Property market forecast: What the experts expect

By Lawrence Watt

There is hesitation in the New Zealand housing market. Some of it is fuelled by legislative changes, such as the extension to the bright-line test and the foreign buyer ban. And some of it is fuelled by events in Australia, where house values have dropped 10 per cent and major financial institutions warn of worse to come.

Kiwis reading doom-laden predictions may feel unsure about buying and selling in the next 12 months, but what do the experts think? We asked real estate leaders, bank economists and developers for their view.

BNZ chief economist Tony Alexander says demand from owner-occupiers in 2019 is likely to be supported by strong jobs growth, improving wage rises, continued low interest rates, and KiwiBuild sales.

“Over the past year the proportion of bank home lending going to owner-occupiers has risen from 76 per cent to 80 per cent and the proportion going to investors has fallen from 23 per cent to 19 per cent,” says Alexander. “Three years ago only 69 per cent of lending was to owner occupiers. The small difference reflects business borrowers.

“This change reflects a pullback in purchasing of properties by investors which has left space for owner occupiers, including first home buyers, to enter the market. In the coming year this trend is likely to continue.”

Alexander says demand for loans from investors is likely to be constrained by the loss of the ability to charge tenants letting fees and removal of the ability to offset cash flow losses against current year income from other sources.

“Worries about a possible capital gains tax may also dissuade some investors. But the minimum investor deposit fell from 35 per cent of purchase price to 30 per cent from January 1, and there is high awareness of the still growing shortage of properties in Auckland and Wellington particularly. “This suggests that any pullback in lending to investors is not likely to be particularly large — especially as the pace of rent rises is likely to accelerate.”

OneRoof editor Owen Vaughan says: “Auckland’s property market barely shifted in 2018, but behind the scenes there was a lot going on that could have an impact on future values: a foreign buyer ban, changes to the bright-line test, KiwiBuild, and lots of talk about a capital gains tax and property market crashes.

“But you wouldn’t see that in the figures. The dramatic surges that typified the city’s market during the boom years have given way to softer conditions, characterised by plateauing levels of house price inflation and subdued activity.

“Values in most of the major metros have stabilised, but growth is still strong in smaller regional markets. The question is: how long will that growth last?”

Barfoot & Thompson managing director Peter Thompson says the big unknown for 2019 is the foreign buyer ban. The Overseas Investment Amendment Bill, which came into force in October 2018, prevents foreigners — with some exceptions for Australian and Singaporean citizens — from buying existing residential properties in New Zealand.

Thompson says although there is evidence that some foreigners have missed out buying properties for the upcoming NZ-hosted America’s Cup, it’s unclear how much an effect the tightening will have on house sales.

He says Kiwis need to be aware of the amendments to the recently tightened Anti-Money Laundering and Countering Financing of Terrorism Act and warns that rents may increase after the Residential Tenancies Bill is enacted this year.

The slump in Australia’s housing market has led to increased speculation that Auckland and the New Zealand will follow suit. BNZ senior economist Craig Ebert says recent falls in Australian house prices does not appear to have impacted Australia’s economy by much and that markets are more concerned about the possible effects of a US/China trade war.

He says that given the robustness of lending rules in New Zealand, a hike in interest rates would have to be quite high — to at least seven per cent — before most buyers found it hard to service the loan.

In fact, the easing of the LVR (Loan to Value Ratio) restrictions at the start of last year and the Reserve Bank’s expectation that it will keep the OCR at 1.75 per cent until 2020 should benefit buyers and home-owners.

But the evidence is there that the housing market has peaked. A recent ASB Bank Housing Confidence survey found that house price inflation expectations fell in the three months to October 2018.

After two quarters of increasing expectations nationwide — only 26 per cent of respondents expected house prices to increase, the lowest since January 2018.