Project One: Amber Haddock

BILD 261 Building Economics

Project 1- Economy Advisor – Individual

Amber Haddock 300289126

 

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 on October 2013 are going to be of impact in the future. With the new tighter lending restrictions this 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 invest into the property market. 

The LVR restrictions have put an effect on demand but could potentially have fled off sellers as well; as listings are continuously dropping this keeps the housing market tight whilst house prices still increase especially in Auckland's property market (Smith).

An economist stated that as interest rates rise over the year this would then have a flow on effect with price inflation to the property market and would ease over 2014. As property listings drop continuously in Auckland and Christchurch the low levels of supply versus high levels of demand will take years to even out, however construction that is 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 restriction 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 ownership is dropping. This means less people own their own homes as apposed 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). Homeowners have potential capital gain whereas those in rental properties do not get this bonus (Weir).

 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.

 

Advice for the company

 Welly Real Estate is a real estate agency that aims to assist commercial needs in an innovative and dynamic way. In relation to the articles outline in this report, information has been gathered relating to the real estate situation to date and todays market all around New Zealand. 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 unpredictable to future investors wanting to invest into New Zealand’s property market. 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 then 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 according to Premium Real Estate Auckland (Premium). In consideration to 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 New Zealand 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” (Premium). 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 if they move the business towards the high value end of property market (Premium).

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.

According to statistics from the global property guide, Auckland has the highest valued properties over the country and the number of sales were up 2188 properties (16% from the previous year). If Welly Real estate were to focus the business on high value properties, they could situate this in Auckland as the house price values are high and listings are increasing (Global Property Guide).

 Another niche 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 (Taylor). Kelvin and Rae Taylor whom run the company have over 230 properties that they manage which would be of evidence that this specific category in the property business is successful and could be of achievement for Welly Real estate (Taylor).

 An article released from stuff.co.nz by Greg Ninness forecasts how Hamilton and Wellington may provide better opportunities for residential property investors as rents are rising faster, providing landlords with better rental yields on their investments as opposed to Auckland and Christchurch with there is a significant shortage in housing (Ninness). If Welly Real Estate fixated the business towards residential property management perhaps they would focus their rental management in cities such as Hamilton and Wellington where prices for rentals are increase which then in turn increases landlords rental yields and provides for an increase in profit for property managers.

 

Work cited:

Duncan, H. "House prices surge in spite of loan restrictions". Web. March10.2014. http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11213979.

 

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

 

Global Property Guide. “New Zealand's property market remains buoyant”. Web. May 2. 2014. http://www.globalpropertyguide.com/Pacific/New-Zealand/Price-History

 

Ninness, G. “Insider guide to investing in rental properties”. Web. May 2. 2014. http://www.stuff.co.nz/business/money/9539298/Insider-guide-to-investing-in-rental-property

 

Premium Real Estate. “Premium Real Estate- high-value, luxury market”. Web. May 2. 2014. https://premium.co.nz/aboutus/

 

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

 

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.

 

Taylor, K. “Why Taylor Property Plus”. Web. May 2. 2014. http://property-plus.co.nz/about-us/

 

Taylor, R. “Owners”. Web. May 2. 2014. http://property-plus.co.nz/owners/

 

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