AMBER HADDOCK PROJECT 1 DRAFT

BILD 261 Building Economics

Project 1

Economy Advisor – Individual

Article 1

House prices surge in spite of loan restrictions

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

Anne Gibson’s article from 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 goes onto mention about how the prices are still rising despite it being harder for home buyers to buy properties. 

These restrictions have put an effect on demand but could potentially have fled off sellers as well, with listings being fewer day by day 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 being few and far between in Auckland and Christchurch the low levels of supply vs high levels of demand will take continue years to even out however construction taking place and growing. (Smith).

National marketing manager Paul McKenzie stated that buyers will be effected 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 above article relates to Welly Real-Estate as it mentions how the lower end of the scale in terms of the property market has been effected by the LVR restrictions and how this effects first time homebuyers.

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

Article 2

More people choosing to rent

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

James Weir’s article in the Dominion Post impliments 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 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. 

References:

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 esate 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. Leading on from that 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 dem hard as the market is very unstable in the lower end of the scale, this is due to the LVR restrictions. Advise to the company would be too focus more on the higher scale end 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 professionalisim of selling more elligant and expensive properties. With emplying this college in there business would have the a down fall resulting in higher wage costs but then would balance out with the increase in commission the company would get for the higher sales price of the house. So as the company focused on the expensive side of residential properties this would result in an increase in wage costs, a decrease in number of houses sold and an increase in commission per property which in turn should balance out and allow for stability and income for Well Real estate.

In relation to other relaeste 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:

Relating Micro and macro economic terms to this:

Amber Haddock "Investors watch out: bubble is due to burst"

Blog 13

Christopher Joyes article published by the dominion post outlines how the Australian housing market is now overvalued by 10% and months away from having the most expensive residential property values in history. One question that needs to be asked is how steep are the price falls likely to be when borrowing costs are normalized? A housing recovery was called at the start of last year, as the reserve bank of Australia decreased its cash rate to 2.5% house prices would reach double digit inflation. The Australian reserve bank were worried that if prices increased almost tripling the increases of wages which means “Aussie homes could become dearer than fundamentals warranted”. Figures show that house prices have increased by more than 10% over a year however disposable income has only increased by 1.7%, which in turn says that price ratio income is 4.4 times the average disposable income.

In Sydney investors make up the largest share of new loan approvals, the interest only loan have increased to over a quarter, and those home buyers that have a deposit less than 10% make up over 15% of loan approvals. In order for the reserve bank to get discounted mortgage rates back to 6.6% the reserve bank would increase borrower repayments by 30%.

The graph presented below shows the Aussie House price growth in comparison to New Zealand, Canada, UK, and United States. When analyzing the graph New Zealand has increased to a similar % to Australia however prices are still moderately lower than Australia’s. Although this article is not based around the New Zealand property market the Australian housing situation is much the same as the New Zealand property market proving that the Australian property market and probably other property markets all over the world are in the same situation.

Main focus point featured in the article: Australia property values are at an all time high also the same as New Zealand.

This article published by Fairtax relates to Welly Real estate as it gives insight into property market all around the world and in comparing New Zealand to other contries.

Advise for Welly real estate related to this article would be to focus on the high end scale of the market as prices for houses are increasing and in return sales for houses are increasing meaning more commission for this company. Although the market situation may be deemed unstable if the company focuses on optimum properties then there will always be people that are willing to pay high prices for luxury houses regardless of inflation, price increasing and instability.

Works Cited

Fairtax, NZ. “Investors watch out: bubble is due to burst”. Dominion Post. 21 April. 2014. A3. Print

Fairtax, NZ. "Asians see NZ as property hot spot". Dominion Post. 7 April. 2014. A3. Print

Gibson, A. "Hotel operator planning up to $50 million investment in New Zealand". Web. March 25. 2014.

http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=11224913.

Fraser, T. "Hotel operator planning up to $50 million investment in New Zealand". Web. March 25. 2014.

http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=11224913.

Amber Haddock "Capital not supplying enough houses - report"

Amber Haddock “Capital not supplying enough houses-report”.

Blog 12

James Weirs article published by the dominion post forecasts how Wellington the capital city is not supplying enough new houses with over 1200 houses in shortage. Auckland shows that it is the highest city in New Zealand with the shortage in new houses reaching over 13,000 for the current demand. 1370 new houses were built in Wellington that did not meet the demand of housing needing to be an extra 27% however Auckland needed to increase property build by 53% to meet the increases in housing demands to date. Whilst evidence of Wellington demanding new houses there is no urgency among buyers that is extremely evident, an apartment developer described the demand as “solid demand”. In the past decade in Wellingtons CBD has increased from about 6700 to 13,000 living in town. With the housing demand being in the cities CBD this means apartments and office buildings revamped have been the major contributing factor in houses built over the past 10 years. The further development of apartments and office building revamps has said to be a positive trend in the property market as is taking pressure off transport, resources and car parking.

A local economist stated that the opinion on house shortages may not be exact, as the age of people living in apartments and in town is younger/ middle aged people who tend to have more people in a house rather than older people who tend to have fewer people in there houses (Foster). Foster does agree there is a shortage of housing to an extent as opposed to the growing population. Harcourt’s managing director Matty Scott said that there is no land available for houses in the demanded locations such as Wellingtons CBD apart from high rises and apartment buildings. The Reserve Bank of New Zealand have introduced speed limits on low deposit loans which in turn had reduced buyer interest. Scotty states that if there were to be a 1200 housing shortages in Wellington this was not evident in buyers as supply and demand seemed to be fairly balanced.

Main focus point featured in the article: Wellington and Auckland are in shortage of housing supply.

This article relates to Welly Real estate due to the fact housing shortage means less sales in the market (supply not meeting demand) and could decrease business for Welly Real estate.

Advise to Welly Real-Estate could be to focus the business on property management as the market at present suggests tha choosing to rent over homeownership is easier 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. Due to decreasing number of house sales 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

Fairtax, NZ. “Capital not supplying enough houses-report”. Dominion Post. 20 April. 2014. A3. Print

Rush, A. "Property Values up 8.8pc". Web. April 4.2014. http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=11233729

Phipps, B. "Property Values up 8.8pc". Web. April 4.2014. http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=11233729

Amber Haddock "Reins loosen on banks' low-equity home loans"

Blog 12

Richard Meadows article published by the Dominion Post outlines The Reserve Banks strange hold on low equity home loans starting to loosen. Meadows believes that this could be good news for those who have been effected by the LVR restriction laws implemented in Oct 2013 and may be able to get themselves into the property market. The Reserve bank have set limits for banks to allocate no more than 10% of their new lending to those with less than a 20% deposit. “To avoid running foul of the central bank, major lenders have slashed their high LVR lending to a small fraction of their total loans”. LVR lending reached an all time low of $147 million dollars in January as opposed to $1.19 billion dollars before the LVR restrictions were implemented in 2013.

The reserve bank set a speed limit of 4.8 % to new lending and was well under showing January’s figures. One thing that has not been taken into account when stating figures is exemption for loans for new builds. Jeff Broker a lender broker mentioned that banks are starting to ease and lend to the ‘right people’ which in turn means cherry picking, banks are not interested in a big deposit from parent or sources but more inclined to lend to those with a history of saving, In August last year The Reserve Bank started tracking the banks LVR lending with concerns of becoming a risk to the financial sector. A major drop in property values could become of concern for the bank creating instability and exposure to borrowers. The reserve banks main idea around limiting credit growth is because of the official cash rate, which was raised last month.

Main focus point featured in the article: The banks lending is becoming more flexible to those who can prove history of saving.

This article relaeased by The Dominion Post relates to Welly Real estate because banks are becoming more lenient on lending restriction, which in turn means that buyers are becoming less scarce.

Advise to Welly Real estate based on this article would be to get there company out to the public eye by the way of advertising and market to increase the clientele base as restrictions are becoming more flexible more people are willing and able to buy into the property market and Welly Real estate could be of help to them.

Works Cited

Fairtax, NZ. “Reins loosen on banks’ low-equity home loans". Dominion Post. 20 April. 2014. A3. Print