – illustrating that rising shares of consents have been granted to replace older houses that have been demolished. The pattern in Auckland has been much starker than in Wellington, for example, where the stock change has stayed consistent in relation to dwelling consents (see chart three).

 
The rise of infill townhouse/apartment construction is of course very welcome in terms of making better use of big sections that currently only have one, small (often poor quality) standalone house on them. However, more needs to be done. The inefficient use of state housing land is clear around Mt Albert and Mt Roskill, for example, so KiwiBuild is well-targeted in those areas. It gets harder when the properties are privately owned, and the current owners cannot (e.g. for financial reasons) or will not move elsewhere and free up that land for more efficient use.
 
Wellington housing stock change and dwelling consents
 (Sources: Stats NZ, CoreLogic)
 
 

But even though there are some positive factors on the supply-side in Auckland, housing affordability is still poor. And that’s despite no obvious physical shortage of land (e.g. look at Pukekohe with its large numbers of new, empty sections). Thus the question naturally arises – why isn’t supply moving even faster? Three obvious hurdles exist here. Firstly, although the land physically exists, it doesn’t seem to be available at the ‘right price’. Sections priced in excess of a hefty $500,000-600,000 were easy to find. Secondly, part of the reason why land is still expensive will be the need to develop the infrastructure to support new housing, especially transport. Finally, it’s the well-known builder shortages and capacity constraints in the construction industry.

 

Wellington housing stock change and dwelling consents 
(Sources: Stats NZ, CoreLogic)
 
 
On the whole, the worst critics of Auckland’s supply shortfall are probably overstating the problem. The land exists, infill housing is underway and KiwiBuild will help to speed this up. However, there is still a long way to go in terms of boosting the raw numbers of homes in Auckland, not to mention fixing a quality issue (e.g. poor general state of repair, lack of insulation) that clearly exists in many parts of the city.

The Allure of Pre-loved Pieces

Tuesday, 9 October 2018

 

There is a certain charm to sourcing a pre-loved piece. Not only does it feel like you’ve hustled a little harder to find it, but you can more often than not, pick up quality pieces at a fraction of the price. There is a real sense of achievement to a quick fixer-upper that ticks all the boxes for your home. Whether it’s restoring a timber sideboard, reupholstering some cushions or relacquering an outdoor setting, with the right approach, you can source all manner of household pieces – sometimes you just need to know where to start.
 
As with any purchase, begin with a checklist of questions you’ll need to know before you could confidently purchase a pre-loved item. This checklist will help guide your purchase decisions. Make a mental list on non-negotiables that you want in your piece and exercise patience. Trawl the usual suspects, Gumtree, Ebay and even Facebook Marketplace are great places to start. Tip! Save your search terms so that you’re automatically notified any time an item is listed that matches your criteria.
 
Once you find a piece that catches your eye, you’ll need to know a little about the owners lifestyle. Are they a smoker? Do they have any pets? This will help you understand wear and tear, and any associated odours before you invest more time into this listing. If you’re hunting for a designer piece, or a piece reminiscent of a particular design period – i.e mid-century modern – then there is an entirely new set of questions to consider. Ensure you ask whether the piece is an original, and if so, if it has been authenticated. Whether or not you mind if it is a replica is irrelevant, requesting this information will amplify your negotiating power later on should you decide to pursue the purchase.
 
When shopping second hand it is easy to become caught up in the adrenalin of finding a bargain, so exercise caution. Triple check all your measurements, including your doorway if you’re purchasing a big-ticket item like a lounge or fridge. Don’t cross your fingers and hope for the best!
 
Don’t underestimate the value that you can find in a second hand piece if you look hard enough, many people are willing to part with items for free for the simple convenience of having it removed for them. Otherwise have confidence in the value you assign to the piece and the price you are prepared to pay and negotiate until you are satisfied with the outcome. 
 
Don’t forget if you prefer to treasure hunt in person, vintage stores and local op-shops are a wonderful place to begin your search. Op-shops are typically better suited for small wares, think vases, ceramics, table settings and all manner of crystal. Seek out your closest vintage stores for other homewares and furniture. They have done the hard trawling for you!
 

- Kelvin Davidson

In the year to date, the median prices paid by first home buyers for two or three-bedroom properties in Auckland, Queenstown and Wellington have been above the KiwiBuild caps. That potential “discount” from buying a KiwiBuild property makes it easy to see the scheme’s appeal to buyers, and that’s before you even factor in that a KiwiBuild property is new but there’s no guarantee of a new-build out on the open market.

 

FHB median paid prices for 1-bedroom properties, YTD 2018 (Source: CoreLogic)

CoreLogic research analyst Kelvin Davidson writes:

 

One of the key talking points of the KiwiBuild programme is the price cap by bedroom number and location. Within Auckland and Queenstown, these are $500k for one-bedroom, $600k for two-bed, and $650k for three-bed (or more). Everywhere else, the cap is $500k regardless of bedroom count. So how have actual prices paid by first home buyers (FHBs) lately compared to those caps?

For one-bedroom properties (new or existing) in 2018 year-to-date*, across areas such as Waitakere, North Shore, and Wellington, FHBs have paid median prices below the cap (see the first chart). A median price paid of $550,000 in Auckland City, however, is $50,000 above the KiwiBuild price cap for a new property.
 
The price cap starts to look more meaningful in the two-bedroom bracket in Auckland and Queenstown. (As shown in the grey bars in the second chart, FHBs have been paying prices above the KiwiBuild cap and could therefore find the scheme pretty appealing). In Auckland City, in particular, a new two-bedroom KiwiBuild property priced at a maximum of $600,000 would be of great interest compared to the $713,000 that FHBs have recently been paying for properties of more variable age and quality. Elsewhere around the country, FHBs have been paying the highest prices for two-bedroom properties in Wellington, but even there the median $496,250 is still slightly below the cap.
 
FHB median paid prices for 2-bedroom properties, YTD 2018 (Source: CoreLogic)
 
 
This cap could have even more effect in the three-bedroom bracket. Apart from Papakura and Franklin, prices paid by FHBs recently across different parts of Auckland have been comfortably above the KiwiBuild cap (refer third chart), with the same applying in Queenstown. Around the rest of the country, the three-bedroom bracket also sees the cap exceeded in Wellington and to a lesser extent Tauranga. In Wellington (KiwiBuild cap $500k), the median price paid by FHBs to date in 2018 for a larger property is $657,400.
 
Another interesting aspect to consider is new properties themselves. In Papakura, for example (where the McLennan KiwiBuild development is located), the median value of a recently-built three-bedroom property is $684,500. That is above the $650k KiwiBuild cap. But what is most interesting is that the McLennan properties are listed for $579,000 – about $105,000 less than the “market value”.
 
FHB median paid prices for 3-bedroom properties, YTD 2018 (Source: CoreLogic)
 
It’s important to bear in mind that these median price paid figures clearly relate only to FHBs that have already been successful in buying a property (whether that’s a new or older property). However, the aim of KiwiBuild is not so much to target or help those that can already afford property, but to ease the problems for people who’ve so far missed out.
 
Overall, the KiwiBuild price caps will have the most bite as the number of bedrooms in a property increases. Indeed, it wouldn’t be hard to imagine would-be buyers for larger properties in Queenstown, Wellington and parts of Auckland really jumping at the chance to get into a new KiwiBuild home. And although property values in Auckland and Queenstown have generally flattened off, continued growth in Wellington will only make the KiwiBuild appeal even stronger.
 

- Nick Goodall, CoreLogic NZ

According to the September CoreLogic QV House Price Index, property values in both Hamilton and Dunedin grew by 2.4% over the last three months. This holds the annual rate in Dunedin above 10% reflecting relatively consistent growth rates in the lower south, but it is quite the change in trend for Hamilton, where values had begun to plateau from March this year. 
 
In more good news, CoreLogic head of research Nick Goodall said, “The number of new listings over the past three weeks in the wider Waikato region is also 22% higher than the same time last year, providing a much needed boost in available stock for prospective buyers, however, it’s worth noting that Hamilton’s annual value growth remains below 5%. 
 
 
 
Wellington City and Tauranga showed similar, if slightly smaller, bounce-backs in value, with 1.9% and 1.4% quarterly growth respectively, to the end of September 2018. 
 
Nick Goodall said, “The Reserve Bank of NZ has reported an upturn in gross new lending over the past few months. Perhaps this is in response to continued competitive mortgage interest rates, with buyers acting with a renewed market confidence.” 
 
Goodall adds: “Both first home buyers and investors remain active. First home buyers continue to take advantage of the availability of their KiwiSaver funds, while investors appear undaunted by yet more announcements which are likely to impact their profitability.”
 
 
”Potential changes which could impact investors was the government’s Tax Working Group interim report which floated two possible options of ‘tax on capital assets’, designed to make the tax system ‘fairer’. 
 
“There’s no guarantee of either actually being recommended, let alone implemented, however it would be another layer for investors to sift through before they can retain the gold that is their profits.”
 
 
“Despite KiwiBuild ballots opening, and subsequently being touted as potential ‘lotto wins’ for the successful applicants, first home buyer activity remains strong, suggesting not everyone is hanging their hopes on entering the market via the Government scheme,” he said.  
 
Meanwhile, values in Auckland dropped 0.7% over the last three months, driven by a greater weakness in the more expensive areas of Auckland City (-1.1%) and North Shore (-0.8%). Much further from town, Franklin was the only Auckland area to see growth over the last three months (1.2%).  
 
In Wellington, anecdotes of continued growth in the market are backed up in September’s index results. Values are up 1.9% over the last three months in the City, while Upper Hutt saw a slight drop in quarterly growth rate (to +1.8%) but it retains the highest annual growth figure for the region of 8.8% (above Wellington City’s 8.5%). 
Across the other main urban areas, a relatively distinct trend has appeared, with the four lower value centres topping the annual value growth rate chart. Whanganui (average value $260k) joins Invercargill ($277k) at a rate of 13.4% over the last 12 months.
 
Palmerston North ($406k) and Gisborne ($325k) also saw property values grow by more than 10% over the last year as competitive mortgage interest rates support affordability for those who can satisfy bank lending criteria. 
 
Napier’s annual growth rate has now dropped below 10% for the first time since May 2016. Nick Goodall said, “Fifty per cent growth over the two and a half year period between October 2015 and April 2018 was always going to impact affordability, and with an average value now exceeding $500k that certainly seems the case.” 
 
Values grew 2.6% over the last three months in Hastings, perhaps a reflection of the slightly better affordability as the average value is almost $50k lower compared to its Hawke’s Bay neighbour.
Meanwhile a minor lift in values in the Queenstown Lakes District could reflect a late surge before the Foreign Buyer Ban is enacted, however longer term prospects for the popular tourist district appear to be less prosperous.  
 
New Plymouth values continued to track sideways. Clearly there’s more to the region than just mining, but future growth will likely remain constrained as people consider their future employment prospects.
 
Mr Goodall said, “The QV House Price Index for September illustrates there are still pockets of strength in the market as we head into the warmer, often more popular, months for market activity.” 
 
While some of the macro-economic factors (GDP growth, net migration) which influence the property market, are weakening, we can’t ignore the influence of credit availability and with banks dropping mortgage interest rates, and subsequently increasing their loan book, demand is holding up.
 
“The short term supply situation, as measured by properties on the market, also remains low across most of the country, excluding Auckland. And while we’ve seen the typical spring lift begin to occur already, overall levels are historically low, which means some price pressure persists for those properties currently on the market”.
 
 
Annual change in dwelling values, Territorial Authorities
Main Urban Areas
 
 
The more medium-to-long term supply situation (as measured by construction of new properties) is seeing some positive progress. We’re seeing record levels of building consents being issued in Auckland and the reality of KiwiBuild in improving the affordability of new builds is starting to become clearer. However we know all too well about the deficit created from years of under-building (combined with strong population growth) and this shapes the over-arching outlook of values holding up for the time being.
 
Two factors to watch are the labour market and property investor activity. 
 
The labour market is currently pretty strong but could be unduly influenced by overseas factors, not to mention a reduction in business investment locally.
 
“While there are no signs of property investors fleeing the market, or even pulling their demand completely back, the industry is becoming less attractive, particularly to new entrants. With profitability reducing, some investors are considering their options and some are now widening their net to include commercial property”.  Mr Goodall said. “This has flowed through to an improved level of demand for commercial property but also poses a question about the sustainability of this demand, depending on how the investors’ experience in commercial property goes, bearing in mind that some banks have raised concern about the need for better understanding between the two types of investments.”
 
In summing up, Mr Goodall explains: “Market activity remains somewhat constrained; however there is cause for optimism, in the form of a recent increase in credit flows. This appears to be relatively unique to NZ and we wouldn’t expect it to continue to increase exponentially, especially with more information coming to light across the ditch via the Australian Banking Royal Commission”. 
 
“The industry will likely continue to control its standards and keep lending well below the LVR speed limits, which could restrict the pool of people able to satisfy the banks’ criteria to get a mortgage, thus constraining future demand.”