03 Magazine: March 31, 2023

is the only
Change
Constant
All property markets endure times
of change and sometimes these
changes go on to be described as
‘trends’ or ‘transitions’.
A ‘trend’ can be defined as a general direction
in which something is seen to be developing
or changing, while a ‘transition’ may be
viewed as an evolutionary process relating
to upheavals or alterations – and that best
describes many of the elements currently at
play in the New Zealand property market.
Everywhere I go, there’s a sense of caution
as people communicate the fears they have
about the current contraction in property
values and volumes. But this is nothing new
and you don’t have to go far to find previous
market adjustments.
Over the past two decades, the New
Zealand property market has endured
numerous changes.
Here are but a few and, as each occurred,
they invariably felt like the elephant in the
room.
Consider some of the winds that have hit
various markets, in the knowledge that some
of those winds felt like hurricanes.
The Christchurch Earthquakes were a
tragedy which changed the whole look and
feel of our city. Although it’s taken over a
decade to recover, the subsequent building
boom and injection of capital that followed
provided a huge stimulus to our local
economy and has set us on a pathway to
becoming one of the world’s most exciting
cities.
There have also been numerous
Government interventions, including
changes to Loan to Value Ratios (LVRs).
These were introduced in 2014 and I
remember writing about them at the time!
Prior to this, investors and others could
borrow up to 95% of a property’s value.
This feels outrageous today and, whilst
allowing investors to quickly amass property
portfolios, such policies also created a
number of vulnerabilities for both investors
and banks.
These ratios have since been adjusted seven
times, and we have a more measured set of
borrowing processes as a consequence. This
can also be seen in the tightening of funding
for investors through the introduction of
the Responsible Lending Code, which has
made it harder to take on excessive debt
for property investment. Although some
thought the sky was falling down, after all
of these interventions we’re still here and
moving forward. People are still working on
investing and purchasing property when
their personal circumstances permit. You
see, things never stop completely, they
merely transition.
Now the biggie and that is interest rates. We
are all aware of the hit that’s coming as those
on fixed mortgage terms with interest rates
close to 3% have to adjust to new rates of
6% or more. There are going to be enormous
challenges, but there are options to try and
stay in the property market, if at all possible.
One of the solutions is to list and sell, buying
another, smaller/cheaper property on the
same market. Downsizing allows you to free
up capital whilst reducing debt. Getting good
financial advice is essential and understand
that property is always a long game.
Maybe this is why I’m seeing the busiest
market for first-home buyers that I’ve
seen in a long time. Thanks to the current
property values, homes in a more affordable
price range are becoming available and
selling quickly. This is helped in no small
way by the absence of large numbers of
investors, who are battling with compliance
costs such as those required for Healthy
Homes legislation, and reduced yields in
some quarters, with changes to interest
deductibility being the final straw for others.
There you have it: a brief overview from a
relatively up-close and personal perspective,
and this is excluding the incredible high
points created by the post-COVID property
market as well as the diminishing effect
that the GFC caused way back in 2008. In
fact, many of the people I meet can’t even
remember that event.
The market is changing and it will change
again and again. There will be opportunities
and casualties. There will also be new
transitions and trends, but think on this first
– since 2003, corelogic.co.nz has provided
data stating that New Zealand property
values have risen by 300%!
This may just provide a small level of comfort
when you consider whether being in property
is the right thing to do.
I leave the decision to you.
Lynette McFadden
Harcourts gold Business Owner
027 432 0447
lynette.mcfadden@harcourtsgold.co.nz
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