PROPERTY NEWS

NZ property bounces back

New Zealand’s housing market has gone from strength-to-strength over the past few months, but there are growing calls to cool the market, reports TMM and Landlords.co.nz.

BY DANIEL DUNKLEY AND DANIEL SMITH

The surprise and amazement at the housing market gave way to frustration in November, amid growing calls for the government and Reserve Bank to keep a lid on record prices. The market keeps climbing, but LVR rules are due to be reintroduced, and the government is exploring an extended bright-line test.

Agents and advisers remain as busy as ever, with many planning to reverse staff cuts and add new faces as the market drives activity. As summer approaches, most bank economists predict steady rises into 2021.

Low interest rates, the Funding for Lending Programme, and the lack of supply is driving sky-high prices. Potential headwinds are on the way for investors following a surge in landlord buy-to-let activity since the pandemic.

Evidence mounts for NZ property market rebound

There is growing evidence of a strong bounce-back in the residential property market, according to CoreLogic.

It says profit-making resales of houses have increased nationally to 96.8%. On a median national resale basis that is a gain of $229,000.

These figures are up from $220,000 nationally in the second quarter of 2020, and not far short of the record peak of $233,000 at the start of the year.

Median resale loss, or “pain”, also improved the latest quarter, from $22,500 to $20,000. That was the smallest median resale loss in two years.

CoreLogic’s Pain and Gain Report, compares resales to the original purchase price. The national trend of strong property “gain” and minimal “pain” was replicated in most of the main centres, consistent with the broad rebound CoreLogic has also seen for sales activity and property values.

In Hamilton and Wellington, about 99% of resales in the latest quarter were made above the original purchase price, with Tauranga and Dunedin at 98%. Auckland and Christchurch also showed improvements in the third quarter.

Auckland’s share of property resales made for a slight gross profit rise from 94.6% in quarter two to 95%, while Christchurch rose from 90.9% to 92.4%.

CoreLogic senior property economist, Kelvin Davidson says, “This report really confirms what we know is going on in the housing market more generally.

“Prices have rebounded strongly from Covid-19 and are continuing the upwards trend they had before the pandemic hit.”

“Overall, it’s been remarkable how quickly the sentiment in the property market has turned from pessimism back in April and May to more confidence now. Low mortgage rates and the tight supply/demand balance are feeding into renewed growth in property values that we’re seeing in our resales data.

“There’s also no evidence that any particular part of the country is really suffering. The lack of any real regional variation highlights that things are pretty strong across the country.”

Houses made the biggest gains with 97.3% of house resales made at a gross profit which is pretty much as high as that figure has been since mid to late 2007, he says.

For apartments, 86.1% of resales were made above the original purchase price.

Davidson predicts this positive trend will continue in the final quarter of 2020.

“On the back of low mortgage rates, I expect to see further growth in house prices and buyers competing for limited stock. Any resellers will likely have good demand, and some could continue to see multiple offers for their property, and sell for a solid gain.

“However, if we see unemployment rise in the fourth quarter led by the absence of inbound overseas tourism over summer, landlords might have a higher risk of vacancy in rental properties. If this flows through to investment property resales, investor property performance could slip a little. It’s unlikely to be major, but something to keep an eye on,” Davidson said.

Is a bright-line test extension imminent?

Speculation is mounting that the government will extend the bright-line test beyond five years, capturing a greater number of investment properties for taxation.

While Prime Minister Jacinda Ardern has ruled out a traditional capital gains tax on investment properties during her time in charge, the Labour Government is exploring ways to take the heat out of the investment market following a record year.

There's a growing belief that Finance Minister Grant Robertson will ask the Treasury about an extension to the bright-line test.

Robertson has confirmed he has asked Treasury to review the effectiveness of the current model.

The bright-line test currently requires people who sell investment properties within five years of buying them to pay income tax on capital gains. The brightline was introduced by National at two years, and extended by the coalition in 2018 to five years.

Tax advisers say the IRD is likely to up the ante in its enforcement of the bright-line test. They also note there are provisions in existing legislation for greater taxation of any property sales made within ten years, under section 14B of the Income Tax Act.

The scrutiny on the bright-line test comes after recent IRD figures showed a lack of compliance and enforcement.

Recent Inland Revenue figures found that a quarter of investors subject to the bright-line test did not pay the tax that applied. Of the 1,701 property sales it applied to in 2019, just 1,285 owners paid the necessary tax, according to the figures.

An extension of the bright-line test is supported by the Green Party and opposed by National, which has called it a capital gains tax by stealth.

The debate points to greater scrutiny on landlords’ activities as house prices continue to rise across the country.

Time to stop the finger-pointing on housing

New Zealand needs a bipartisan housing accord to fix the nation's skyrocketing prices and supply problems, according to economists at ASB.

Senior Economist Mark Smith believes changes are “well overdue”, and policy experts and politicians need to come together to fix the decades-long housing market problem.

In ASB's latest economic weekly, Smith argues for an end to finger pointing, as the Labour Government, Green Party and National continue to trade blows over the nation's affordability crisis.

“The needs of the country need to come first, rather than using housing as a political football and an avenue for point scoring,” Smith says.

It comes as the government publicly called on the Reserve Bank to cool the housing market and add price inflation to its remit.

The RBNZ has already backtracked on scrapping LVRs, and is poised to reintroduce them in March.

Smith argues NZ needs to stop putting the housing crisis in the “too hard” basket.

“The blame game needs to stop, and group and self-interest needs to be parked. A housing accord is well overdue, to bring together politicians, policymakers and experts to discuss what could be done. Recommendations from this will need to have bite rather [than being] consigned into the too-hard basket by central and local government.” NZ needs a “multi-faceted and coordinated policy approach” to tackle the housing issue, covering both demand and supply-side aspects.

“Proposed moves to add house prices in the [Reserve Bank’s] monetary policy remit may not add much in practice according to the RBNZ but they will promote transparency and a more considered view on how the housing market impacts the monetary policy outlook.

“Re-imposing the loan-to value ratio (LVR) restrictions from next March looks to be long overdue and it is good to see banks play their part in reining in some of the riskier lending. The RBNZ should also be prepared to further expand its policy toolkit to help rein in demand,” Smith adds. ✚