Scan Through Five Green Shoots Gleaming In NZ Property Market

Monday, 17 August 2020, 4:40 pm
Press Release: Kalkine

Summary

· The Property market has begun to exhibit some prominent signs of recovery, charting out optimistic growth trajectory.

· NZ noted an M-o-M surge of 3.4 per cent in the nation’s median house prices in July 2020, as per REINZ monthly property report.

· Kiwis returning homes from offshore destinations and pent-up demand post-shutdown drove residential auction activity and house sales in July.

· Despite the COVID-19-driven travel restrictions and housing market downturn, foreign buyers retained their market share during June 2020 quarter.

· New mortgage commitments improved in June, backed by first home buyers.

· Digitization is unfurling fresh opportunities in the property space.

· Emergence of fresh COVID-19 cases and latest lockdown imposition remain looming threats to property market revitalization.

While the COVID-19 pandemic initially left the economy in dire straits, NZ appears to have regained much of its momentum lost during the Global Virus Crisis, backed by early containment of virus spread and dedicated Government support. Promising revival signs budding in the property market space are telling the same story! While, we cannot be over-optimistic, given the resurgence of virus cases and particularly lockdown re-imposition in Auckland.

Creating a fog of uncertainty, the pandemic emerged as a real-time laboratory to test the impact of dedicated fiscal and monetary push and to access if so-called economic experiments result in desired outcomes for the property space.

Simply put, though the pandemic initially wreaked havoc on the NZ property market throwing demand and sales volume out of order, the market has now begun to exhibit some prominent signs of recovery that seem to be charting out optimistic growth trajectory.

1. House Prices: Getting Out of the Woods

A fresh wave of optimism has budged the housing market, with REINZ (Real Estate Institute of New Zealand) monthly property report reflecting an M-o-M surge of 3.4 percent in the nation’s median house prices in July 2020. REINZ Y-o-Y House Price Index grew by 9.4 percent nationwide and 9.2 per cent in Auckland in July.

A marginal increase of 0.2 per cent was also noted in QV House Price Index for July 2020. The figure denoted a modest rise from June 2020 result, when the index slid 0.2 per cent amid coronavirus shutdown repercussions.

Besides, RBNZ’s recent change in the House Prices Index forecast from 5.49 per cent fall to 1.38 per cent decline by this time in 2021, is offering a beacon of hope towards property market revitalization.

The robust demand from new home buyers amid low-interest rates and improved investors’ sentiment appears to be driving the value of house prices in the present scenario. However, the anticipated rise in the unemployment rate and the Government’s financial support potentially running out in September are expected to unroll as the real sink or swim test for the real estate market shortly. Besides, risk lingers on the recent return of lockdown restrictions in NZ with fresh virus transmission noted after 102-days long virus-free streak.

2. Residential Auctions and Sales Volumes: The Tide is Turning

Marking the recovery trend post lockdown, the number of properties auctioned soared by 71 per cent Y-o-Y in July 2020, with over 900 residential auctions. The property auction activity exhibited its first sign of renewal from the virus crisis in May 2020, from around no auctions in April to more than 240 in May. Since then, residential auction activity has consistently remained buoyant in the Kiwi Land.

Besides, NZ recorded its highest number of properties sold in July 2020 over the last five years, as per the REINZ monthly property report. The number of residential properties sold across Kiwi Land rose by 24.6 per cent in July 2020 to 7,854 from 6,303 in July 2019.

The auction market seems to have got some uplift from Kiwis’ return to homes from offshore destinations and pent-up demand post-shutdown, potentially inducing a sense of stability in the property space. While revitalization in consumer confidence levels appears crucial in driving property sales over the near-to-mid-term.

3. Foreign Buyers’ Market Share: An Epitome of Resilience

Despite coronavirus-driven travel restrictions and housing market downturn, foreign buyers retained their market share during June 2020 quarter. As reported by Stats NZ recently, the number of home transfers plunged by 30 per cent across NZ in June 2020 quarter, while the proportion of home transfers to individuals who do not hold a resident visa or NZ citizenship remained steady at 0.4 per cent.

The early efficient containment of virus spread and better performance of the NZ housing market relative to overseas countries seem to be driving foreign buyers’ interest despite market turmoil. However, fears are looming over NZ’s recent extension of Level 3 lockdown in Auckland and Level 2 restrictions in the rest of the nation, which may hinder the sustenance of foreign buyers’ attention.

4. Mortgage Commitments: Rising from the Ashes

RBNZ’s recent statistics revealed a 24.2 per cent M-o-M increase in new mortgage commitments in June 2020 to NZD 5.3 billion. The first home buyers (20.3 per cent) accounted for a larger share of new mortgage commitments than property investors (19.4 per cent) during the month for the first time.

A surge in mortgage commitments depicts recovery from economic and financial havoc created by Global Virus Crisis (GVC) initially in terms of squeezed incomes, crushed consumer confidence, and sluggish demand. The record low interest rates and easing LVR (loan to value ratio) restrictions appear to be lending a supporting hand to new mortgage commitments.

5. Another Bright Spot: Digital Era Charting Out ‘New Normal’

The property market revival is expected to be backed by lucrative opportunities offered by growing digitization trends. For instance, Yelsa’s property app is closely eyed by market participants that may prove to be a gamechanger for real estate agents, vendors, and buyers in smoothening the property buying and selling experience.

Bottomline

Despite these promising indications, it will be too early to say that it’s all bearish or bullish for the property market amid mounting recessionary wreckage, emergence of fresh COVID-19 cases, and gloomy unemployment rate expectations. Lower anticipated rental income growth and reduced floor space requirements amidst work-from-home and e-retailing culture also deserve closer attention.

Besides, the current challenge is how well and how soon the Government’s emergency spending can be withdrawn, given growing fears of escalating debt levels and second wave of infections. Nonetheless, sundry signs still give hope, and there may be opportunities worth looking at.

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