Oliver Woolley, 'Apartment seller says 'shoebox' ban needs relaxing'

http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=11239199

Josh Foster - Residential Prices Hit New Highs

http://www.voxy.co.nz/business/residential-real-estate-prices-hit-new-highs/5/187432

Oliver Woolley Project 1

O L I V E R  W O O L L E Y

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Project 1, Post 2.

Article: Rethink on Foreign Home-Buying. By Adam Bennett.

http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=11238208

This article speculates the concerns of New Zealand First leader and MP, Winston Peters, in regards to foreign ownership of New Zealand properties. The raise for concern comes from what Peters believes as a lack of information as to who and where from is purchasing residential property in New Zealand (Bennett). These foreign investors increase demand in our local property market and in turn drive up the house prices, making them unaffordable for New Zealand citizens. Peters wishes to implement a policy which prohibits or restricts foreign ownership, he made the following comment regarding the policy "who are not New Zealand citizens from buying our houses and land, except if they first meet a stringent criteria related to New Zealand exports and economic interests" (Bennett). Labour also has a policy that if elected, it would block all purchases of existing property by people who did not live here, or did not plan to live here (Bennett). The Green party has suggested less popular but more effective solutions in taxation, advocating a capital gains tax on residential property that is not the owner's primary dwelling. They might also stop losses on rental property being deducted from taxable income (The New Zealand Herald). Other parties such as ACT believe that bans on foreign home buyers will make New Zealand citizens worse off as sales do not benefit from the overseas investors willing to pay higher prices (Hargreaves). Prime Minister John Key has acknowledged the concerns of his opposing parties and has deemed it necessary to begin collecting more in depth data on the subject but believes in no way is a total ban necessary, he believes the real issue in high property prices is the lack of supply and increasing population (Bennett).

The national government in attempt to reduce property supply issues has signed an ‘accord’ with the Auckland City Council, which will allocate more land for property developments and speed up the consent process (The New Zealand Herald). A New Zealand Herald article suggests that the governments beliefs that housing problems lie within the supply-side issue are false, “In fact all of the Government's supply-side measures sound like a desperate attempt to deny that the problem is one of excessive demand. It is the demand for residential property as an investment that is driving prices ever higher. The supply of houses is quite adequate, just about everyone has a house to live in. But too many are renting because the price of ownership has risen far beyond an affordable ratio of average incomes.” (The New Zealand Herald).

The likely outcome of this scenario is that foreign homebuyers will remain free to purchase New Zealand property faced only with the possibility of new laws enabling data collection. This means the demand of these buyers will remain unchanged, keeping the market busy and prices relatively higher than what they would be if laws of prohibition were to be implemented. With prices remaining high and pressure on the government to solve the apparent housing problem, an increase in supply through government influence is becoming more and more feasible. The government interventions will mainly center around increasing housing supply to bring back equilibrium prices to a more affordable level. The interventions will come in the form of faster building consent processes, making housing projects available faster. And more government influenced developments, large scale projects aimed at dramatically increasing supply.

Both the influence of foreign homebuyers and the possibility of government housing supply solutions will have positive affects on Welly Real Estate, as demand will remain high and supply increased. This will be beneficial for Welly Real Estate as property sales are certain to rise meaning the market which they benefit from is expanding, increasing possible profits. For Welly Real Estate this is a good time to expand to benefit from the expanding market, with specific focus on the residential market, as this is where most expansion will be seen. Large residential property developments an area that Welly Real Estate could easily profit from with such large numbers of individual housing within one project, it would allow the company to reduce operating costs as all the properties are on the same site and of relative similarity whilst retaining the some amount of income thus increasing net profit.

Other areas or markets where Welly Real Estate may choose to prioritise in order to benefit from are the overseas homebuyers, which seek to purchase property in New Zealand. To be able to benefit from this market the company would need to provide new services, which work with strengthening communication with foreign customers. The globalization of the company could mean a severe increase in customers and therefore profit through sales.       

Works Cited

Bennett, Adam. Rethink on Foreign Home-Buying. 15 April 2014. 25 April 2014 <http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=11238208>.

Hargreaves, David. Ban on overseas house buyers would make Kiwis worse off, argues ACT Party. 17 April 2014. 25 April 2014 <http://www.interest.co.nz/property/69522/ban-overseas-house-buyers-would-make-kiwis-worse-argues-act-party>.

The New Zealand Herald. Editorial: Taxes best way to fix housing problem. 17 April 2014. 25 April 2014 <http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=11239372>.

     

Updated Draft for Project 1

Draft 2

BILD 261 Building Economics

Project 1; Economy Advisor – Individual

Amber Haddock

Article: House prices surge in spite of loan restrictions. By Anne Gibson.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11213979 

Anne Gibson’s article released by the NZ Herald goes into significant detail about how the new lending restrictions brought into regulation in October 2013 are going to be of impact in the future. With the new tighter lending restrictions which means; "Banks will be required to restrict new residential mortgage lending at LVR’s of over 80 percent (deposit of less than 20 percent) to no more than 10 percent of the dollar value of their new residential mortgage lending." (Reserve Bank of New Zealand). The article forecasts the effect of prices rising further despite it being harder for home buyers to buy properties or get into the property market. 

These restrictions have put an effect on demand but could potentially have fled off sellers as well; with listings being fewer this keeps the housing market tight and house prices still increasing especially in Auckland's property market (Smith)

An economist stated that as interest rates rise over the year this then would have a flow on effect with price inflation to the property market and would ease over 2014. With properties listings being fewer in Auckland and Christchurch the low levels of supply vs high levels of demand will take years to even out however construction taking place in these areas is growing rapidly (Smith).

National marketing manager Paul McKenzie stated that buyers would be affected most as prices will be increasing, however listing numbers will be decreasing (McKenzie).

The LVR restrictions that were put in place did not have the attended effect as first time home buyers were getting around the 20% deposit through other means of borrowing (Duncan). 

The article released by NZ Herald relates to Welly Real-Estate as it forecasts how the lower end of the scale in terms of the property market has been affected by the LVR restrictions and how this affects first time homebuyers. The LVR restrictions are a branch in the market under Macroeconomics that deals with the performance, structure and behavior of the market.

Article: More people choosing to rent. By James Weir

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

James Weir’s article released by the Dominion Post implements how home ownerships is dropping further and further. This means less people own their own homes. 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.

The house pricing increase/boom from in the 2000's could reflect the decrease in households owning their own homes.

In the house price boom in 2000 "house prices peaked at close to 6 times the average disposable income"

First time home buyers and the younger people are finding it more and more difficult to buy into the property market, this could be due to one of two things either prices have sky rocketed to over 6 times the amount of disposable income, people are not settling down until an older age now and more Asian migrants are coming to NZ resulting in renting rather than buying.

With high house prices renting is the next best thing financially. “Recent research suggests on average it is about $138 a week cheaper to rent than own a house”.

Its not as easy for homeowners to up root for different circumstances as it is for renters as there money is tied up in there 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.

One thing that buyers have on renters is that they can have potential capital gain. 

The article released by the Dominion Post relates to Welly Real-Estate as it forecasts how due to the lack of supply vs demand more people are choosing to rent as it is more suffice. 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 made and the implications on individuals.

Advice for the company

Advising Welly Real- Estate:

Welly Real Estate is a real estate agency that aims to assist commercial needs in an innovative and dynamic way. In relation to my two articles selected I have gathered information relating to the real estate situation to date and todays market all around NZ. The property market is at an all time high in terms of house prices, interest rates and mortgage rates thus this means that the housing industry is becoming more of a worry to future investors wanting to buy a house. In 2013 the new LVR lending restriction come into laws stating that potential buyers had to have a 20% house deposit before purchasing and borrowing off the banks which in turn meant that for first time home buyers to now get a foot in the door in the property market is increasingly difficult.

To advise the company on the market situation would deem hard, as the market is very unstable, the lower end of the scale in terms of house prices is very weak, this is due to the LVR restrictions. Advise to the company would be too focus more on the higher end scale of the market as this is feasibly more stable. In consideration with this the company may have to employ a more qualified professional and someone that is able to achieve those targets and professionalism. Having to employee someone that required a higher wage cost would mean the business would have a slight down fall, resulting in higher wage costs however would balance out with the increase in commission the company would receive for the higher sale prices of the house. In relation to other real-estate companies throughout NZ the ones in the higher market are deemed more of a success to those in the lower end! Proof of this is as followed: Premium real estate in Auckland New Zealand is a real estate agent that “has been building a wealth of experience and knowledge in the high-value, luxury property market”. This particular agency is a company that is known for is stability and solid property resource that can be relied on. Welly Real estate could follow the lead in becoming a successful company like Premium Real estate.

So if the company focused on the high-value luxury property markets this could result in an increase in wage costs, a decrease in number of houses sold and an increase in commission per property that in turn should balance out and allow for stability and income for Welly Real estate just like Premium Real estate in Auckland.

Another nieche in the market that Welly Real Estate could move the business towards would be to become a real estate agent that focuses on Property Management in residential properties. Due to people choosing to rent more because of the supply of housing being in decline the business could be in financial gain by focusing the business in this particular aspect. Taylor Property Plus located in Wellington New Zealand is a business that operates as residential properties managers and allows for exceptional services. Kelvin and Rae Taylor whom run the company have over 230 properties that they manage which would be of evidence that this type of business is successful.

Work cited:

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

(Referencing like above still needs to be done for article 2 and advise section)

Oliver Woolley 'Rethink on foreign home-buying'

http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=11238208

http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=11239372

http://www.interest.co.nz/property/69522/ban-overseas-house-buyers-would-make-kiwis-worse-argues-act-party

Hayden Fahey - NZ's top places for property gains

http://www.stuff.co.nz/business/money/9870980/NZs-top-places-for-property-gains

NZ's top places for property gains

Dunedin has proven to be the highest yield location for long term New Zealand property investors. Student accommodation needs and the Christchurch rebuild programme have been present in the city for some time, driving up the yields. Dunedin had seven out of ten of the highest yielding suburbs in the country.

Dunedin has a large student population that requires accommodation within the city. The students need to be accommodated in relative close proximity to the campus; students also are most likely to rent due to the lower cost of renting for a few years rather than purchase a property. The large housing demand by students offers a reliable tenancy base for property owners. Three bedroom houses in the suburb of Hei Hei were returning gains of up to 14 per cent capital gain yield (Harris, 2014).

The Christchurch rebuild programme has also been driving up rental yields recently. Christchurch currently has a shortage of properties both for sale and rent. This property shortage in Christchurch has created a surge in Dunedin’s rental market as demand has increased while the rebuild takes place. The yield growth since the earthquakes in Dunedin has been quite evident according to a report by Westpac (Harris, 2014).

Rental property investors in Dunedin are experiencing high profit margins. High profit margins can be expected from rental investments because property prices are relatively cheap in relation to the rental income received. Dunedin's suburb of Forbury had a yield of 8.3% on the capital (Real Estate Institute of New Zealand, 2014).

The successful rental yields are attributed to economic model of supply and demand. There is a high demand for residential rental properties in Dunedin currently created by a continuous demand for student accommodation and a recent demand for Christchurch rebuilders. The two competing renters have driven up rental demand. Dunedin has always had a steady rental base from students that can be relied upon for steady profit, now rental demand from Christchurch rebuilders has driven up the property yields creating higher profits for the rental property owners. The rental boom from Christchurch can be expected to diminish as renters return to their city after properties have finished construction or more properties become available to the market (Harris, 2014).

Welly Real Estate will benefit from investing in rental properties in Dunedin. With high rental yields on the properties capital gained from other investors for low cost properties it is likely similar results can be gained if property management was looked into for the company. With Dunedin’s high demand for rental properties from students studying in Dunedin a reliable long term profit will be attainable for rental properties. Multiple properties will bring higher profit margins to the company. Christchurch rebuilders have increased profitability to investors by increasing rental demand. The demand increase may not be stable when Christchurch rebuilds and more properties are available within Christchurch.  Christchurch has boosted the property yields on an already profitable rental market. Welly Real Estate could invest in low cost rental properties in Dunedin with little risk. These properties have proven profitable in the long term and should remain so with the large student population continuously expanding.

Harris, C. (2014, March 27). NZ's Top Places for Property Gains. Retrieved April 20, 2014, from Stuff: http://www.stuff.co.nz/business/money/9870980/NZs-top-places-for-property-gains

Rel Estate Institute of New Zealand. (2014, March). REINZ Regional Data March 2014 . Retrieved May 4, 2014, from REINZ: https://www.reinz.co.nz/shadomx/apps/fms/fmsdownload.cfm?file_uuid=D18ABB95-71FC-469B-88BB-E60D8182AD1B&siteName=reinz

Hayden Fahey - Investing in Retail Property

http://www.stuff.co.nz/business/money/9539298/Insider-guide-to-investing-in-rental-property

Investor property up.

In Gregg Ninnes Stuff article, Inside Guide to Investor Property, information regarding the opportunity of perspective property investors and property value to rental values were discussed. Housing shortages in central areas are creating a surge in rental prices, with Christchurch and Auckland most affected, Auckland median rents raising 10% from last year. Other centres such as Hamilton and Wellington may prove to be better for residential property investors.  

Residential property rents in New Zealand’s largest centres have seen an increase since last year, Auckland suburbs have seen a median rent increase of 10% since October last year. Christchurch has had an increase of upto17% in poplar suburbs such as Cashmere and Riccarton, (Real Estate Institute of New Zealand, 2014).

The higher rents offer higher returns to investment property owners with existing properties. For investors expanding portfolios in large centres will find it difficult to achieve profitability because property prices have generally risen faster than rents.

Other market areas such as Hamilton are proving to be more reliable areas for prospective investors. Hamilton has experienced rents rising faster than property prices in most residential property areas. The median selling price of properties sold in Hamilton in October was up five per cent on October last year. Prospective investors are presented with higher profit yields on their investments (Real Estate Institute of New Zealand, 2014).

Wellington has experienced a stable residential property market recently. With relatively low growth in rental values and little or no rise in property values the market has remained very stable. Median rents through the wider area of Wellington rising less than 5% while the median property value increased by 0.5% over the same period (Real Estate Institute of New Zealand, 2014).

Advice for Welly Real Estate based on the information provided on this article is to move into the residential rental property management. There is evidently opportunity for profitability in the investment of residential properties for rent. Wellingtons stable property market serves as a relatively safe option for property investment, increasing rent values and stable property values offer great opportunity for a profitable investment. Hamilton also provides an ideal area for property investment, with rents rising faster than property values. These properties should be providing improving rental yields. With residential properties throughout the country becoming increasingly expensive for purchase and limited properties available, rental properties are becoming more popular. Property management is an economically viable option in the current property market for Welly Real Estate.

Citations used.

Ninness, G. (2013, December 21). Stuff. Retrieved April 2014, from http://www.stuff.co.nz/business/money/9539298/Insider-guide-to-investing-in-rental-property

Real Estate Institute of New Zealand. (2014, March). REINZ Regional Data March 2014 . Retrieved May 4, 2014, from REINZ: 

Oliver Woolley, Project 1

O L I V E R  W O O L L E Y

300285708

Project 1, Post 1.

Article: Dangerous Heights: Interest rate peak poses big risk. By Brian Fallow.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11241862

This New Zealand Herald article, released on 22^nd of April, forecasts the affects of the latest rise in interest rates on the New Zealand property market. The rates are said to be peaking at a rate the Reserve Bank deems ‘neutral’, meaning they are neither stimulating nor restraining on the economy. The neutral OCR rate could possibly peak above the predicted 4.5 percent depending on inflation rates. ASB economists say the effects of the increased rates could see first-home buyers in Auckland spending two-thirds of household income paying the mortgage (Fallow, Dangerous heights: Interest rate peak poses big risk). The article exclaims while there has been high levels of debt burden, low interest rates mean that the debt servicing costs have also remained low. With the large amounts of debt and increase rates now on the rise it is inevitable that the debt service costs relative to income will rise simultaneously. The OCR (official cash rate) change will be seen in the mortgage holder’s debt servicing costs, the increase of the OCR to 4.5% only bringing up these costs ‘moderately’ (Fallow, Dangerous heights: Interest rate peak poses big risk). “However, the impact on the affordability of new house buyers will be quite pronounced and effective in containing house prices and the flow-on effects from the housing market to inflation.”

Figure 1: Fixed-term home loan interest rates.

The Kiwibank, along with other banks, has increased loan rates in anticipation the Reserve Bank will increase the OCR from a record low of 2.5% to 3% on Thursday the 24^th (Vaughan). The changes in fixed-term home loans can be seen in figure 1. The effects of these increased rates will be felt by those looking to invest in the property market, with homebuyer’s debt to income ratio coming at a new all time high (Fallow, Brian Fallow: Four reasons not to panic about a property bubble). “The level of debt, the legacy of the mid-2000s boom, has the effect of lowering the pain threshold -- so that interest rates will not have to rise nearly as far in this cycle to get the attention of the mortgage belt, which is good for business borrowers and the exchange rate (Fallow, Brian Fallow: Four reasons not to panic about a property bubble).”

Decreased demand, price and sales for housing are some likely outcomes set to hit the market in wake of the interest rate rise (Verdon). Outcomes that could see the end of the Auckland housing boom (Verdon). “Mr Dickens, managing director of Strategic Risk Analysis and a former Reserve Bank economist, correctly predicted the last slump in house prices in 2008-09, and believes a combination of higher interest rates and government housing initiatives will end the boom (Verdon).” Further possibilities resulting from the increased interest rates following a period of relatively low rates, is the deflation of asset prices (Fallow, Dangerous heights: Interest rate peak poses big risk). This is one of the reasons the Reserve Bank has begun raising rates.

In regards to Welly Real Estate the outcomes of increased inflation rates are in general not beneficial for the company. Decreased demand and house prices are two major factors concerned with the company. The increase in interest rates will in turn bring down GDP also having a negative effect on the company, as less people will seek to buy property. Although there are many negative outcomes, possibilities such as a shift to the rental market for consumers in the property market, may benefit Welly Real Estate.

My advice for Welly Real Estate to avoid damage from increased interest rates would be to shift their focus to the rental market in order to maintain sales volumes and net income. Focusing on the rental market would be deemed safe as buyers are not as affected by increased loan rates, meaning consumers in this market will continue to invest in property. With house prices also set to decrease with the possibility the housing boom may come to an end, I would suggest it is a good time for the company to encourage buying or renting property before the affects of increased interest rates are felt. Doing this will help to mitigate the for coming decrease in demand for housing. As explained by Brian Fallow it is a good time for business borrowers, this may mean an increase in demand for commercial property as businesses choose to expand. This leaves a simple solution for Welly Real Estate; allocate their labour towards the commercial market, generating a higher profit in this area and hopefully a higher net profit.    

Works Cited

Fallow, Brian. Brian Fallow: Four reasons not to panic about a property bubble. 22 April 2014. 22 April 2014 <http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11242228>.

—.

Dangerous heights: Interest rate peak poses big risk. 22 April 2014. 22 April 2014 <http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11241862>.

Figure 1:

Vaughan, Gareth. Kiwibank increases 1 to 3 year fixed-term home loan interest rates. 22 April 2014. 22 April 2014 <http://www.interest.co.nz/news/69549/kiwibank-increases-1-3-year-fixed-term-home-loan-interest-rates>.

Verdon, Tony. Rate Rise 'May Finish Boom'. 10 March 2014. 22 April 2014 <http://www.nzherald.co.nz/property-report/news/article.cfm?c_id=1503327&objectid=11216840>.