Hayden Fahey - Property values rise again after a period of flattening off

http://www.qv.co.nz/resources/news/article?blogId=152

New Zealand property values took a downward turn last month and predictions were that this would level out, but instead the trend show values are starting to increase again. The New Zealand residential property market has recently experienced a plateau in property values. This plateau has been short lived and now house values continue to rise. The plateau was a delayed response in the market from the Reserve Banks introduction to Loan-to-Value restrictions. Nationwide property values rose only slightly in contrast to earlier market trends, indicating a plateau in property values. Since this plateau the values began to rise once more, this time at less of a rate.

New Zealand is in a current property boom. This property boom was created by a strong demand for housing and a limited supply. Auckland’s limited housing supply has contributed to raising house prices throughout the city, creating over-priced properties. Nationally the inflation-adjusted annual property value increase was 7.7 per cent. This large increase in prices has made it difficult for home buyers to purchase property (Backhouse). The cost of owning property is increasing at the fastest rate since 2002 (One News).

Buying a house in the current property market 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. The expected impacts of this restriction were that first home buyers would be un-able to purchase property, showing a lull in the property market. 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).The short lived plateau was believed to be the result of the LVR restrictions set in place. This has proved to be mainly un-true as property values are still increasing.  Property growth in the Super City region continues to rise, up 13.9% year on year and 1.5% in the past three months (QV, 2014).

First home buyers were not expected to purchase property with the LVR restrictions in place, limiting the property demand and reducing value growth (Landlords, 2014). The latest monthly QV Residential Price Movement Index shows that nationwide residential values for April have increased 8.4% over the past year, and 0.2% over the past three months. QV Valuer Bruce Wiggins said, “Values are still increasing but at a slower rate than last year and some properties are taking a little longer to sell.” This could show that sellers are needing to re-align their sale price expectations to the true market trends and the fact that market conditions are less competitive than they were prior to October last year when the LVR speed limits were introduced (QV, 2014).

With the brief property plateau the LVR restrictions for first home buyers showed signs of being deterred from purchasing new houses without proper funding. The LVR changes may have forced first home buyers to wait and save a larger deposit or look elsewhere for finance (Landlords, 2014). With prospective first home buyers will look for cheaper housing such as renting.

The LVR restrictions have showed an impact on the market with the plateau. This impact was not as large as expected by the reserve bank as it was a short lived lull in the property value average. Properties continue to rise in value as they did before the plateau, this time at less of an extent.

First home buyers are still purchasing houses causing the house values to raise despite the LVR restrictions in place. However the small increase in values shows that the market is susceptible to the LVR restrictions and it is likely that the values will drop as anticipated. This likelihood is why it is wise to invest in rental properties in place of lower value first home buyer properties.

Advice for Welly Real Estate would be to invest in residential property for rental opportunities. Due to LVR restrictions throughout New Zealand prospective first home buyers will look to rental properties instead of purchasing as LVR restrictions do not affect the rental property market.

QV. (2014, May 8). Property values rise again after a period of flattening off. Retrieved May 8, 2014, from QV: http://www.qv.co.nz/resources/news/article?blogId=152

Established families or wealthier clientele that are looking for property would be largely un-effected by the LVR lending criteria.

Backhouse, M. (2014, February 21). New Zealand Herald. Retrieved March 12, 2014, from http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11207102

Landlords. (2014, April 7). Price rises plateau: QV. Retrieved May 1, 2014, from Landlords: http://www.landlords.co.nz/article/5031/price-rises-plateau-qv

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

Joshua Foster - NZ housing market most overpriced

NZ housing market loses steam

Wilson Collin

300238419

Blog 1 (revised)

http://www.stuff.co.nz/business/industries/9813920/Lower-tax-take-sees-Govt-deficit-blowout 

Government Spending

The current Government policy aims to reach a $75M budget surplus for the 2013/14 year (CHAPMAN, 2014).

With a tax deficit of $637M we can expect to see further restrictions on Government spending in the immediate future. (SMALL, 2014)

In Wellington City the NZ Government contributes to more than 30% of office spacing in the CBD. With restricting Government spending vacancy rates in the capital have increased. This will drive prices down further and leave offices empty.

This is expected to have a negative effect on Welly Real Estate as we can expect Welly to follow the capitals lead as Government spending contracts over the next year.

This decrease in Govt. spending will drop the demand for office spaces in Welly, increasing vacancy rates and will push prices down. This will mean a lower commission and less business for Welly Real Estate.

As the Government continues to contract vacancy rates of office spaces will increase. This will reflect directly as a decrease of income for Welly Real Estate.

 

I think it is important for Welly Real Estate to keep its foot hold in the Welly office building market. Schouten states “generally corporates and government agencies were static (2012), but growth was coming from companies with between three and 10 staff” (SCHOUTEN, 2014).

For Welly Real Estate temporally moving away from big cooperates to helping smaller upcoming businesses could cause them to pick up some valuable clients.

Works Cited

CHAPMAN, K. (2014, 05 16). Government surplus on a knife-edge. Fairfax Media.

SCHOUTEN, H. (2014, 01 25). Squeeze is on for office space in the capital. The Dominion post.

SMALL, V. (2014, 03 11). Lower tax take sees Govt deficit blowout. Fairfax Media.

 

Comercail Properties booming

http://www.stuff.co.nz/dominion-post/business/commercial-property/10066417/Good-returns-for-commercial-landlords

http://www.stuff.co.nz/dominion-post/business/commercial-property/10055389/City-office-block-sold

Amber Haddock "LVR rules may go by year end"

http://www.nzherald.co.nz/residential-property/news/article.cfm?c_id=76&objectid=11252242

Blog 15

Tamsin Parkers article published by The New Zealand Herald forecast how the LVR restriction rules that were implemented in Oct 2013 maybe removed by the end of the year, this is because pressure in the housing market is decreasing. House sales volumes have dropped throughout New Zealand apart from in the Canterbury region.

If the LVR restrictions are removed inflation might increase by 2.5% however in the short term have had the intended purposes required, as planned by The Reserve Bank of New Zealand. A chief advisor mentioned that the property market is less vulnerable so banks are more inclined to lend money to those with a high risk.  

The earliest date that the reserve bank would look at removing the restrictions would be the end of 2014 and would only do so provided that they were confident that the property market would respond to the increase in interest rates. The RBNZ intention was to remove these restrictions end of 14/ early 15 as expected (Leung). There was some leniance for banks to increase their restricted lending "given the share of new lending came in at 5.6% for the first two quarters" this is well under the 10% margin (Leung).

The discussions as per the loan restrictions in a meeting with Dominick Stephens a employee of Westpac said that there was a very sure answer of to questions regarding the LVR and the limits. If the house market took off again this could mean the restriction rule will push out into 2015, however are it very clear this was unlikely to happen (Stephens). The Reserve Bank made a statement that the OCR (official cash rate was unlikely to increase by such a high rate.

Floating mortgage rates were predicted to be around 7-8% which is indicative of the previous 20 years in New Zealand, economists predicted that they could reach this high by the end of 2014. Interest rates were unpredictable as to whether they will rise and to what extent and this could be all caused by what is happening in the property market (Stephens). 

Main focus point featured in the article: LVR restriction might go by the end of the year as the market is become more stable.

The article published by the New Zealand Herald relates to Welly real- estate as states how the LVR restrictions may be removed and this means that the market has an increasing stability rate and first time home buyers maybe able to enter back into the lower end scale of the market.

Advising Welly Real estate: If the market for housing is slowly becoming more stable this may give Welly Real Estate the opportunity to expand on particular housing right throughout the market from million dollar mansions right down to first homes. This will expand the business and although the sale of a house for a property for those of a first time home would be a lot less than that of the higher scale this would in turn mean that a less qualified professional would be needed. I.e. less salary/wages.

Works Cited 

Parker, T.  "LVR rules may go by year end". New Zealand Herald. 09 May. 2014. http://www.nzherald.co.nz/residential-property/news/article.cfm?c_id=76&objectid=11252242.  Article. A4.

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

Amber Haddock "First-home hopefuls cautioned"

http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=11252587

Blog 14
Jamie Mortons article published by the New Zealand herald forecasts readers as to how first time home buyers struggling to purchase into the property market shouldn't get there hopes up any time soon as bank lending may be "lifted" says banks and real estate agents. Grant Spencer from The Reserve Bank said the LVR restrictions implemented last year, that stated those with less than a 20% deposit would be turned away however these restrictions may be gone by the end of the year (Spencer).

"Pressures in the housing market were starting to ease" (Spencer).

The number of house sales has dropped everywhere in New Zealand apart from the Canterbury district post earthquakes. If the LVR restrictions are fled then inflation could rise by 2.5%. However banks are less inclined to be frightened away by potential credit losses.

Associate Professor David Tripe said the earliest The Reserve Bank of New Zealand will be looking at removing the LVR restrictions is late 2014. "Banks may continue to be somewhat cautious in their lending - one of the things about those rules having been in place is they have cemented a culture of caution. But what has also happened is the banks, in most cases, have not had enough demand for the high LVR loans to be able to even get up to the percentage cap" (Tripe). The LVR restriction was said to be removed in the late 2014/ early 2015 bracket (Leung). However the LVR restrictions will only be removed if the Reserve Bank of New Zealand is confident that the housing market is on a steady decline, and interest rates will be of expected to balance property pricing.

Professionals in the property industry have said that the LVR restrictions have missed the intended purpose somewhat as they have only really effected the lower end of the scale where as those in the higher end of the scale are prepared to pay (O'Sullivan).

Main focus point featured in the article: If LVR restrictions are removed this could be of cause to inflation rising to by 2.5%.

The article released by the New Zealand Herald relates to Welly Real estate as it implies instability in the market if the LVR restrictions were to be removed meaning that if inflation occurs this effects mortgage rates and would in turn affect house sales.

Advising Welly Real estate on the current situation based around this article would be to again focus on the property sales on the higher scaled end. Even though housing prices and LVR restrictions are easing, the effect is predominately on the lower end, so focusing on the higher scaled end would deem a safe option for Welly Real Estate in terms of growth for the business.

Works Cited:

Morton, J.  "First-home hopefuls cautioned". New Zealand Herald. 10 May. 2014. http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=11252587.  Article. A4.

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

WILSON COLLIN, 300238419

Assignment 1,

Post 1

“Commercial properties”.

http://www.stuff.co.nz/business/industries/9865977/Commercial-property-sales-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 up over the foreseeable future. Increasing foreign investment is a 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 property prices will continue to increase also. The main driver of these prices will be the Auckland region as 76% of industrial property 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)

A boost in land value will allow consumers and other property owners in the market to increase their borrowing potential. This allows struggling businesses to stay afloat in the short term as lacking cash flow into the business can be boosted by borrowing.

 

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. "We don't have enough real estate to satisfy that demand. So the natural result should be there will be an upward pressure on prices” (Gibson, 2014).

Any increase in Supply will be done by utilizing idle resources, such as empty or idle land lots. However, NZ property market prices will still increase due to a lacking supply.

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.

Works 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

Post 2

“New Zealand Dollar”

http://www.stuff.co.nz/business/industries/10018244/RBNZ-may-intervene-in-currency-Wheeler

A large factor in the New Zealand economy in recent times has been the strong New Zealand Dollar (NZD). Ellen Read’s article addresses the New Zealand Dollar and her thoughts as to its future movements.

"The Reserve Bank considers that the exchange rate is overvalued and does not believe its current level is sustainable” (READ, 2014).

Due to offshore factors such as the US economy bouncing back and the slowing growth of the Chinese economy the NZD will be forced to drop to control inflation.

The NZD cannot sustain such a high exchange rate. It must come down at some point. The Dairy industry, US economy and Chinese economy will be major players in how fast the reserve bank will increase interest rates to cool the NZD.

The chart below shows the trend of the NZD/USD over the past year. The chart shows a linear increase over the past year. The NZD is at a 5 year high. The NZD has been on a steady increase over the past year and is expected to drop over the next year. (READ, 2014)

Source:  (Limited, 2014) (See Final Hand in for image)

When the NZD weakens foreign investment into NZ becomes attractive. Outlined in Gibson’s article for the New Zealand Herald, rising property sales and NZ becoming a popular country for foreign investment is increasing the demand for commercial property in New Zealand.

"We don't have enough real estate to satisfy that demand. So the natural result should be there will be an upward pressure on prices.” (Gibson, Foreign funds eye NZ commercial real estate, 2014)

Combining this increase in demand with a lowering NZD will make NZ property very attractive in the foreseeable future.

For Welly Real Estate the strong NZD is holding foreign investors at bay. This gives Welly Real Estate a window of opportunity to gain a good foot hold in the Welly property market. There are large opportunities in the New Zealand property market.

Increasing property values will increase rates and rental prices. This will mean an inflow of new clients for Welly Real Estate’s Relocation sector. This will be a way of keeping a healthy cash flow into Welly Real Estate and will help keep them afloat in the immediate future. A healthy cash flow will allow Welly Real Estate to keep covering operating expenses.

Works Cited

Gibson, A. (2014, 03 25). Foreign funds eye NZ commercial real estate. The New Zealand Herald.

Limited, N. (2014, April 7). New Zealand Dollar Exchange Rates. Retrieved from NZ FOREX: http://www.nzforex.co.nz/exchange-rate/NZD

READ, E. (2014, April 07). RBNZ may intervene in currency - Wheeler. Fairfax NZ News.

Assignment 1,

Advice for Welly Real Estate

“International investors with a total of US$2 trillion ($2.34 trillion) in funds have put New Zealand in their top-10 list of Asia-Pacific real estate investment targets” (Gibson, Foreign funds eye NZ commercial real estate, 2014).

Foreign investment in New Zealand property is an imminent and ongoing occurrence and will create major opportunities for New Zealand property owners. This shows the potential of foreign investment in New Zealand. Welly Real Estate facing difficult financial times will limit the opportunities they have access to however opportunities are there. I recommend Welly Real Estate:

·         Loan to increase investment in commercial properties

·         Concentrate on relocation and renting sectors to keep cash flow healthy and cover Operating expenses

·         Follow the NZD and use as an indication of when to sell to repay outstanding debts.

I Recommend that the above three options are in Welly Real Estate’s best interests. Staying out of the housing market and concentrating on commercial property will be a good move for Welly Real Estate. The New Zealand housing market is overpriced at this time and prices are expected to fall.

 

Investment into the New Zealand housing market has been up 40% over the past two years (Herald, 2014), also inflation increase and a booming economy means the OCR is expected to increase to sustain growth for as long as possible.

"The OCR will need to rise by about 2 percentage points over the next two years for inflation to settle around the target" (Herald, 2014).

The housing market in New Zealand has peaked and prices will begin to fall as banks continue to put restrictions on first home buyers and interest rate rise again. However commercial properties are an attractive prospect.

Increasing foreign investment will be the main driver for commercial property prices in New Zealand. Large foreign investors are moving into the New Zealand market and a few good purchases now for Welly Real Estate could give the boost needed and pull them out of debt.

I suggest investing in industrial lots. Increasing foreign investment will cause property developers to look for idle resources to increase the supply of property in New Zealand (Ninness G. , 2014). This will be a low risk option with good return. However investing in industrial lots will not increase cash flow into Welly Real Estate, it will increase the Operating expenses as loan repayments become greater.

 

The relocation and renting sector for Welly Real Estate will be a major sector to keep them afloat over the next year. As property prices increase renting prices will also increase this will leave business looking for cheaper alternatives meaning more clients for Welly Real Estate. A government policy set on a budget surplus will also leave vacancies in office space as Government contracts from spending, as I have addressed in an earlier blog based on Kate Chapman’s Government surplus on a knife-edge article. This will provide good opportunities to down grade client who are looking for a cheaper alternative.

The New Zealand dollar will be a good indicator on when to sell. Strong commodity and dairy prices along with a decline in policy interest rates are at a 50 year low have all contributed to the strong New Zealand Dollar that is considered overvalued.

Government will use the Official Cash Rate (OCR) to combat inflation and keep it between one and four percent. The OCR is expected to increase over the next two years to combat inflation as net migration increases continue to pressure consumer demand. This will see the NZD drop from the recent peak.

As the NZD drops foreign investment becomes far more attractive and affordable. This will be a major cost driver and can be a large cash injection for Welly Real Estate in the long term.

Getting Welly Real Estate back on its feet will take planning for the short and long term. Using foreign investment to make a gain is a good prospect on the horizon for Welly Real Estate.

Works Cited

Gibson, A. (2014, 03 25). Foreign funds eye NZ commercial real estate. The New Zealand Herald.

Herald, N. (2014, Mar 13). Dollar Jumps on OCR hike. the New Zealand Herald.

Ninness, G. (2014, March 25). Comercial Properties Rebound. Stuff.co.nz.

READ, E. (2014, April 07). RBNZ may intervene in currency - Wheeler. Fairfax NZ News.

 

Wilson Collin, 300238419