The activity in the residential property market indicates a continued steady pace and values holding well for the second half of 2019.
Key factors to watch for will be the policy decisions from the Reserve Bank (e.g. LVR and bank capital rules), the landscape for investors’ returns, the potential flattening off of residential building consents, and how buildings insurance premiums might change due to risk based pricing.
1. Sales volumes to stay pretty flat, with various downward drivers (e.g. slowing GDP growth) largely offset by other positive factors (e.g. low mortgage rates).
2. Average property values still rising but in a restrained fashion, with the more affordable towns and cities in ‘regional NZ’ likely to record the largest increases. By contrast, it wouldn’t be a surprise to see further weakness in Auckland – as buyers bide their time.
3. Further loosening of the LVR rules in November, reflecting our expectation of steady market conditions. Possible options include lowering the owner-occupier deposit requirement from 20% to 15% and/or raising the investor speed limit for high LVR lending from 5% to 10%.
4. Imposition of extra capital requirements on the banks by the end of November, with a phased approach (potentially over five years). This may prompt some consideration of offering different mortgage rates to borrowers with different abilities to service their debt.
5. Banking sector competition to remain intense and ‘rate wars’ to be a recurring theme - regardless of whether or not the Reserve Bank cuts the official cash rate again.
6. Foreign Buyer Ban to remain a contributing factor to softness in the Central Auckland and Queenstown property markets.
7. More homeowners potentially ‘trading up’, or in other words taking advantage of a subdued market, especially in Auckland, to get a bigger or newer property, or in a better location.
8. Rental yields to continue to rise (albeit from a low base), as rental growth continues at a steady pace of about 5% annually, and above the growth in average property values.
9. Residential building consents to flatten off, as capacity constraints around labour and materials bite. However, they will still stay high, and that’ll be necessary to help alleviate housing shortages. A looming ‘re-set’ for KiwiBuild could have implications here too.