Buyer confidence doesn’t reflect the state of the market, says Aaron Tunstall
Looking ahead to 2019, what will happen in the property market? The biggest hurdle seems to be buyer confidence right now. There’s a fascinating contradiction in New Zealand right now where we’re extremely lacking in confidence, despite plenty of evidence suggesting we should be feeling happy. We’ve all got a friend who’s got plenty going for them but refuses to believe it, and right now New Zealand is that friend.
- Business confidence has been in the doldrums all year, hitting a nine-year low in October – even though the economy itself is fairly robust, with high employment rates, growth in the GDP and low interest rates.
- Consumer confidence hit a three-year low in November, despite spending growth of 5% year-on-year.
- Buyer confidence is poor in the property market – people are nervous and wary in spite of a pretty reliable forecast of low interest rates for the immediate future and a steady market.
Auckland values may have taken a dip, but our housing market is underpinned by ongoing problems with supply. There are still too few houses. That problem is not going away, even without foreign buyers (turns out there weren’t as many as we thought) and with reduced immigration numbers (they’re still putting pressure on housing supply). We’re seeing new developments in the central city that are struggling to sell – partly because the prices needed to recoup the developer’s investment are high due to high construction, compliance and land costs. With those
apartments developments sitting vacant in limbo, there’s even more pressure on existing stock. Plus, it dissuades other developers from starting or continuing the kind of medium-density projects we need in order to combat the low supply.
Why are buyers feeling so nervous? I think these are some of the reasons:
- Uncertainty about new regulations and taxes – a lot of investors want to wait and see what is decided before buying.
- Horror stories from Australia’s markets - values in Australia’s eight major cities lost an estimated $36 billion in value this year. That makes for scary headlines, yet so far there’s been no signs that New Zealand is following suit.
- The fizz is out of the market so it no longer seems like you’re going to miss out if you don’t get in right now. Property is less fashionable than it was two years ago.
- Public sentiment has been strongly against landlords for about five years.
However, any smart investor knows that these are also great reasons to buy. You can get a deal that makes you look like a risk-taker right now and a genius in 10 years’ time. Look at the positives:
- Vacancy levels are low and not likely to increase considering the reduced rental pool.
- Interest rates are low, also not going to change, according to the Reserve Bank.
- It’s a buyers’ market and you have loads of time to do your due diligence and get a great deal.
- Overseas student numbers remain high.
- Rents are stable, prices are down, so yields are improving.
I believe that by mid-2019, investors will start realising there’s nothing wrong with the market and hopefully begin to feel more confident. Come on New Zealand, don’t look so worried, you’ve got a lot going for you!