Home affordability crisis in Auckland – foreign buyers swooping

Another survey came out this week telling us what we already know. Home affordability in Auckland is tougher than ever.

According to the latest Demographia International Housing Affordability Survey, Auckland is  the world’s  fourth least affordable city, sitting behind   Hong Kong, Sydney and Vancouver.

Auckland is among the cities with high house prices and low wages with median homes prices of $830,000 and median  household incomes at $83,000.
SuperCity mayor Phil Goff is setting up a housing task force to have a meeting about it.

Foreign investors

New Zealand is in the top 10 for Chinese property investors according to a survey of China’s wealthiest people, although the appetite for foreign investments  dipped  last year.

The report by the Hurun Research Institute says 80 per cent of the 1.3 million Chinese with a net worth of NZ$2 million or more plan to buy overseas property during the next three years — that’s 800,000 millionaires and billionaires looking for real estate.

However, only 66 per cent of those surveyed last year are interested in owning overseas property, down from  79 per cent in 2015.

US cities such as LA, San Francisco, Seattle and New York are the top four places for Chinese people to invest. Vancouver, down one to 6,  has lost some of its appeal due to changes to housing investment rules. But New Zealand rose up the ranks to 8 (11 in 2015).

The Hurun Report’s chairman and chief researcher Rupert Hoogewerf says: “Worries about the depreciation of the yuan and housing bubbles in major Chinese cities are pushing Chinese to invest their money overseas.”

The report says   high rates of return (capital growth) and the immigration status of owning property confers are key attractions.

The survey notes that  58 per cent  of  Chinese investors  use their overseas properties to live in, 27 per cent   for investments, while 5 per cent  use them as holiday homes. The average sum invested was around $1 million (5.07 million RMB).

Hoogewerf says wealthy Chinese people try to have 30 per cent of their investments abroad with property and foreign exchange  seen as the big two safe havens.

He says: “The main reasons for investing overseas are to spread their investment risk, children’s education and with emigration in the back of their minds.

“When investing overseas, asset safety is the top priority — risk control is their foremost consideration.

“For Chinese high net worth individuals today, their investments overseas are conservative nest eggs, not risk capital.”

Fixed mortgages

It’s impossible to guess where mortgage interest rates will be tomorrow, let alone next year, but for those looking to fix their mortgage the advice seems to be, go for a two-year deal.

Both Cameron Bagrie, chief economist at the ANZ and economists at Westpac suggest that a two-year fix is a good bet, or a two-year fix along with either a portion of the loan on a floating rate (for added flexibility) or different fixed rate.

Westpac’s weekly report for 16 January says the best value lies in the two-year rate or shorter terms.
“Three to five-year rates seem high relative to where we think short-term rates are going to go over that time,” says the Westpac team led by Michael Gordon.

Bagrie says one and two-year rates are likely to remain at current levels for some time yet, adding that the RBNZ will likely hold the official cash rate at 1.75 per cent for much of the year. He is predicting only two 25bps OCR hikes over the next two years.

Lifestyle sales down
There were 2191 lifestyle property sales  during  the three months ended December 2016, that’s 86 fewer than in the same period in 2015 according to the Real Estate Institute.

During last year  $6.9 billion of lifestyle property was sold, made up of  9036  properties –  11 per cent more properties that 2015’s figure says the institute.  The median price for all lifestyle properties sold in the last quarter was  $583,000.

Among the regions showing a drop in sales include Northland, Auckland,  Waikato and  Bay of Plenty. However, lifestyle sales were up in Wellington,  Manawatu/Wanganui and Canterbury.