It’s been a rollercoaster year for real estate with the market going into a frenzy of higher and higher prices driven by cashed-up foreign buyers, high immigration, strong local demand, a lack of housing, and low interest rates (which are set to go even lower).
But the market has spluttered, lurched and wheezed due to a bundle of measures at home and in China that’s caused the market to stall.
The Chinese Government turned the screws on its banking sector, putting it on notice that its laissez faire attitude to clients moving illegal amounts of cash out of the country needed to end — or else. On top of that the Chinese stockmarket suffered a mini meltdown that ate into people’s life savings.
Meanwhile, the New Zealand Government and Reserve Bank has put a raft of measures in place to put the squeeze on property investors and foreign buyers. Most of these came into force on October 1, and caused a flurry of activity with apparent ‘sky’s the limit’ bidding at auctions across Auckland and the regions during September.
With foreign buyers now needing a local bank account and an IRD number, they appear to have cooled on New Zealand and appear to be taking a wait-and-see approach before opening their wallets again.
Local property investors also appear to have done their dash — for now at least — and are likely waiting for the market to settle down before they risk borrowing more money against their real estate portfolios
As we head into the height of the summer season, a period that typically sees the most properties listed for sale, a bundle of buyers are sitting on their hands.
It means sellers, perhaps for the first time this year, are on the back foot. It is now a buyers’ market. Which may lead to some disappointment among those who still think they are living in September.
New Zealand is not yet in a debilitating recession, just a slight soft spot in Auckland real estate. So long as sellers understand this, they will be able to sell their property quickly.
Buyers are in a much stronger position to negotiate on price. However, it doesn’t mean there will be any fire sale bargains, just that, for now, the heat is out of the market, and we are back to what I’d call fair market prices. Don’t expect to get a bargain. For those, you’ll need to look further north or go south.
As for next year … it makes sense that investors will re-enter the market. And foreign buyers, understanding our new rules of engagement, will likely re-emerge.
Now, right on time to give the real estate market a boost following the October 1 rule changes is an interest rate that’s so low it has not been seen in New Zealand for at least 50 years. It’s bound to start a little loan-rate battle, which will be great for home buyers.
SBS Bank sent a ripple through the loan market this week when announcing a fixed-rate deal of 3.99 per cent for one year.
This will surely put pressure on the High Street banks to either match or better the deal in the coming weeks — perhaps we’ll see 3.99 per cent for 18 months from one of them.
While the rate from SBS will help it increase market share, it is only available to new borrowers wanting $100,000 or more for a residential property.
The bank is also likely getting in ahead of the widely expected Reserve Bank decision to cut the official cash rate (OCR) from 2.75 per cent to 2.5 per cent on December 10. At the very least this should — if the banks play nice — see floating rates drop to well below 6 per cent.
And there is some level of confidence that, come the New Year, the OCR will — unless inflation makes a surprise spike — end up at 2 per cent (perhaps by June).
Banks, of course, have been able to borrow cash from off shore at less than 2 per cent for some time, but still charge 6 per cent or more for floating rate mortgages (the country’s big four banks made more than $3.5 billion in the last year; its profits were up more than 9 per cent on 2011/2012).