We pulled 16 gems from the torrent of articles this week to keep you abreast of the most important news affecting property investors. 19-25 October 2019
1. Investors turning to commercial property as their term deposits start to mature
Greg Ninness says the commercial property sector is likely to be one of the main beneficiaries of the current low interest rate regime as investors cast about for assets capable of providing a reliable income stream. This will push prices up and yields down.
According to Reserve Bank figures, New Zealanders had $172.6 billion sitting in bank term deposits at the end of August (slightly more than the market capitalisation of the NZX at $159.5 billion) and much of that money would have been invested by older New Zealanders who are reliant on it for a significant portion of their income.
Over the last 5 years these people have seen their interest income dropped by 51.8%. Ouch.
2. BNZ drops 12-month term deposit rate to 2.6%
Term deposit rates are trending down, along with interest rates in general. BNZ is leading the pack in dropping to 2.6%. Expect the others to follow. Not great news for retirees living off the interest income.
3. Residential property auction numbers down 50% compared to a year ago
Sales were achieved on just over half the properties offered at the latest auctions but auction rooms are quieter compared to this time last year, Greg Ninness of interest.co.nz writes.
There is now little difference between the auction results in Auckland and those in the rest of the country, with the Auckland auctions achieving an overall sales rate of 54%.
The number of properties being brought to auction, both in Auckland and nationally, is still well below where it was at this time last year. Auction activity appears to be running at about half the pace it was at this time last year.
4. Low yields and some massive rent increases in parts of NZ
This regional rent data, ranked by yield, is extracted from the same ASB economic report…
|Bay of Plenty||+6.4%||3.7%|
|West Coast S.I.||+5.8%||7.6%|
5. 5-6% house price inflation by mid-2020, except Auckland & Queenstown
ASB economists expect nationwide house price inflation to pick up to 5-6% yoy by around the middle of next year, but for Auckland and Queenstown to underperform the national average.
They also say that despite mortgage rates being the lowest they’ve ever been, there are good reasons not to expect a good old-fashioned housing boom of yore…
- Housing policies targeting investor demand are acting as handbrakes in areas that previously featured a large investor component, like Auckland and Queenstown, which are therefore expected to underperform the national average.
- Broader economic activity and population growth have slowed and are expected to slow further.
- There are signs housing supply is ramping up in some areas. From late 2020, the housing upswing is expected to top out as this additional supply gradually reduces the national housing shortage, which will act as a further handbrake.
6. Busting an urban myth: Farm land prices are not rising and haven’t been for at least a decade. Clearly farmers are not ‘farming for capital gains’.
There seems to be a perception that farmers are farming for the capital gains on the land values of their property. However, the evidence doesn’t seem to be there for that presumption. It certainly undermines the presumption that foreign buying has pushed up median prices.
Crop, dairy and livestock prices are currently near historic highs. Weather and climate conditions have been very favourable. Access to fresh water is better rather than worse, especially in areas that decades ago suffered regular drought stress – such events are rarer now. Despite all this, data going back in detail more than a decade and covering multiple farm types shows that sellers of farm land are not reaping capital gains.
7. Industrials are the in topic in Bayleys’ transaction report
Bob Dey reports that Bayleys has confirmed the sale of a large industrial site on Tidal Rd in Mangere to Property For Industry Ltd for $34.176 million at a 5.35% yield. Industrial properties in Mt Wellington & Wiri, and a retail unit in a mixed-use Howick development, have also been sold.
8. No country for old savers
Following BNZ’s recent cuts, ASB has now (Thursday) cut term deposit rates across the board adding momentum to the drift lower for term deposit rates. Now most of the OCR cuts have hit savers.
And we have updated the list of 1-year term deposit rates at the bottom of our NZ Interest Rates Forecast page, and added a chart showing 1-year bank term deposit rates in New Zealand from January 2008 to October 2019. With the exception of a few small blips, we’ve now seen nearly 12 years of declining term deposit interest rates. The interest rate train has no brakes and is on a gentle downhill slope. Don’t expect it to stop any time soon.
“Both we and the RBNZ expect house price inflation to remain modest relative to previous cycles over the next few years, but frankly, a wide range of outcomes is plausible given the recent drop in mortgage rates, possible developments in credit availability, the softening economy, and policy changes.”
9. ANZ economists pick loosening of LVR ratio next month
Loan to Value Ratio (LVR) restrictions were never intended to be a permanent feature of the housing market. But, six years after their implementation in 2013, they remain a key element, contributing to less risky lending and putting downward pressure on house price inflation.
Both ANZ and the RBNZ expect house price inflation to remain modest relative to previous cycles over the next few years. This is certainly in line with Olly’s prediction of a 7-10 year zombie market.
ANZ say a wide range of outcomes is plausible given the recent drop in mortgage rates, possible developments in credit availability, the softening economy, and policy changes.
All up, they think a small loosening in LVR restrictions is likely at the upcoming November 27 Financial Stability Report.
10. ANZ reports a soft housing market
In their Property Focus report, ANZ says the volume of house sales remains subdued. Auckland house price inflation is still negative in annual terms, but a little less than previously. Housing market activity remains soft, which suggests the upside is capped for now, despite lower mortgage rates. Overall, ANZ expects the market to remain subdued.
11. The economy is slowing
In what’s been a broad-based slowdown, the pace of headline GDP growth has almost halved from around 4% y/y in 2016 to 2.1% in June 2019. And the leading indicators are all suggesting there’s more slowing to come in the near term, says ANZ.
With inflation expectations threatening to slip, they predict the RBNZ will cut the OCR by 0.25% in November, and two follow-up cuts in February and May next year, which will take the OCR to just 0.25%.
Growth among our trading partners has also been slipping, so both domestic and global risks are currently skewed to the downside.
12. Residential property investors borrowing more
Data from the Reserve Bank on “New residential mortgage lending by borrower type” shows investors accounted for 19.5% of all mortgage lending in September. Investor’s share of mortgage lending has been slowly increasing over the past few months…
- May: 17.6%
- June: 18.8%
- July: 18.7%
- August: 19.0%
- September: 19.5%
It’s still waaay down on 2016 when investors accounted for 35% of all mortgage lending. With tough LVR restrictions imposed then, and the continuing war on landlords, many investors have cashed up and abandoned the residential property market. This is bad news for renters (higher rents on the back of lower supply) but good news for first home buyers who accounted for 17.5% of all mortgage lending last month.
13. High-spending households do well but superannuitants hit hard
Falling mortgage interest rates helped stabilise inflation for highest-spending households, while rising council rates have hit superannuitants the hardest, Stats NZ said on Thursday.
In the September 2019 quarter, highest-spending households faced the lowest quarterly inflation of 0.4%, being the group that benefited most from the drop in mortgage interest rates.
Superannuitants, on the other hand, faced inflation of 1.0% over the same period, two and a half times more than that faced by highest-spending households. More superannuitants tend to own their own home and have no mortgage, so this group is most affected by higher council rates than other groups who are more likely to rent.
Housing costs, especially local authority rates and rents, were key drivers for inflation for all households in the September 2019 quarter. Local authority rates and payments rose around 5.0% in the September 2019 quarter, say Stats NZ.
Source: Stats NZ media release
14. Christchurch most at risk of house price falls when economic conditions deteriorate
Gareth Kiernan says the housing market failure has caused a large undersupply in some regions, especially Auckland, but a surplus in others, especially Christchurch, which is vulnerable to a sharp price correction.
New estimates from Infometrics point towards there being a shortage of about 40,000 homes, with Auckland making up 30,000 of that shortfall.
Meanwhile, Christchurch appears to have a surplus of over over 11,000 homes, putting it most at risk of a sharp price correction when economic conditions deteriorate.
15. Foreign cash flooding into Aussie commercial property
New data from Cushman & Wakefield shows foreign money, mainly Asian but not Chinese, is pouring in to commercial property investment in Australia.
The inflow of foreign capital into Australian commercial property hit a record $20 billion in the year to September, and is likely to continue on a similar trajectory as overseas investors seek attractive yields and find relative value with a low dollar.
We see early signs of this trend hitting our shores too.
Article link – paywalled 🙁
16. Panuku highlights potential risks amidst a softening property market
Auckland Council development agency Panuku says a softening property market is resulting in some development sites, where Panuku is seeking a development agreement of some kind, being delayed or failing to become unconditional.
Panuku plans to transform the Manukau area over the next 20-25 years, injecting capital expenditure of $89 million over the next 9 years. The plan involves housing and commercial development in Manukau which will in turn attract visitors, business and investors. But Panuku’s report says the massive project is at risk due to the uncertainty over progress with the Crown and Auckland Council’s “corporate office rationalisation”.