Published by the CIPS Network of the National Association of REALTORS®
Third Quarter 2006
Expanding Property Markets in New Zealand -- Foreign investment activity centers in waterfront areas
New Zealanders enjoy a love affair with property. Homeownership is by far the most popular form of investment in New Zealand. Driven by a desire for a safe, tangible investment, bricks and mortar are preferred over equities as an investment. New Zealanders have traditionally favored owning their own homes, viewing this as the investment that houses the family.
Markets Level after a Boom
In many countries, there has been a boom in house prices. New Zealand is no different. Included in the factors driving this are reduced unemployment rates, increased job security, relatively low interest rates, and lower returns in equity markets. Solid population growth from New Zealand’s proactive immigration1 policies is another factor that helps to explain the surge in real estate activity.
Although there has been a property boom in New Zealand over the past six years or so, there is no evidence of a bubble. Current sales volumes appear to be declining slightly. Residential properties are taking a bit longer to sell, but median sales prices have evened out and have remained steady for the last eight months. The market appears to be entering a levelling period.
Since December 2001, however, property values have increased by 65 percent, and vacant land prices have increased in value by over 76 percent, illustrating that New Zealanders’ strong interest in real estate has not diminished, and shows little sign of doing so in future.
Over recent months, the national median sales price rose to a record NZ$305,000 in April 2006, up from NZ$302,000 in March—and a significant 12.13 percent higher than the April 2005 median price of NZ$272,000. Also in April, however, sales dropped from 10,094 in March to 7,576, down from sales of 8,875 in April 2005.
National President Howard Morley of the Real Estate Institute of New Zealand (REINZ) predicts that “While the rate of annual growth has been slowing, as expected due to most of the rise in the market occurring from 2003 to 2005, the price growth curve is now flattening out and the market appears to have reached a comfortable plateau. Combined with the anticipation that mortgage rates will fall, we can expect to see steady prices in the coming months, but not necessarily the spectacular rises seen in years past.”
The Real Estate Institute’s sales statistics, which are reported by real estate agents the day a transaction becomes unconditional, are the most contemporary and up-to-date figures available on house prices and sales in New Zealand. According to its 18th annual residential statistics review, in 2005 the property market finished the year on a strong note, with a national median sales price of NZ$295,000, 11 percent higher than it was at the start of the year.
Vacant land prices also showed remarkable resilience, despite a decline in homebuilding activities. The median price for land for homebuilding at year-end was NZ$150,000 increasing 15 percent from NZ$130,000 in January 2005. Also, by April 2006, the median sales price for a section of land had reached NZ$175,000.
Growth by Region
Twelve regions are highlighted in the REINZ report, clearly illustrating price growth and activity, including turnover and days to sell. One of the most popular growth areas is the Central Otago Lakes District in the South Island, where the 2005 median sales price for a residential property increased from NZ$345,000 in January to NZ$490,000 in December.
Auckland, the largest city in New Zealand with a population of over 1 million, was a popular area that saw 2005 median sales prices increasing from NZ$340,250 in January to NZ$395,000 in December. During the same months median prices for vacant land for homes in this region were NZ$240,000 and NZ$295,000 respectively.
Demand Grows for Waterfront Investment Property
The areas that are demonstrating solid growth in recent years could be as a direct result of the trend for waterfront property. The beach or lake and the associated lifestyle are ingrained into the psyches of many New Zealanders who have driven this trend. Foreign investors have joined the party, investing in waterfront properties all over New Zealand.
Specific areas that have seen demand for such properties soar include Gisborne, Bay of Plenty, Coromandel, Bay of Islands, Akaroa, and Nelson. Lake front homes in Taupo, Queenstown and Wanaka have also surged in value. Generally, people believe the upswing in popularity of waterfront real estate is simply New Zealand
catching up with a worldwide lifestyle trend.
An Investment Property Trend
Many baby boomers are investing in property as a form of saving for their retirement. Right now there are approximately 160,000 property investors in New Zealand, 90 percent of whom own only one or two properties. Property has been an investment that has provided New Zealanders with the opportunity to create significant wealth.
New Zealand Census data indicates that home ownership rates are in decline because property prices have been increasing faster than salaries and wages. Although this makes it harder for first homebuyers to get onto the property ladder, this situation provides an opportunity for property investors to supply quality, affordable rental properties to meet the demand for housing. Investment property owners can hire registered REINZ property managers to provide full management services for both industrial and residential real estate.
An important influence on the housing market has been property investors buying properties with an expectation of capital gains. Often, this is accomplished through do-it-yourself renovations to inexpensively acquired homes with quick resale.
Also, there is no doubt that foreign investment in New Zealand real estate is on the rise. A number of high profile cases have reiterated the international interest in our real estate, especially through the sale of waterfront and other iconic New Zealand properties.
“Our clean green image and distance from some of the world’s trouble spots are undoubtedly helping this heightened interest in New Zealand real estate,” said Morley.
The Real Estate Institute of New Zealand (REINZ) is the industry association for real estate agents and salespeople in New Zealand. Its members are involved in all aspects of residential, commercial, industrial and rural real estate sales, leasing and property advisory services. For more information, go to www.reinz.org.nz.
1 www.immigration.govt.nz
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