Property values in Wellington City spring to life as the winter lull for values comes to an abrupt end

Date: 01 November 2018

According to the October CoreLogic QV House Price Index, property values in Wellington City grew by 3.9% over the last three months. This takes the annual rate of capital gain in Wellington City to 9.6% and illustrates a similar trend to the rebound seen last spring, when the annual rate was a slightly higher 10.0%, after recovering from another underwhelming winter for property values.
CoreLogic Head of Research Nick Goodall said, “A shortage of total properties listed for sale remains a constant in the Capital, so properties that are listed for sale are still attracting competitive interest - which is in turn seeing an increase in values. Spring has also seen the normal seasonal lift in new listings being added to the market however with a consistently low number of days to sell the impact of new listings is reduced.”
Goodall adds: “Strong population growth (much like the rest of the country) and a buoyant labour market, supported by the public sector (and associated high-paid jobs) is boosting demand. First home buyers aren’t as active as last summer, as many look slightly further afield for better value, but investors, accounting for 41% of sales in Q3, continue to find value in the City.”
Meanwhile, property values continued to increase in Dunedin, with the rolling quarterly rate of growth strengthening to 2.8% (from 2.4% previously). Similar figures were also present in Hamilton (2.8% quarterly growth), however annual growth here remains below 6%, well short of the 10.5% experienced in Dunedin.
In Auckland, property values continue to hold reasonably steady – up 0.2% over the month but down 0.3% according to the quarterly measure. The sub-regions of Auckland are generally recording flat conditions as well, with six of the seven areas seeing quarterly growth range from -0.6% to +0.5%. Only Franklin sits outside this range, at 0.9% growth. Franklin remains the most affordable of the old ‘cities’, with an average value of $671k and is mostly represented by the town of Pukekohe, which makes up 42% of all properties in the area (and to a lesser degree Waiuku with a further 20%).
Christchurch meanwhile, saw zero change in property values over the month. Similar to Auckland, this is a continuation of a long term trend with the annual growth rate in Christchurch remaining below 1% since June 2017. Questions remain about whether there’s a risk of oversupply in Christchurch and the broader region surrounding the city, however with values enduring their hold and properties continuing to sell, the answer remains ‘not quite yet’.
It is however important to note that the number of building consents being issued is hovering above ‘normal’ levels prior to the 2010/11 earthquakes, despite the bulk of the residential rebuild well and truly over and the market already appearing ‘in balance’. So the risk of oversupply in some areas of the city/region (or for some types of property) in the future does linger.
Disclaimer: In compiling this publication, CoreLogic NZ Ltd has relied upon information supplied by a number of external sources. CoreLogic does not warrant its accuracy or completeness and to the full extent allowed by law excludes liability in contract, tort or otherwise, for any loss or damage sustained by subscribers, or by any other person or body corporate arising from or in connection with the supply or use of the whole or any part of the information in this publication through any cause whatsoever and limits any liability it may have to the amount paid to CoreLogic for the supply of such information.
Values in Tauranga are showing signs of life, but growth remains inconsistent as the average value holds in the low $700,000’s. Annual growth sits at 3.3%, the same rate reported last month.
Across the other main urban areas, many of last month’s top performers remain the same. Whanganui is the pick of the bunch with the annual growth rate accelerating to 17.5%, the strongest growth rate to be seen here for more than 12 years.
Recent activity has picked up from investors, however movers (people buying and selling within a six month period) also remain a key presence in the market. First home buyers are holding their own at around 23% of sales in Q3, however this is well down on a peak of 29% of sales in Q3 2015.
Invercargill has retained an annual growth rate higher than 13%, although conditions have cooled marginally from the prior month’s rate.
Palmerston North property values also continue on an upward trajectory and in the ‘winterless North’, WhangÄ?rei looks to have bounced out of a subdued winter for property values to see 3.6% quarterly growth leading to an annual rate of 11.3% - the greatest figure for just over a year.
Meanwhile Napier’s foray into sub-10% annual growth was short-lived as the rate rose back to 10.3% at the end of October. It seems there’s more life in the Art Deco Capital yet!
At the other end of the scale, but clearly not cause for concern by any stretch, New Plymouth is still seeing annual growth exceeding 5% (more than half of our main centres), and Hastings hasn’t fared quite as well as it’s coastal neighbour Napier, with ‘only’ 6.6% annual growth in property values.
Mr Goodall said, “The QV House Price Index for October indicates the current growth cycle is not completely over yet. The banks continue to compete strongly for mortgages via their fixed interest rates and this is enabling buyers to continue participating in the property market. Borrowers are still subject to greater scrutiny of their income and expenses but once they satisfy the bank’s criteria their mortgage payments should be relatively manageable due to historically low mortgage interest rates.”
We’re yet to see the same increases to mortgage rates that other countries are seeing, including Australia. And given our proximity to Australia, there has been some speculation that the downturn being witnessed across the ditch will be replicated here.
For now this looks unlikely, with 80% of New Zealand borrowers favouring fixed interest rates. This is almost in complete contrast to Australia where the majority of their lending is on floating rates. This greater exposure to mortgage rate movements in Australia can lead to borrowers’ payments increasing particularly for investors who have favoured interest only loans, many of which are now approaching their 3-5 year term expiry and transitioning to principal and interest payments.
The banks are also doing it a bit tougher in Australia due to the Royal Banking Commission enquiry, and while we already have, and could feel some more of the effects of this, due to the same banks being active in NZ, it appears unlikely to significantly impact lending practices any further.
This is due to domestic lenders have already tightened up on income and expense checks as well as increasing serviceability tests to guard against a down-turn. The RBNZ was also more proactive and much faster to act in terms of imposing regulatory controls, i.e. the LVR speed limits, here in NZ.
But perhaps the more important difference is that the largest capital cities of Australia (which are seeing the greatest losses in value), are moving through a record high level of new dwelling construction with an emphasis on new multi-unit dwellings.
This is in stark contrast to NZ, particularly Auckland (which is most often likened to Sydney) where you’d be hard pressed to find anyone who thinks the City is over-supplied. In fact, many calculations estimate the city is under supplied by between 30,000 and 70,000 properties.
With a construction industry already at capacity (and facing steady labour and materials costs increases) and needing to continue to grow to keep up with population increases (let alone make up for recent deficits) flowing through to demand, we don’t believe it’s as easy as saying ‘what happens there, will happen here’.
In the short term, many eyes and ears shift to the Reserve Bank, with November a big month of announcements. They’ll release their next Monetary Policy Statement, where they are likely to hold the OCR at 1.75% on November 8, followed by the Financial Stability Review on November 28.
Opinion from prominent economists appears mixed as to whether Governor Adrian Orr will announce another loosening of the LVR regulations, but either way any change is likely to be small, so anyone waiting for a ‘game-changer’ is likely to be left disappointed.


Tags: NZ Property Market , Auckland property, NZ realestate, Wellington real estate