Hayden Fahey - Are Apartments Becoming More Poular?

http://www.qv.co.nz/resources/news/article?blogId=146

Apartment sales in Auckland central city have become more popular over since 2010. A value increase for apartments has occurred, indicating an increase in apartment demand. Apartment popularity can be expected to rise further with LVR restrictions.

Since the decline of the 2010 recession apartment values have risen significantly within the Auckland region. This is true for houses also. House values still out perform apartments in terms of values with an increase of 33% in comparison to apartments with 24% (QV, 2014).

House values within Auckland city are much higher than that of apartments. House values have an average of $961,000 in comparison to apartments with $405,000. With the LVR restrictions set in place it is expected that a trend of switching to a more affordable type of housing. Apartments can be expected to rise in popularity and therefore an increase in apartment values can be anticipated (QV, 2014).

Apartment values have increased since 2000 in a steady trend. Apartment values since 200  have risen 43%. Medium and large sized apartments have grown in value at a high rate. Smaller apartments sized less than 40 square meters have dropped in value by 13% leading up to the property market peak in 2007 (QV, 2014).

During the recent apartment popularity and value increase Almost 18% of apartment sales were to first time property buyers, compared to only 7% of house sales. Most apartments have been sold to multiple property owners responsible for 47% of apartment sales, compared to 37% of house sales (QV, 2014).

Buying a house in the current property with debts has become very expensive. This is a direct result from the Reserve Bank initiating restrictions on low equity mortgages in October last year. The Reserve Bank restricted the mortgage market, making mortgages with a deposit of less than 20% difficult to get. This impacts first home buyers who are mostly unable to purchase property. The LVR has affected mainly the lower value properties in the market (ONE news, 2014). The Reserve Bank initiated this restriction in an effort to control the market for the country’s long term benefit. This is macroeconomics as it adjusts the market behaviour directly (Reserve Bank of New Zealand, 2013). Therefore with LVR restrictions first home buyers will be deterred from purchasing a new house without proper funding. Prospective first home buyers will look cheaper alternatives for housing.

With first home buyers looking to secure a place of their own smaller apartments may become more popular. As LVR reduces the options for new home buyers the cheaper apartments may become a wise alternative for the market to explore (QV, 2014).

My advice to Welly Real Estate would be to create business in the area of apartment sales. This area of the property market shows promise as a profitable area of investment. LVR restrictions are likely to cause a surge in an already growing trend of apartment sales in central Auckland.  Apartments especially in the smaller area section provide a low cost alternative for purchase; this would benefit any potential buyer, especially one that is impacted by the new LVR restrictions.

ONE news. (2014, April 24). LVR taking a chunk of low price sales out of housing market. Retrieved May 1, 2014, from ONE news: http://tvnz.co.nz/business-news/lvr-taking-chunk-low-price-sales-housing-market-5939958

Reserve Bank of New Zealand. (2013). Loan-to-value ratio restrictions. Retrieved April 26, 2014, from Reserve Bank of New Zealand: http://www.rbnz.govt.nz/financial_stability/macro-prudential_policy/5393159.html

QV. (2014, March 7). Are Apartments becoming more popular. Retrieved March 31, 2014, from QV: http://www.qv.co.nz/resources/news/article?blogId=146

Oliver Woolley, New Zealand Herald Article "Varsity Students Push Up City Rent"

Amber Haddock "Low rents deter home buyers"

http://www.stuff.co.nz/dominion-post/business/residential-property/9780644/Low-rents-deter-home-buyers

Blog 7

The article released by The Dominion Post forecasts how people are being discouraged from buying there own homes as renting prices are low (NZPIF).

Andrew King whom is an executive officer for New Zealand Property Investors Federation states that owning an average home is about $138 more expensive a week than the cost of renting a similar property. "A lot of people will say they can save that $138 by renting, that's cash in their hand right now, so most will think that's a good thing to do," (King).

Rent was estimated to cost about $450 a week which would total out to cost tenants around $23,400 to live in, to own a house NZPIF estimated the the normal rate of an average house is a 20% deposit, 25 year mortgage with 5.75% interest so homeowners were looking at paying anything over $25,655. For landlords and property investors a landlord would be paying around $21,975 a year in mortgage payments, plus additional cost such as insurance, maintenance etc which does not fall down to the tenants responsibility.  "That would take the owner-occupier's total costs to $30,593 a year, which means they would be paying $7193 a year ($138 a week) more than a tenant" (King).

In 2013 a similar investigation was taken out by NZPIF comparing homeownership to renting and the difference in price was calculated at $108 more expensive to own a house than to rent and this year has increased to $138 a week which is quite a difference which means the gap is widening fast. This results in mortgage repayments and additional costs to homeowners is increasingly widening and cost for property owners is rising faster than rent.

Because interest rates are low this may be the result of low rent prices as landlords cash flow is better. Due to the gap continuously increasing between prices of homeownership and rent, this may mean that in the near future rent prices have the opportunity to increase to keep up with market prices and close the gap of the difference in price. "King estimated that, using the NZPIF's cost example, the rent would need to rise 10 per cent to $495 a week to provide a satisfactory return". "Landlords should be looking at prevailing rents in the areas in which they owned properties to see if they needed to increase their rents, King said. “It may be easier to make smaller increases now than larger increases in future when trying to keep up with cost increases,"  (King).

Main focus point featured in the article: The increase in rental prices is not rising to be in balance with the increase in property price sales.

The article released by the dominion post relates to Welly Real-estate as it gives evidence towards the property market continually increasing which is fleeing off potential buyers and pushing willing buyers to be forced to settle with renting as opposed to buying. This is a worry for Welly Real Estate.

Advise to Welly Real-Estate could be to focus the business on property management as the market at present suggests that many people are choosing to rent over homeownership and this could be a niche in the market that Welly Real-estate could direct there business and further generate income. Welly real estate could be in charge of taking on properties from landlords and managing them whilst receiving a commission. In regards to the article mentioning more people are choosing to rent this could be quite beneficial to Welly Real-estate as they market for this is increasing and they have the chance to expand the business in this way.

Works Cited:

King, A. "Low rents deters home buyers". Web. March 25.2014. http://www.stuff.co.nz/dominion-post/business/residential-property/9780644/Low-rents-deter-home-buyers

Kiernan, G. “More people choosing to rent”. Web. May 2. 2014. http://www.stuff.co.nz/dominion-post/business/residential-property/9844647/More-people-choosing-to-rent

Weir,J. “More people choosing to rent”. Web. May 2. 2014. http://www.stuff.co.nz/dominion-post/business/residential-property/9844647/More-people-choosing-to-rent

McCrackin, H. "Property Values Climb". Web. March 16. 2014. 

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11217224.

Hayden Fahey - Demand Rising in Bounce Back Ecconomy

http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=11224487

Wilson Collin "Comercial Properties"

http://www.stuff.co.nz/business/industries/9865977/Commercial-property-sales-rebound

Commercial properties rebound

The major news this week was the release of International investors putting New Zealand in their top-10 list of Asia-Pacific real estate investment targets (Gibson, 2014). This has caused Commercial property sales to rebound after the 2012 slump.

Investors will look for real-estate opportunities as demand pushes prices to increase over the foreseeable future. This is expected to be the main driver for the increase in Demand for commercial property in New Zealand.

“Jones Lang LaSalle, said more than $2 billion worth of properties sold for more than $5m last year, with office properties leading the way.” (Ninness, 2014) This is positive news for Welly Real Estate as office values will increase and this is an indicator that investors are willing and able to pay upper market prices for office space.

Again with increasing foreign investment Industrial prices will continue to increase. The main driver of these prices will be the Auckland region as 76% of sales, in 2013, occurred in the Bombay hills. (Ninness, 2014)

 

Individual firms will receive a boost in Assets as land value increases. This will increase their lending ability, however the recent OCR increase of 0.25% has increased interest rates in an attempt to cool the housing market. This will discourage lending.

“To keep inflation expectations in check, interest rates would need to rise towards a level where they were no longer pushing the economy forward, adding to demand.” (WEIR, 2014)

Interest rates are expected to continue to rise to combat inflation. However interest rates are at a 50 year low, so interest rates are still relatively low. (WEIR, 2014)

 

This is positive for Welly Real-estate as opportunities arise in the short term. I recommend that Welly Real-estate invest in both industrial and commercial property in the immediate future. I predict the market values will continue to increase as investors will look to increase the Supply of commercial space in Major cities throughout New Zealand. This increase in Supply will be done by utilizing idle resources, such as empty or idle land lots.

This will increase the inflow of cash to Welly Real-Estate in the short term as sale opportunities are expected to arise. This will help to keep them operating in the foreseeable future.

 

Wilson Collin, 300238419


Work Cited

Gibson, A. (2014, march 25). Foreign funds eye NZ commercial real estate. Retrieved from http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=11225553

Ninness, G. (2014, March 25). Commercial property sales rebound. Retrieved from http://www.stuff.co.nz/business/industries/9865977/Commercial-property-sales-rebound

WEIR, J. (2014, March 13). Mortgage pain time: OCR rises to 2.75 per cent. Retrieved from http://www.stuff.co.nz/business/money/9822918/Mortgage-pain-time-OCR-rises-to-2-75-per-cent

 

Amber Haddock "More people choosing to rent"

http://www.stuff.co.nz/dominion-post/business/residential-property/9844647/More-people-choosing-to-rent

Blog 6

James Weir’s article released by the Dominion Post implements how home ownership is dropping. This means less people own their own homes as opposed to those who do. In the 1990's studies showed that close to three out of four families owned their own homes. Now days this has dropped by 65%. The age gap that thus fell mostly for, was people aged in there thirties and forties (Kiernan).

The house pricing increase/boom in the 2000's could reflect the decrease in households owning their own homes. In 2000 "house prices peaked at close to 6 times the average disposable income" (Weir). First time home buyers and younger people are finding it extremely difficult to buy into the property market, this could be due to one of two things; prices have increased to over 6 times the amount of disposable income or people are not settling down until an older age now or more Asian migrants are migrating to NZ but reluctant to invest in the property market which then in turn results in an increase in rental properties (Weir).

Due to prices for houses rapidly increasing, renting is the next best option financially. “Recent research suggests on average it is about $138 a week cheaper to rent than own a house”(Weir). In comparison to home ownership and renting, it is easier for those whom rent to move houses than those whose money is invested in the asset. From 2001 to 2013 home owning has decreased by 54.6% over a range of age groups between 20-70. From 2001 house price started to rise significantly and the gap between renting and buying has widened greatly (Kiernan). Homeownershave potential capital gain whereas those in rental properties do not get this bonus (Weir).

Main focus point feature in the article: Homeownership is become more and more unrelaisitc to average wage earner in conjunction with renting.

The article released by the Dominion Post relates to Welly Real-Estate as it forecasts how the lack of supply versus demand results in more people choosing to rent. The result of supply and demand is a branch in the market under Microeconomics that deals with the smaller part of the market in terms of the decisions making and the implications on individuals.

Advise to Welly Real-Estate could be to focus the business on property management as the market at present suggests that many people are choosing to rent over homeownership and this could be a niche in the market that Welly Real-estate could direct there business and further generate income. Welly real estate could be in charge of taking on properties from landlords and manging them whilst receiving a commission. In regards to the article mentioning more people are choosing to rent this could be quite beneficial to Welly Real-estate as they market for this is increasing and they have the chance to expand the business in this way.

Work cited:

Kiernan, G. “More people choosing to rent”. Web. May 2. 2014. http://www.stuff.co.nz/dominion-post/business/residential-property/9844647/More-people-choosing-to-rent

Weir,J. “More people choosing to rent”. Web. May 2. 2014. http://www.stuff.co.nz/dominion-post/business/residential-property/9844647/More-people-choosing-to-rent

Smith, D. "House prices surge in spite of loan restrictions". Web. March 10. 2014. http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11213979.

Duncan, H. "House prices surge in spite of loan restrictions". Web. March 10. 2014. http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11213979.

Reserve Bank of New Zealand. "Loan to valure ratio restrictions". Web. March 10. 2014. http://www.rbnz.govt.nz/financial_stability/macro-prudential_policy/5393159.html

Josh Foster - 'Trade Me real estate ad deal likely as growth slows'

http://www.stuff.co.nz/business/industries/9741647/Trade-Me-real-estate-ad-deal-likely-as-growth-slows

Amber Haddock "Kiwis pay extra high mortgages over 'risk'"

http://www.stuff.co.nz/dominion-post/news/9859273/Kiwis-pay-extra-high-mortgages-over-risk

Blog 5

Posted by the Dominion Post, the article relates to one of my previous posts in how the OCR* (Helm) increase has a prolonging effect on the property market, its a proven fact that kiwi home buyers pay more for their mortgages than the rest of the world says Fensome (Fensome). As stated in a previous post from another article the increase in the OCR of 2.75% has had an effect on mortgage interest rates seeing them increase (Fensome).

Australian interest rates are seen to be greatly lower than NZ, you could buy a house in Belmont Perth and in Belmont Lower Hutt and pay the same price however buying in NZ would see you paying more for your money in regards to interest rates, NZ's OCR, mortgage rates etc. (Fensome)

Statistical data to back this statement up ANZ mortgage rates last week were offered as followed in comparison to the same bank;

Australia, Floating 5.88%, Fixed two year rate 4.99%

New Zealand, Floating 5.99%, Fixed two year rate 6.29%

Althought this slightly varies from major lenders in NZ most banks are around the same interest rates for example ASB offers a two year fixed rate of 6.49% and a floating of 5.89%.

"ANZ offers a two-year fixed rate of 6.29 per cent. Its Australian parent, Commonwealth Bank, offers the same term for 4.99 per cent. That means the Kiwi ASB customer pays $629 interest per year for every $10,000 they borrow, while an Aussie with Commonwealth pays the equivalent of about NZ$529." (Fensome)

Influences and threats relating to the NZ economy are things such as;

•    NZ low level of house old saving

•    Less saving means banks need to borrow from overseas due to lack of domestic funds

•    NZ's small market size

•    Volatility of NZ

•    NZ's values of goods and services imported is considerably greater than that exported and has been for over 40 years and technically speaking this creates a persistent "current account deficit"

•    NZ has a need to invest in housing rather than asset

•    NZ preferred investment is housing

All these reasons lie towards why our economy is not as strong as others as stated Australia but economist Alex Fensome states in the article that the real reason lies with foreign investors and there willingness to lend to NZ, as is such a vulnerable market. Foreign investors define NZ as more of a risk to lend to as the economy is smaller or the value of the dollar could suddenly plunge.

Main focus point featured in the article: How the instability of New Zealands economy can be to blame for New Zealands property market.

This article relates to Welly Real Estate as it gives some sort of background into why our economy is what it is and the fact that New Zealand house prices, interest rates, lending power is so unjust in comparison to other countries and the stability of there economy.

Advise to Welly Real-Estate based on this article is that due to NZ's economy being so high, the company should then use this to there advantage as the demand of houses in comparison to the supply is fairly outweighed, "If supply exceeds demand, value goes up"(Blackboard Lecture 2) and although potential home buyers are less willing to buy with the economy and property market being the way it is. The fact of the matter is renting is not feasible these days as there is also high rental prices so home buyers are going to continue to purchase houses no matter the price so Welly Real Estate should continue to push sales. Renting is deemed unfeasible because with high renting prices property manages and landlords are charging rentals buyers are so high that in the long run there money ends up going no where, where in turn if someone was to purchase a house at still a high rate at the end of it they have a valuing asset (Long term asset*), renting is not an asset.

*Long term asset: Long term assets are those that have a useful life of more than

a year 

*OCR: The OCR is an interest rate set by the Reserve Bank of New Zealand which defines the wholesale price of borrowed money. This directly affects the commercial banks, determining the rates they offer their customers. So it affects the rates banks charge for borrowing (mortgages, loans, credit cards) and what they will pay customers for saving (term deposits, savings accounts).

Works Cited:

Fensome, A. "Kiwis pay extra high mortgages over 'risk'". Web, 25 March. 2014. 

http://www.stuff.co.nz/dominion-post/news/9859273/Kiwis-pay-extra-high-mortgages-over-risk

Helm, A. "Interest rates rise". Web. March 24. 2014. 

http://www.interest.co.nz/property/69100/alistair-helm-assesses-how-property-market-will-react-and-handle-coming-interest-rate

Gareth Morgan Investments. "The official cash rate explained" Web. 2 April. 2014.

http://www.gmi.co.nz/answerroom/1450/the-official-cash-rate-explained.aspx

ASB. "Interest rates". Web. 2 April. 2014. https://www.asb.co.nz/Personal/Home-Loans/Interest-rate-options/Variable-rate

Blackboard lecture slides. Web. 2 April. 2014 https://blackboard.vuw.ac.nz/bbcswebdav/pid-1432991-dt-content-rid-2142585_1/courses/2014.1.BILD261/Lecture2.pdf