Auckland suburbs that could rebuff Covid-19 downturn

The focus of the real estate industry right now is recovery. Two months of economic upheaval that included total shutdown of the property market have many looking for positive signs amid the gloom.

Post-GFC, New Zealand's house prices didn't suffer the collapse seen in many other parts of the world - and it's possible the housing market post-Covid-19 will bounce back in a similar fashion.

However, forecasters say it's too early to say with any certainty what impact the virus will have.

OneRoof's latest housing market figures show suburb values on March 25, just before alert level 4 restrictions came into effect. They can be seen in the interactive below and are our new benchmark, against which we will measure future market activity and gauge where house prices will land post-Covid-19.

To help buyers and sellers navigate the months ahead OneRoof asked some of the country's leading property experts for their Auckland forecasts. Below, they highlight the areas of opportunity in the country's biggest real estate market and the biggest risks.

Auckland Council’s chief economist, David Norman, says the scale of the challenge ahead is unprecedented.

“May and early June the house sales figures will be very subdued. The market just ceased to operate, and that’s almost incomprehensible - it’s never happened in our history," he says.

“The big challenge for buyers, sellers and the banks is [working out] market price when we haven’t had a market, because nothing has been selling.”

Norman says Auckland's housing market can no longer rely on migration and rising employment to drive activity. The lack of key drivers means banks will also be reluctant to lend, he says.

However, Auckland’s housing shortage may shield the market from big price drops, and he predicts house prices in the city will drop only 5 to 7 percent, a marked contrast to the 10 to 15 percent drop other economists have forecast for New Zealand as a whole.

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“We may not see that impact in the short term if people are not desperate to sell. But once the mortgage holiday ends in October people must choose to take some action,” Norman says.

Leafy and beachy

Gareth Kiernan, chief forecaster at economic analysts Infometrics, expects Auckland's wealthier suburbs, both the leafy ones close to the central city and smart, coastal ones, will retain value, while suburbs that are popular with first home buyers and investors will come under pressure, as those buyer groups will be the first to drop off.

"Affluent suburbs tend to be the last areas affected, and there’s little pressure on people to sell so they can hold off," he says.

He adds that major new town centres at Auckland's edges, such as Drury, will be medium term prospects to watch.

James Wilson, head of valuation at OneRoof's data partner, Valocity, believes Onehunga, Royal Oak, Ellerslie and One Tree Hill, on the fringes of the prized Double Grammar zone, are the ones to watch due to their family friendly price points and strong transport links. He also backs Manukau and Botany in the south due to their proximity to employment centres.

“The middle family market - i.e. suburbs in the $750,000 to $1 million price range – will likely perform well, as it did in the GFC, as there’s a strong, stable population demand. Locations close to employment, good schools or coastal will continue to see growth,” he says.

Pete Evans, Colliers head of residential projects, agrees that Auckland's “middle ring” suburbs will be in a strong position to weather the crisis and favours locations that have been boosted by government-backed regeneration projects, such as Northcote, Mount Roskill, Glen Innes and Point England.

He also predicts activity in New Lynn and Albany, both of which will benefit from mixed commercial and residential developments.

Over-supply

Both Evans and Norman anticipate challenges in Auckland's new build sector. While new housing consents for March were the strongest ever in Auckland, developers will now be having conversations with the banks about what these houses will be worth when the market settles.

Builds that are slated for completion in the next few months will finish, and sell, but consent levels will drop for four to six months.

Evans says developers will be under pressure to get cash flow, but unlike during the GFC, banks have the money and will give them more time.

However, Kiernan believes banks will put pressure on developers with nearly-completed projects to sell quickly (i.e. at a discount), but says that strong developments with good amenities, such as Hobsonville Point, will hold up well.

Inner city apartments

While a smaller market, this sub-sector has had the double whammy of no international students and no Airbnb tourist revenue, so owners maybe selling now that revenue has dried up. But since banks generally demanded a minimum 50 percent deposit, they won’t be too exposed.

However, Kiernan expects housing in the parts of city where jobs take the biggest hit, such as South Auckland, as owners and investors come under pressure.

Wilson says during the GFC lower end stock in Auckland stopped selling, but higher priced properties kept going, albeit at lower volumes, so the median price didn’t “fall off the cliff”.

He expects the same scenario to play out post Covid-19, with lower value dwellings, not just apartments and town houses, likely to be the first to drop off and to be the slowest to recover.