With another year nearly gone, it’s time to reflect on what 2018 did to NZ’s property market.
A few factors really defined the year for me, and they sit within two themes: government and banking.
The new coalition government’s first year in business meant that scrutiny on property speculators (distinct from all investors) became very, very real. The foreign buyer ban, Healthy Homes Guarantee Act, extension of the bright line test to five years and the removal of letting fees are all changes which signal the Government’s clear intent to disincentivise property speculation. It’s also a clear acceptance that home ownership is now officially out of reach for many: leading to a need for improved rights for those that are renting.
Further improvements to tenants’ rights and the ring-fencing of losses for negative gearing remain firmly on property investors’ minds. We haven’t seen any material change in behavior from investors, yet. They may be doing some serious thinking about it, but they currently remain an active group of buyers across the country according to our buyer classification series.
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2018 also saw the interim report of the tax working group (final one to follow in February 2019) which sets the scene further for property investors. A recommendation to introduce/modify some form of tax on capital assets seems likely. Of course - it’s just a recommendation so perhaps one of the defining decisions of 2019 will be what the Government (or solely the Labour Party in the lead up to the 2020 election) does with that recommendation.
It wouldn’t be a Government wrap without mentioning KiwiBuild. We saw the first KiwiBuild ballot winners/homeowners hit the news, and plenty of opinions were voiced. It’s important to try and cut through the politics sometimes and for me we have to accept that any impact of KiwiBuild on the construction industry will be minimal in the short term. What it’s really doing is changing the speed and type of property built, not the total number of properties being built. That will hopefully come in a year or two, but for now we need to see more appropriate (read smaller) properties available to buyers (especially first time home buyers) to improve the overall stock and keep up with demand.
Aside from government, we must touch on the banking industry. We have of course been told there aren’t as many questionable practices happening this side of the Tasman, but things have changed nonetheless. Much of it prior to 2018 but impacts lingered throughout the year.
The flow on impact to the property market from the original credit tightening two years ago was noticeable. The market didn’t however completely tank: sales volumes throughout most of 2018 were actually higher than the corresponding months in 2017 - mostly painting a picture of stability (but not strength). That same theme applied to values too: values were flat in Auckland and Christchurch, and although they continued to rise elsewhere, the growth rates generally slowed.
In the wider context of a slowing NZ economy, a weakening Australian property market and continued international uncertainty (USA and China trade tensions) it reaffirms the theory that the NZ property market is mostly dictated by the availability of credit.
From the banks point of view the most significant change was their scrutiny of income and expenses. Their calculations of potential borrowers’ expenses became more robust, leading to only the good borrowers getting through and stiff competition for the business of those borrowers via reduced mortgage interest rates.
How long the fight can be maintained remains to be seen, especially off the back of the RBNZ’s latest Financial Stability Review, which restated the need for banks to hold more capital against their loans. This will eventually flow through to interest rates (or alternatively credit rationing at the same interest rates), though of course the OCR holding at 1.75% and deposit requirement loosening will help demand remain firm to counterbalance this.
What for 2019 then? Probably much of the same. The lending environment has changed but the market has accepted it. The Government is no longer new and targets such as 1,000 KiwiBuild homes, will have to be met. There will be plenty of discerning eyes following progress like a hawk, including mine.
Nick Goodall is head of research at CoreLogic NZ