"Outlook for the New Zealand Property Market 2007-2010"
Outlook for the New Zealand Property Market 2007 - 2010 NOVEMBER 2007 This overview is produced by PMI in conjunction with Infometrics. Northland Auckland Waikato/Bay of Plenty/Gisborne Taranaki/Manawatu/Wanganui Hawke's Bay Wellington Nelson/Marlborough Provincial Canterbury Westland Christchurch Otago/Southland Contents Introduction 2 Tables 1.1: Median house prices by region 5 Executive Summary 4 2.1: Economic indicators 8 Economic Outlook 7 Export prospects 7 3.1: Population growth by region 11 Household incomes and spending 8 3.2: House sales by region 12 Inflation pressures 9 Fiscal policy 9 3.3: Rental growth by region 14 Residential Demand 10 3.4: New dwelling consents by region 15 Interest rates hold up 10 Migration downturn 12 Charts Weaker buyer demand hits house sales 13 4.1: Northland Median house prices 17 House price growth to cool 13 4.2: Northland Annual house sales total 17 Ongoing demand for rental accommodation 13 5.1: Auckland Median house prices 19 Lower house prices slow building activity 14 5.2: Auckland Annual house sales total 19 Northland 16 6.1: Waikato/Bay of Plenty/Gisborne Median house prices 21 State of play and Forecast 6.2: Waikato/Bay of Plenty/Gisborne Annual house sales total 21 Auckland 18 7.1: Hawke’s Bay Median house prices 23 State of play and Forecast 7.2: Hawke’s Bay Annual house sales total 23 Waikato/Bay of Plenty/Gisborne 20 8.1: Taranaki/Manawatu/Wanganui Median house prices 25 State of play and Forecast 8.2: Taranaki/Manawatu/Wanganui Annual house sales total 25 Hawke’s Bay 22 9.1: Wellington Median house prices 27 State of play and Forecast 9.2: Wellington Annual house sales total 27 Taranaki/Manawatu/Wanganui 24 10.1: Nelson/Marlborough Median house prices 29 State of play and Forecast 10.2: Nelson/Marlborough Annual house sales total 29 Wellington 26 11.1: Christchurch Median house prices 31 State of play and Forecast 11.2: Christchurch Annual house sales total 31 Nelson/Marlborough 28 12.1: Provincial Canterbury/Westland Median house prices 33 State of play and Forecast 12.2: Provincial Canterbury/Westland Annual house sales total 33 Christchurch 30 13.1: Otago/Southland Median house prices 35 State of play and Forecast 13.2: Otago/Southland Annual house sales total 35 Provincial Canterbury/Westland 32 State of play and Forecast Otago/Southland 34 State of play and Forecast Introduction The PMI Residential Property Overview and Mid- Year Update, produced in conjunction with key forecaster Infometrics, are designed to provide you with an overview of current market trends in New Zealand. These reports are part of a wide range of Online Business Tools available on our website www.pmigroup.co.nz. 02 www.pmigroup.co.nz PMI Mortgage Insurance Ltd which range from banks, building societies and credit unions, to securitised PMI is embracing new ways of thinking funders and mortgage managers. by providing you, our customer with the highest level of service and simple For further information on PMI visit product solutions every time. www.pmigroup.co.nz PMI is a leading mortgage insurer, credit enhancer and residential property market specialist with over 40 years experience Infometrics in the Australian market and 16 years Infometrics is a privately owned in the New Zealand market. Through company. It offers a range of economic our proactive approach, innovative consulting and forecasting services products and services, and longstanding on commercial terms to companies, knowledge and expertise, PMI has helped business organisations and government its customers to manage and reduce risk. departments. Since being founded in PMI embraces new ways of thinking to 1983 the company has built a reputation provide a variety of credit enhancement for rigorous and independent work, products to bank and non-bank lending delivered on time and within budget. institutions in Australia and New Zealand, The company has a range of economic making home ownership possible for models and modeling expertise to apply many Australians and New Zealanders. to specific consulting projects. All regular PMI is a global organisation with our forecasts and analysis are available on parent company, The PMI Group, Inc., the web site. headquartered in California. 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We Infometrics can be found at are constantly developing new and www.infometrics.co.nz innovative products and services tailored to the local market and our customers, New ways of thinking™ 03 Executive Summary A combination of higher House price growth remained in double digits, but the housing market is showing interest rates and slowing the strongest signs of a downturn since population growth has led the extended period of growth began in to a significant slowdown 2001. in house sales activity The catalyst for the slowdown has been throughout the middle higher mortgage rates. Three increases in the official cash rate in the first half of this year. Seasonally of 2007 fed directly into higher floating adjusted sales volumes mortgage rates. However, the tight in August were at their approach to monetary policy adopted lowest since 2001, belying by the Reserve Bank also had the more important effect of helping to drive up assertions from the Real longer-term wholesale rates, which led Estate Institute that the to a jump in fixed mortgage rates of market was simply going almost one percentage point. Property buyers this year have been faced with the through its usual winter highest financing costs since 1998. slowdown. With an increased number of people emigrating to Australia, population growth has slowed, implying a drop in the rate of new household formation and underlying growth rate in demand for housing. These drivers are likely to lead to further declines in sales activity over 2008 and early 2009. Nationwide annual sales volumes over the next 18 months are forecast to drop to their lowest level since 2001. As a result, some house price falls are expected throughout 2008/09, with a 1.1% drop in nationwide average values over the year to June 2009. Overall price falls are likely to be small due to a reasonably tight labour market and ongoing wage growth, which suggest that most property owners (both owner-occupiers and investors) will be able to continue servicing their debt despite higher interest rates. Buyer demand is likely to be weaker, but any rise in the number of forced sales is expected to be limited. 04 www.pmigroup.co.nz “House price growth remained in double digits, but the housing market is showing the strongest signs of a downturn since the extended period of growth began in 2001.” Table 1.1: Median house prices by region June Waikato/Bay of Taranaki/Manawatu Northland Auckland Hawke’s Bay Quarter (1) Plenty/Gisborne /Wanganui Wellington $’000 APC(2) $’000 APC(2) $’000 APC(2) $’000 APC(2) $’000 APC(2) $’000 APC(2) 2001 153.5 4.2% 245.7 2.9% 159.0 0.6% 125.7 4.1% 102.0 -1.3% 196.0 4.1% 2002 159.7 4.0% 264.3 7.6% 166.5 4.7% 132.2 5.2% 107.9 5.8% 204.8 4.5% 2003 162.6 1.8% 290.3 9.8% 178.0 6.9% 156.7 18.6% 113.7 5.3% 226.8 10.7% 2004 190.1 16.9% 331.3 14.1% 194.6 9.3% 208.0 32.7% 133.0 17.0% 266.8 17.6% 2005 242.1 27.4% 368.5 11.2% 246.5 26.7% 238.7 14.7% 171.9 29.2% 286.7 7.4% 2006 276.2 14.1% 397.4 7.8% 281.0 14.0% 251.8 5.5% 208.7 21.4% 326.0 13.7% 2007 321.7 16.5% 449.0 13.0% 317.5 13.0% 275.0 9.2% 246.5 18.1% 379.3 16.3% Forecasts 2008* 325.3 1.1% 467.4 4.1% 331.8 4.5% 302.2 9.9% 245.6 -0.4% 386.6 1.9% 2009* 308.0 -5.3% 475.2 1.7% 318.8 -3.9% 295.1 -2.3% 226.8 -7.7% 385.5 -0.3% 2010* 322.4 4.7% 504.4 6.2% 335.3 5.2% 300.8 1.9% 233.6 3.0% 405.8 5.3% June Nelson/Marlborough Christchurch Provincial Otago/Southland(3) New Zealand Quarter (1) Canterbury/Westland $’000 APC(2) $’000 APC(2) $’000 APC(2) $’000 APC(2) $’000 APC(2) 2001 151.1 5.3% 152.3 -2.8% 109.4 -3.4% 96.9 -1.8% 174.8 1.1% 2002 159.8 5.8% 154.5 1.4% 109.2 -0.2% 109.7 13.2% 187.0 7.0% 2003 211.3 32.2% 174.8 13.1% 122.0 11.8% 132.7 21.1% 207.3 10.9% 2004 264.8 25.3% 229.0 31.0% 162.1 32.9% 188.7 42.1% 244.3 17.8% 2005 266.2 0.5% 263.7 15.1% 198.5 22.5% 206.3 9.3% 277.2 13.4% 2006 290.8 9.2% 291.7 10.6% 230.0 15.9% 226.0 9.5% 306.7 10.6% 2007 331.1 13.9% 331.7 13.7% 259.0 12.6% 250.1 10.7% 348.8 13.8% Forecasts 2008* 343.2 3.6% 344.2 3.8% 267.3 3.2% 266.3 6.5% 362.3 3.9% 2009* 356.3 3.8% 334.7 -2.8% 247.4 -7.5% 260.6 -2.2% 358.3 -1.1% 2010* 359.3 0.9% 344.2 2.9% 251.7 1.8% 258.2 -0.9% 374.7 4.6% Source: Real Estate Institute of New Zealand; * Infometrics forecasts (1) Average median price over three months to June (2) Annual percentage change Composite regions are weighted average of each region’s median prices By June 2010, house prices are forecast The region’s land constraints suggest that 18 months, although high dairy prices will to be 7.4% higher than in June 2007. This property prices will continue to perform be a positive for the market by 2009/10. represents a total increase of just 0.5% in strongly over the medium term. Average House prices are expected to rise 5.6% real terms, well below the trend increase house prices are forecast to be 12.3% over the three years to June 2010 (or fall of 1.6%pa over the last 50-60 years. higher in June 2010 than three years 1.2% in real terms). earlier (an increase of 5.1% in real terms). • The Auckland property market gained • Rental property has been in strong momentum in late 2006 and early 2007, • The housing market in Waikato/Bay demand in the Wellington region over the but the effects of tight monetary policy on of Plenty/Gisborne has gradually been last year. However, high financing costs domestic demand are likely to constrain cooling since 2005, notwithstanding a are now leading to a softening in investor the region’s economic growth over the small rally in sales and price growth in demand, and price growth is likely to next year. High house prices in Auckland early 2007. Low rental yields and slowing slow over 2008. Investors are also likely also imply that potential buyers will be population growth are expected to lead to be cautious given the possibility of more sensitive to elevated interest rates. to further market weakness over the next a change in government next year and New ways of thinking™ 05 the potential effects on growth in public buoyant in parts of the region, but falling the next two years. For the region as a sector employment. Average property yields and high interest rates have made whole, average house prices are expected values in Wellington are forecast to rise property investment a less attractive to increase 8.5% between June 2007 and 7% between June 2007 and June 2010 option than it was two years ago. With June 2010 (a 1.5% rise in real terms). (remaining unchanged in real terms). the population shrinking in Wanganui • The Hawke’s Bay housing market and Taranaki, it is unlikely that the strong • Economic growth in Christchurch has was one of the weakest in the country lift in dairy incomes will be sufficient to been hampered over the last year by in 2006, but house price growth had prevent a correction in house prices over the effects of the high exchange rate on rebounded to 9.2%pa by June this the next two years. By June 2010, average manufacturers. Pressure on the city’s year. The soft patch in 2006, compared prices are forecast to be 5.3% lower economy has also mounted from the with housing market trends for all New than in June 2007 (an 11.4% drop in real effects of tight monetary policy on the Zealand, suggests that property in terms). service sectors. Population growth in Hawke’s Bay is less overvalued than in Christchurch has remained relatively • The housing market in Provincial some other parts of the country, although strong, but the increased outflow of New Canterbury/Westland has stayed some price falls may occur in 2008/09. Zealanders is likely to result in slower resilient over the last year. But even with Nevertheless, the region’s lifestyle and population growth going forward. This population growth holding at around demand for holiday homes are likely to range of negative factors is forecast to 1.2%pa, the current rate of new house underpin a relatively good performance keep growth in house prices to a total of construction appears to be unsustainable. by house prices in Hawke’s Bay over 3.8% over the three years to June 2010 (a Slower population and economic growth the medium term. Prices are forecast to 2.9% decline in real terms). in Christchurch is also expected to lead increase 9.4% over the three years to to slower growth in the surrounding June 2010 (2.3% in real terms). • Parts of the Otago/Southland property areas, and land prices out of the city may housing market have performed well • House price growth in Northland has start to come under pressure as high oil over the last year. Investor demand has rallied over the last year, although the prices make commuting more expensive. been high in Southland due to relatively lift in the median sales price may be An oversupply of housing in the region is low house prices and high rental yields partly caused by a decline in the number forecast to cause house prices to decline compared to the rest of the country. of lower-priced properties being sold. by 2.8% over the three years to June 2010 However, that demand has started to Slowing economic and population growth (down 9.1% in real terms). come under pressure due to high interest in the region suggest that the region’s rates. The medium-term prospects for • The Nelson/Marlborough housing housing market will be less buoyant over house prices in the region are strongest market has bounced back from its soft the next two years, particularly given in Central Otago Lakes given the area’s patch in 2004 and 2005, with recent price waning demand from investors due to low rapid population growth. For the region growth exceeding the national average yields and high interest rates. Average as a whole, house prices are predicted for the first time in three years. Housing house prices in Northland are predicted to increase 3.3% between June 2007 and affordability remains relatively low in to rise just 0.2% between June 2007 and June 2010 (or fall 3.4% in real terms). the region, and has meant that tenant June 2010 (a 6.3% decline in real terms). demand for rental accommodation has • Very high levels of building activity, held up. The Tasman property market, combined with a shrinking population, particularly in the areas close to Nelson, suggest that an oversupply of housing is likely to be a strong performer over the is developing in Taranaki/Manawatu/ medium-term, but there is a risk of small Wanganui. The rental market remains house price falls in Marlborough within 06 www.pmigroup.co.nz Economic Outlook Economic growth has slowed On a year-ended basis, economic growth is expected to slow from around 2.6%pa over the second half of 2007, in September 2007 to around 2%pa with activity weakened by over the first half of 2008. Investment the interest rate rises carried activity is likely to remain soft over the next 12 months. High interest rates will out by the Reserve Bank over be the initial cause of the weakness, but the first half of this year as falling residential construction levels are well as a downturn in net expected to take over as the primary driver migration. The Reserve Bank of weak investment spending during 2008. reacted to strong domestic Growth in households’ real disposable indicators early in 2007: a incomes is likely to be capped by rising debt servicing costs and some lift in lift in house sales activity the unemployment rate. With quarterly and accelerating house price house price falls also possible from the growth, very strong retail June 2008 quarter onwards, growth in household spending is forecast to be sales growth, and higher non- weaker in 2008. tradable inflation. Export prospects The strong New Zealand dollar over 2006/07 has negatively affected the manufacturing sector, as well as undermining export incomes in general. But despite how strong the currency has been, overall commodity prices in New Zealand dollars remain remarkably good. As a result, economic activity in provincial areas is likely to hold up relatively well over 2008. The brightest light in terms of the export sector is the dairy industry. Fonterra’s August forecast payout of $6.40/kg of milk-solids for the 2007/08 season would be the highest in at least 18 years in real terms, surpassing the previous peak in 2002. The strength of dairy prices is likely to lead to a 10% rise in terms of trade. This lift in farmers’ incomes is the biggest improvement in New Zealanders’ purchasing ability in a global sense since 1972/73. New ways of thinking™ 07 “Growth in households’ real disposable incomes is likely to be capped by rising debt servicing costs and some lift in the unemployment rate.” Table 2.1: Economic indicators Rising commodity prices are also boosting returns from the forestry sector. Log Annual average % changes Average Forecasts exporters are struggling in part with high June years 1998-2007 2005/06 2006/07 2007/08 2008/09 2009/10 transport costs and a lack of shipping Real expenditures capacity, but export volume growth is Private consumption 3.7% 3.4% 3.2% 3.5% 2.3% 3.6% still expected to be relatively strong over Government consumption 3.1% 5.0% 4.1% 3.1% 4.0% 2.4% the next few years (7.5%pa). Forestry Residential investment 2.6% -4.9% 2.2% -11.4% -0.8% -1.8% export volumes are also on the increase Non-residential investment 2.2% 9.4% -9.5% -1.8% 2.5% 2.0% Total private investment 3.8% 0.0% -0.6% -5.1% 3.3% 10.4% in response to higher world prices after a Total government investment 7.2% 8.7% 2.2% 1.2% 2.2% 9.2% lacklustre few years. Gross national expenditure 3.7% 2.1% 2.8% 1.6% 2.8% 4.9% Exports of goods and services 3.9% 0.6% 3.3% 3.0% 4.1% 3.4% Global meat prices have come under Imports of goods and services 5.3% 0.9% 2.0% 1.9% 3.5% 6.8% downward pressure but are likely Gross domestic product 3.2% 2.3% 2.8% 1.8% 2.9% 3.7% to stabilise in the 2007/08 season. Slaughtering levels in Australia are Households expected to be lower as farmers rebuild HLFS employment 1.9% 2.6% 1.2% 0.5% 1.7% 1.0% their herd numbers, while US production is HLFS unemployment rate (1) 5.2% 3.7% 3.7% 4.1% 4.1% 4.2% Hourly wage 3.3% 4.8% 4.7% 3.7% 3.6% 4.2% also likely to ease. CPI (2) 2.3% 4.0% 2.0% 1.5% 2.5% 2.9% However, overall export volume growth is NZ interest rates (3) 10-year government bonds 6.2% 5.8% 6.0% 6.4% 6.4% 6.4% forecast to remain relatively lacklustre over 90-day bills 6.4% 7.4% 7.8% 8.7% 8.1% 7.2% the next year, with most of the expected Floating mortgage rates 8.4% 9.4% 9.7% 10.5% 10.2% 9.3% improvement in New Zealand’s balance of payments position due to the rising terms Source: Statistics New Zealand, Reserve Bank of New Zealand, Infometrics forecasts (1) Annual average for year ended (2) June on June, CPI ex credit prior to June 99 (3) Annual average rates of trade. Import demand is likely to be soft as the Reserve Bank’s interest rate rises slow investment and consumption growth. The current account deficit is forecast to shrink below 7% of GDP by 2009. Household incomes and spending Strengthening consumer confidence at the end of 2006 fed through into a sharp lift in retail sales in the first quarter of 2007. Sales volumes climbed 3.7% over the March 2007 quarter, but subsequent interest rate rises have taken the froth off the domestic economy. Lower business confidence will affect employment intentions. Employment growth has slowed from 2.6% to 1.2%pa since June 2006, and is expected to ease 08 www.pmigroup.co.nz to just 0.5%pa by June 2008. The drop-off next year. Assuming the National Party is labour cost growth for businesses, from in net migration will limit the impact of elected, the combined effects of the two 4.9% in 2005/06 to 2.2%in 2007/08. this slow growth on unemployment, but tax cut packages would not become fully At the same time, a pick-up in tradeable the unemployment rate is still expected to effective until 2011. Nevertheless, household prices is likely. The pressure of solid demand reach 4.3% in mid-2008. disposable incomes and spending will be from China and India has led to an upward boosted from 2009 onwards. The decline in demand for labour is trend in prices of the hard commodities likely to put downward pressure on wage The incoming government is likely to try New Zealand imports. Demand from the growth, which is expected to dip below to trim spending growth after next year’s developing world, coupled with the pressure 4%pa in 2008/09. election, but most initiatives will tinker that global warming responses have placed with existing policies rather than introduce on crop prices, has led to a worldwide lift in The prospect of slowing house price growth significant change. Flagship Labour food prices. may also negatively affect consumer policies such as Working for Families and confidence. Positive wealth effects have A depreciation in the New Zealand KiwiSaver should remain largely intact. been a significant factor behind the strong dollar over the next two years could also growth in household spending between Inflation pressures contribute to higher tradable inflation. The 2002 and 2006. Even early this year, the Recent surveys of pricing intentions exchange rate has already come under household sector was still being insulated indicate that short-term domestic inflation downward pressure in the second half of from the weakening labour market by pressures remain strong, despite headline this year due to global financial market house price rises. But a soft housing inflation dropping from 4% to 2%pa unrest associated with the housing market market is expected to weaken consumer over the year to June 2007. This dip in downturn in the US. International investors spending over 2008/09, with consumption headline inflation has been the result of have become more risk averse, pushing the growth dipping from 3.5%pa in June 2008 a steep fall in tradeable inflation, which New Zealand dollar well down from its mid- to 2.3%pa in mid-2009. has outweighed a reacceleration of price year peak. New Zealand’s attractiveness pressure in the non-tradeable sector. as an investment destination will remain Fiscal policy poor over the next two years, as the gap Fiscal policy is set to be a positive for The lift in non-tradeable inflation over between our interest rates and those the economy over the next 2 years. The the first half of 2007 is not expected applicable offshore closes and economic government’s cash balance is forecast to continue. Rather, a slowing trend in growth remains sluggish. to swing from a surplus of $2.99bn in domestic price pressure is likely to develop 2005/06 to a deficit of $4.03bn in 2009/10. over the next year as a result of the The trade weighted index is expected following factors: to depreciate to a cyclical low of 61 by The Labour Party is likely to announce a December 2009. tax indexation package in the order of • A weakening housing market will $500m pa at next year’s budget, effective ease homeownership inflation, which The overall effect of the changing trends in 1 April 2009. Labour’s reluctance to deliver was running at 5.8%pa in mid-2007. tradeable and non-tradeable inflation over across-the-board tax cuts brought them Additionally, a reduction in construction the next year will see headline inflation dip close to losing the last election in 2005, employment will free up labour resources to 1.4%pa in mid-2008, before returning and they will want to avoid fighting the for other sectors, creating a second-round to the 2.5-3%pa range in 2009 and 2010. same battle again. reduction in inflation pressures. However, with non-tradeable inflation well contained, the Reserve Bank is not The National Party is likely to run with a • A cyclical improvement in productivity in expected to fret about the depreciating similar tax cut package to the last election, the wider economy is set to occur at the dollar and higher tradeable inflation taking implying total personal income tax cuts same time as wage growth starts to ease CPI growth back towards the top of the of around $1.8bn may be announced from recent highs. The combination is unit 1-3%pa target band over 2009. New ways of thinking™ 09 Residential Demand House sales have fallen Interest rates hold up sharply over the last few Signs of softening domestic activity from both the retail and housing sectors months as buyer demand will be a major factor in persuading has eased in the face of high the Reserve Bank not to raise interest interest rates. Vendors not rates again in this cycle. The seasonally under pressure to sell have adjusted value of retail sales (excluding the automotive sector) fell 1.3% between refused to accept lower prices, March and July, and monthly house sales but a sustained slowdown in volumes have dropped 28.2% since the market is likely to see price December 2006 (seasonally adjusted). expectations scaled back over The tighter monetary policy stance of the the next 18 months. Prices in Reserve Bank in the first half of 2007 has provincial areas are now rising finally succeeded in lifting fixed mortgage rates as well. The lowest fixed rate on more slowly than in the main offer rose from 8% in February to 8.9% by urban centres for the first time June. By mid-year, mortgage rates were since 2003. at their highest, across the board, since mid-1998. The lift in mortgage rates was due to a combination of factors: • Global bond rates rose in line with higher interest rate expectations offshore. • The Reserve Bank’s tough monetary policy approach fed through into longer- term wholesales rates, widening the gap between rates here and overseas. • Trading banks’ lending margins fell to historically low levels in January this year. Even with the jump that has since occurred, margins still remain below the average of the last decade. The effective mortgage rate is forecast to continue rising until early 2009, with the upward trend supported by the effect of longer-term wholesale interest rates on fixed mortgage rates over the next two years. New Zealand bond rates are 10 www.pmigroup.co.nz “House sales have fallen sharply over the last few months as buyer demand has eased in the face of high interest rates.” Table 3.1: Population growth by region Year ended Waikato/Bay of Taranaki/Manawatu Northland Auckland Hawke’s Bay June Plenty/Gisborne /Wanganui Wellington 2001 0.0% 1.4% 0.2% 0.0% -1.0% 0.6% 2002 0.7% 2.9% 1.0% 0.5% -0.2% 1.2% 2003 0.8% 3.1% 1.3% 0.3% 0.1% 1.4% 2004 0.7% 2.0% 1.1% 0.5% -0.1% 1.2% 2005 0.7% 1.5% 0.8% 0.2% -0.4% 0.8% 2006 0.7% 1.5% 0.8% 0.2% -0.1% 0.9% Forecasts 2007* 0.6% 1.7% 0.7% 0.3% -0.4% 0.9% 2008* 0.4% 1.3% 0.4% 0.0% -0.7% 0.3% 2009* 0.4% 1.5% 0.5% 0.0% -0.7% 0.4% 2010* 0.5% 1.7% 0.5% 0.1% -0.6% 0.5% Year Provincial ended Nelson/Marlborough Christchurch Otago/Southland New Zealand Canterbury/Westland June 2001 1.0% 0.5% 0.7% 0.2% 0.6% 2002 1.7% 1.5% 0.9% 0.9% 1.5% 2003 2.1% 2.0% 1.1% 0.9% 1.8% 2004 1.9% 1.6% 1.2% 0.7% 1.3% 2005 1.3% 1.0% 1.0% 0.4% 0.9% 2006 1.3% 1.2% 1.2% 0.4% 1.0% Forecasts 2007* 1.3% 1.1% 1.2% 0.3% 1.0% 2008* 1.0% 0.6% 0.8% 0.1% 0.6% 2009* 1.1% 0.7% 0.8% 0.2% 0.7% 2010* 1.2% 0.8% 0.8% 0.3% 0.8% Source: Statistics NZ, Infometrics forecasts expected to hold above the low levels pressure on businesses and leading seen between 2004 and early 2007. to a depreciation in the New Zealand dollar. The process will be an effective In the last year, aggregate household mechanism for boosting exports debt rose from 148% to 158% of and business activity, while keeping disposable income, and debt servicing household demand in check. costs now account for 13% of disposable income. Households are more sensitive With bond rates likely to hold up over the to small interest rate increases than they medium term, relief for households in were in the past. terms of fixed mortgage rates is likely to be modest. The lowest mortgage rates on Higher fixed rates are likely to allow offer could still be above 8% by the end the Reserve Bank to reduce the official of 2010. cash rate throughout 2008/09, easing New ways of thinking™ 11 “Prices in provincial areas are now rising more slowly than in the main urban centres for the first time since 2003.” Table 3.2: House sales by region Year Waikato/Bay of Taranaki/Manawatu Northland Auckland Hawke’s Bay Wellington ended Plenty/Gisborne /Wanganui June Number APC(1) Number APC(1) Number APC(1) Number APC(1) Number APC(1) 2001 1,760 -4% 21,983 -5% 9,515 -8% 2,438 -12% 5,097 -7% 9,913 -7% 2002 2,209 26% 31,405 43% 12,629 33% 3,163 30% 6,457 27% 11,308 14% 2003 2,809 27% 38,164 22% 16,691 32% 3,881 23% 7,632 18% 12,238 8% 2004 3,820 36% 40,431 6% 20,298 22% 4,135 7% 8,947 17% 12,255 0% 2005 3,340 -13% 34,469 -15% 18,139 -11% 3,648 -12% 8,160 -9% 10,740 -12% 2006 2,909 -13% 33,520 -3% 15,878 -12% 3,629 -1% 7,909 -3% 11,366 6% 2007 2,861 -2% 36,225 8% 16,075 1% 3,851 6% 7,847 -1% 11,407 0% Forecasts 2008* 2,440 -15% 28,841 -20% 13,274 -17% 3,087 -20% 6,483 -17% 9,337 -18% 2009* 2,321 -5% 26,588 -8% 12,237 -8% 2,845 -8% 5,976 -8% 8,608 -8% 2010* 2,348 1% 28,151 6% 12,985 6% 2,954 4% 6,193 4% 9,447 10% Year Provincial Nelson/Marlborough Christchurch Otago/Southland New Zealand ended Canterbury/Westland June Number APC(1) Number APC(1) Number APC(1) Number APC(1) Number APC(1) 2001 2,618 8% 5,931 -9% 2,584 -8% 5,787 15% 67,626 -5% 2002 3,774 44% 7,645 29% 3,491 35% 7,779 34% 89,860 33% 2003 4,145 10% 9,398 23% 4,944 42% 9,583 23% 109,485 22% 2004 3,354 -19% 10,303 10% 5,431 10% 9,511 -1% 118,485 8% 2005 3,041 -9% 9,542 -7% 4,543 -16% 8,170 -14% 103,792 -12% 2006 3,165 4% 9,794 3% 4,511 -1% 7,984 -2% 100,663 -3% 2007 3,464 9% 9,958 2% 5,003 11% 8,847 11% 105,532 5% Forecasts 2008* 2,708 -22% 8,092 -19% 3,906 -22% 6,933 -22% 85,097 -19% 2009* 2,496 -8% 7,460 -8% 3,601 -8% 6,391 -8% 78,447 -8% 2010* 2,803 12% 7,452 0% 3,632 1% 6,866 7% 82,831 6% Source: Real Estate Institute of New Zealand; * Infometrics forecasts (1) Annual percentage change Migration downturn Migration data shows a net inflow of 10,078 people for the year to June 2007. The number of people leaving New However, the above trends are forecast to Zealand to live overseas suddenly jumped lead to a net outflow of 2,580 people in in January this year. The increase, which the year to June 2008. has been sustained in subsequent months, has come primarily from more Improving local economic prospects, New Zealand citizens leaving for Australia. and perhaps the confidence impact of a change of government, are likely to see At the same time, approvals of immigration the outflow of New Zealanders peaking applications by the Immigration Service at around 57,000 in 2008 and falling have slowed, although the change has back to the 48,500pa mark by 2010. not been as marked as the rise in New Net migration is predicted to gradually Zealand departures. It appears that there is recover to 7,300 by June 2010. ongoing momentum for both the pick-up in departures and the slowdown in arrivals. 12 www.pmigroup.co.nz Weaker buyer demand hits house sales House sales volumes in August were down 25.3% on a year ago, which was the largest annual fall in almost three years. With interest rates and net migration both working to take the heat out of the housing market, a significant drop in house sales activity is expected over the next two years. Sales volumes are forecast to drop from 105,532 for the June 2007 year to 78,447 by June 2009. Year- ended growth in sales is forecast to fall to -22.0%, the weakest performance since high interest rates, falling net migration, and an economic recession hit the housing market in 1998. Unlike 1998/99, interest rate relief for the property market is unlikely to be Lower interest rates, as well as some purchasing property among investors. rapidly forthcoming, with the current improvement in economic growth and At the same time as interest costs have economic downturn remaining relatively net migration, are expected to lead to a been going up, inflation-indexed bond mild. House sales activity is forecast recovery in house price growth in 2010. rates have also risen. Inflation-indexed to gradually trend upwards from 2009 bond rates provide a benchmark rate onwards, but sales volumes will remain Ongoing demand for rental of return for investments, and a lift in below current levels throughout the next three years. accommodation these rates implies increased pressure Early 2007 was punctuated by anecdotes on property yields. Rental property yields House price growth to cool of shortages of rental accommodation have started to increase since May this House price growth accelerated through re-emerging in Wellington and Auckland. year, but pressure for further increases is the early part of 2007, with prices up After dipping to below 3%pa in the likely to continue into 2008, so it is likely 13.8% over the year to June 2007. Data to second half of 2006, rental growth that rental growth will run ahead of house August showed some signs of softening, in both Wellington and Auckland has price growth over the next 12-18 months. with weaker buyer demand translating strengthened during 2007. The upward into slower price growth (11.8%pa). trend has also appeared in the national trend, with nationwide rental growth The upward momentum in house prices climbing to 6.8%pa in June this year. is likely to fade early next year, and Rental growth is now at its fastest since price falls are possible throughout 2008. 2004. House price growth is forecast to drop to a ten-year low of -2.7%pa in March 2009, It is likely that the increase in debt before recovering slightly to -1.1%pa in servicing costs has had the greatest June 2009. negative impact on demand for New ways of thinking™ 13 “Residential building activity has been solid throughout much of 2007, but the drivers underpinning construction are looking less favourable for the next couple of years.” Lower house prices slow building activity Residential building activity has been solid throughout much of 2007, but the drivers underpinning construction are looking less favourable for the next couple of years. Lower net migration, in particular, has direct consequences for residential construction. Slow population growth and the unaffordability of housing (due to high interest rates) are expected to limit the number of new households being set up. The forecast average household formation rate of 17,700pa over the next two years is 38% below the peak rate recorded in the 2004 calendar year. There is potential for the household formation Table 3.3: Rental growth by region rate to drop to its lowest level in 15 years. June Quarter, Waikato/Bay of Taranaki/Manawatu/ Northland Auckland Hawke’s Bay Wanganui Wellington Annual % Plenty/Gisborne Changes 1999 -0.8% -3.4% -1.5% 0.7% 0.5% 0.9% 2000 -4.0% 1.4% -0.9% 0.6% -0.6% 1.1% 2001 2.2% 2.4% 0.3% 0.3% 1.4% 3.7% 2002 3.7% 7.6% 3.9% 3.1% 4.3% 2.3% 2003 3.4% 10.7% 8.4% 6.6% 6.1% 5.3% 2004 11.5% 2.7% 8.2% 8.1% 2.0% 2.4% 2005 6.3% -1.6% 6.1% 8.2% 9.6% 0.4% 2006 8.6% 5.0% 5.9% 8.8% 4.9% 9.2% 2007 10.8% 4.1% 6.1% 5.7% 9.4% 16.6% June Quarter, Nelson/ Provincial Otago/ Christchurch New Zealand Annual % Marlborough Canterbury/Westland Southland Changes 1999 -1.0% -1.9% -0.1% 4.2% -1.0% 2000 1.6% -0.2% 0.3% 1.0% -0.1% 2001 2.1% 2.5% -1.1% 4.3% 1.7% 2002 5.6% 6.9% 6.4% 12.7% 5.1% 2003 12.2% 11.3% 8.2% 8.5% 9.1% 2004 8.4% 9.2% 10.1% 9.2% 6.8% 2005 3.0% 3.3% 9.2% 5.2% 3.8% 2006 3.1% 3.4% 6.6% 1.9% -0.1% 2007 9.1% 5.5% 6.6% 3.7% 6.8% Source: Infometrics calculations from Tenancy Services Bond Centre / Real Estate Institute of New Zealand data 14 www.pmigroup.co.nz Table 3.4: New dwelling consents by region Year Waikato/Bay of Taranaki/Manawatu Northland Auckland Hawke’s Bay Wellington ended Plenty/Gisborne /Wanganui June Number APC(1) Number APC(1) Number APC(1) Number APC(1) Number APC(1) 2001 936 -15% 7,407 -26% 3,489 -25% 432 -5% 732 -16% 2,157 -12% 2002 882 -6% 9,374 27% 3,939 13% 494 14% 840 15% 1,934 -10% 2003 1,082 23% 12,277 31% 4,828 23% 611 24% 947 13% 2,574 33% 2004 1,408 30% 12,937 5% 6,293 30% 734 20% 1,301 37% 2,592 1% 2005 1,313 -7% 9,435 -27% 5,313 -16% 731 0% 1,383 6% 2,058 -21% 2006 1,349 3% 7,250 -23% 5,416 2% 938 28% 1,610 16% 2,041 -1% 2007 1,373 2% 6,781 -6% 5,837 8% 902 -4% 1,725 7% 2,032 0% Forecasts 2008* 1,233 -10% 6,377 -6% 5,163 -12% 842 -7% 1,512 -12% 1,846 -9% 2009* 1,100 -11% 7,710 21% 4,656 -10% 664 -21% 1,187 -21% 1,852 0% 2010* 1,144 4% 8,921 16% 4,828 4% 665 0% 1,170 -1% 2,110 14% Year Provincial Nelson/Marlborough Christchurch Otago/Southland New Zealand ended Canterbury/Westland June Number APC(1) Number APC(1) Number APC(1) Number APC(1) Number APC(1) 2001 775 -3% 1,342 -23% 1,132 -17% 941 12% 19,345 -20% 2002 954 23% 1,530 14% 1,270 12% 1,315 40% 22,533 16% 2003 1,298 36% 2,338 53% 1,556 23% 1,562 19% 29,074 29% 2004 1,318 2% 2,539 9% 2,111 36% 2,015 29% 33,251 14% 2005 1,028 -22% 2,337 -8% 2,176 3% 1,669 -17% 27,444 -17% 2006 898 -13% 2,068 -12% 2,234 3% 1,756 5% 25,563 -7% 2007 1,160 29% 2,425 17% 2,348 5% 1,953 11% 26,538 4% Forecasts 2008* 1,025 -12% 2,129 -12% 2,072 -12% 1,729 -11% 23,806 -10% 2009* 966 -6% 1,992 -6% 1,774 -14% 1,516 -12% 23,364 -2% 2010* 1,040 8% 2,017 1% 1,765 -1% 1,539 2% 25,161 8% Source: Statistics New Zealand; * Infometrics forecasts (1) Annual percentage change Consent numbers are likely to ease over strengthening economic performance. the next 18-24 months, but the downturn With both interest rates and net migration is expected to be relatively mild. In the gradually becoming more favourable for short-term, the recent momentum in the property market, house price growth house prices will ensure construction is forecast to recover and lead to a new activity holds up reasonably well. A burst of residential construction. The modest decrease in house prices through annual consent total is predicted to climb 2008 and into early 2009 is likely to drag to 25,161 dwellings by mid-2010. the annual build rate down to 23,364 in mid-2009. Households’ real disposable incomes are expected to be bolstered in 2009/10 by personal income tax cuts and a New ways of thinking™ 15 Northland State of play sales activity for New Zealand as a whole. House price growth is forecast to slow to However, sales activity has stabilised 1.1%pa by June 2008, with a 5.3% drop House prices over the last 12 months, with year-ended in average prices over the year to June After consistently slowing during 2006, growth reaching -1.7% in June this year, 2009. house price growth in Northland has and turning positive in August for the first regained momentum throughout much Population time since 2004. of 2007. Price growth had eased from The current downward trend in net 27.4%pa in June 2005 to 7.6%pa by Rents international migration is likely to drag January this year, but accelerated to Rental growth in Northland has remained Northland’s population growth lower 16.5%pa in June 2007. Although the relatively strong in the last year, with over the next year. Increased departure upward trend in the median price over rents climbing 10.8% over the 12 months numbers will have a direct effect on recent months is in line with nationwide to June. An improvement in rental Northland, while slower population figures, some of the lift may be a result of yields looked to be occurring in the growth in Auckland may also reduce the fewer lower-priced properties being sold. second half of 2006, but with the recent flow of people shifting out of the city and increase in house price growth, gross into Northland. Northland’s population Population rental yields have continued to hover growth is forecast to average 0.4%pa Northland’s population growth over the around the 4% mark. A shortage of rental over the next three years. year to June 2007 is estimated at 0.6%pa, accommodation may lead to further rent slightly down on the 0.7%pa average of House sales increases over the next year. the previous five years. The decline has The current small improvement in sales been caused by weaker international Construction volumes in Northland is not expected to migration figures, with departures Growth in new house construction be sustained into 2008. A 14.7% drop reaching a record high and arrivals in Northland has dipped below the in sales is forecast for the year to June easing to a six-year low. Nevertheless, nationwide average this year for the 2008, with a further 4.8% decline in the interprovincial migration into Northland first time since 2003. However, building following year. Sales are predicted to continues to improve, primarily due to activity in the region is still at elevated stabilise at around 2,300pa in 2009/10 an increasing number of people moving levels. The new dwelling consent total for as interest rates ease, but investor into the region from Auckland. Although the year to June 2007 of 1,373 has only demand will remain relatively soft. Northland’s unemployment rate is been surpassed by activity in the year to still one of the highest in the country, Construction June 2004. employment growth until recently has House building activity has been held been relatively strong, which has helped Forecast at high levels as a result of strong price underpin the region’s population growth. House prices growth, but softer house prices and high financing costs are likely to discourage House sales A smaller proportion of lower-priced some developers from beginning new houses being sold may be masking a House sales growth in Northland has projects over the next two years. Slower softening trend in house price growth now been consistently weaker than population growth will also result in in Northland. Low rental yields, high the national average for the last two a lower rate of underlying demand for interest rates, and slowing economic years. The annual sales total has now new houses. The annual consent total is growth in the region are expected to feed dropped 26% since peaking in April forecast to drop 19.1% over the two years through into weaker buyer demand for all 2004, compared to a 16.0% decline in to June 2009, and will underperform property in Northland over the next year. nationwide trends right throughout the forecast period. 16 www.pmigroup.co.nz “A smaller proportion of lower-priced houses being sold may be masking a softening trend in house price growth in Northland.” Median house prices ($000) Northland Median house prices ($000) Graph 4.1: Northland median house prices ($000) Northland 350 350 300 300 250 250 200 200 150 150 100 100 50 93 95 97 99 01 03 05 07 09 50 Graph 4.195 93 97 99 01 03 05 07 09 Graph 4.1 Annual house sales tot la Graph 4.2: Northland annual house sales total Northland Annual house sales tot la Northland 4,000 4,000 3,500 3,500 3,000 3,000 2,500 2,500 2,000 2,000 1,500 1,500 1,000 93 95 97 99 01 03 05 07 09 1,000 Graph 4.295 93 97 99 01 03 05 07 09 Graph 4.2 New ways of thinking™ 17 Auckland State of play Rents national average until late 2008, before Anecdotal reports of a shortage of rental picking up to 6.2%pa by mid-2010. Land House prices accommodation in Auckland earlier this constraints remain an issue that will Auckland house price growth accelerated underpin ongoing increases in Auckland year line up with an acceleration in rental to 13%pa over the year to June 2007, property values over the medium-term. growth. Rental growth had eased to the fastest growth since 2004. North 2.6%pa in September last year, but was Shore has been the leading area in Population back up at 4.1%pa in June 2007, and had terms of price growth over the last year. Weaker net migration is likely to lower lifted to 5.2%pa by August 2007. Rental While many provincial areas have been Auckland’s population growth to 1.3%pa yields are under the most downward enjoying a rapid lift in property values over the year to June 2008. A decline pressure in Rodney and North Shore, but over the last three years, the Auckland in immigration approval numbers will have recovered slightly over the last few region has been more subdued as net negatively affect the number of people months across most of the rest of the migration has slowed and the market has arriving in Auckland, while faster region. adjusted to an oversupply of apartments. economic growth in dairy-intensive Construction regions (such as Waikato) is likely to Population Residential building consent numbers encourage people to continue moving Auckland’s population growth was out of Auckland. The region’s population dropped to a 13-year low of 6,781 in boosted to an estimated 1.7%pa over the growth is forecast to recover to 1.7%pa Auckland over the June 2007 year. The June 2007 year as international arrival by mid-2010, in line with faster economic large decline in activity has been felt right numbers reached a three-year high. growth and a gradual recovery in net across the Auckland urban area. This Increasing numbers of births, particularly migration. year, apartment consent numbers have in North Shore and Manukau, have also fallen to their lowest level since 2001, contributed to the expanding population. House sales and the non-apartment consent total has However, interprovincial migration It is expected that the early signs of a not been lower since 1993. Sustained remains a negative for population slowdown in house sales activity will growth in building costs, land prices, growth in Auckland, with Wellington and develop into a full-blown downturn in the consent fees, and development levies Manawatu-Wanganui the only regions not Auckland real estate market over the next has limited the viability of new residential to experience a net population gain from 12 months. Sales volumes are forecast to developments. Auckland over the five years between the drop 26.6%pa over the two years to June 2001 and 2006 censuses. Forecast 2009, closely following the nationwide House prices trend in activity. A gradual recovery is House sales likely from mid-2009, but the market Auckland’s resurgence in house price At 8.1%pa, growth in house sales in is not expected to return to the heights growth is unlikely to continue in 2008. Auckland was slightly stronger than the reached between 2002 and 2007. High house prices in the region mean national average over the year to June that buyers (both owner-occupiers and Construction 2007. Auckland’s improved performance investors) have a more heightened reflects the domestic economy’s good With Auckland’s residential build rate sensitivity to interest rates. The slowdown start to 2007. The most recent data already at a 13-year low, it seems unlikely in domestic economic activity will result suggests that buyer interest is starting to that the number of new consents will in weaker economic growth in Auckland, fade, with growth dipping to 5.8%pa by decline much further. A further 6% and it will take some time for the lift August. So far, the emerging slowdown fall in dwelling numbers is predicted in agricultural incomes to flow through has been most noticeable in North Shore over the year to June 2008, before a into the Auckland economy. House price and Waitakere. strong recovery through to 2010 lifts growth is expected to track close to the 18 www.pmigroup.co.nz “While many provincial areas have been enjoying a rapid lift in property values over the last three years, the Auckland region has been more subdued as net migration has slowed and the market has adjusted to an oversupply of apartments.” Median house prices ($000) Median house prices ($000) the consent total by almost 40% over Graph 5.1: Auckland median house prices ($000) Auckland a two-year period. Much of the pick-up Auckland 600 in construction work will be driven by 600 traditional housing and townhouses. 500 500 Apartment construction is forecast 400 to recover from its current lows, but 400 increased building costs (including high 300 300 development levies) and buyer caution will ensure the construction focus is 200 200 firmly on good-quality developments. 100 Even by 2010, the rate of apartment 100 building in Auckland is expected to be 0 0 93 95 97 99 01 03 05 07 09 less than half the peak rate reached in 93 95 97 99 01 03 05 07 09 2004. Graph 5.1 Graph 5.1 a Annual house sales tot l Annual house sales tot a Graph 5.2: Auckland annuallhouse sales total Auckland Auckland 45,000 45,000 40,000 40,000 35,000 35,000 30,000 30,000 25,000 25,000 20,000 20,000 15,000 15,000 93 95 97 99 01 03 05 07 09 93 95 97 99 01 03 05 07 09 Graph 5.2 Graph 5.2 New ways of thinking™ 19 Waikato/Bay of Plenty/Gisborne State of play Rents Population Rental growth in WBG has held in the 5- An ongoing deterioration in New House prices 7%pa range over the last year. However, Zealand’s net migration flows into 2008 After a period of very strong growth over with rents increasing more slowly than is likely to affect population growth in 2004 and 2005, house price growth in house prices, gross yields have been WBG, as more New Zealanders choose to Waikato/Bay of Plenty/Gisborne (WBG) has dragged down from 4.5% to 4.2%. The move overseas. The region’s population been more consistent with the nationwide greatest downward pressure on yields has growth is forecast to average 0.5%pa over average over 2006 and 2007. Price growth occurred in the Gisborne area, where rapid the next three years. Nevertheless, the in June was 13%pa. As with much of the house price growth has lowered yields region will still offer a cheaper alternative rest of the country, house price growth from 4.7% to 4.0% over the last year. to living in Auckland. Commercial and gained momentum in early 2007 before industrial growth over the medium-term levelling off in the middle of the year. Construction in Hamilton and Tauranga suggest that Gisborne recorded house price growth of Residential construction in WBG has been the region’s economy will continue to 21.4% over the year to June 2007. among the strongest in the North Island expand healthily. over the last year, with dwelling consent Population numbers over the 12 months to June 2007 House sales WBG’s population growth over the year up 7.8% on the previous year. Growth in The rally in house sales activity over to June 2007 was estimated at 0.7%, the construction activity has been strongest late 2006 appears to have slowed over weakest result in six years. The slowdown in Waikato, at 15.9%pa, boosted in part the last few months, with annual sales in population growth has primarily been by a consistent upward trend in the growth turning negative again by August due to an increasing number of people number of apartments being built in this year. The trend in sales activity in heading overseas over the last four years. Hamilton. WBG is expected to be consistent with International departure numbers have nationwide movements over the next 2-3 now passed the previous peak in the Forecast years, and sales volumes are forecast to 2000/01 year. Interprovincial population House prices decline 23.9% between June 2007 and flows have remained steady, with WBG June 2009. High interest rates and slower attracting large numbers of people from The momentum in house prices in WBG population growth will be the main Auckland, with a significant inflow also is forecast to fade over the next 12- negative drivers of real estate activity from Taranaki/Manawatu/Wanganui. 18 months, and annual price falls are until 2009. possible by late 2008 or early 2009. Low House sales rental yields will discourage investors Construction House sales growth in WBG has from purchasing property, and slower The recent strength in the WBG consistently tracked below the national population growth is expected to lead to construction sector is forecast to unwind average since mid-2005, following weakness in the owner-occupied market over the next three years. Although a period of very strong sales growth as well. After a forecast 3.9% fall in prices consent numbers are forecast to fall by between 2002 and 2005. Sales volumes over the year to June 2009, a recovery a similar rate to the national total until have dropped 11.4% over the last two is predicted over the following year as mid-2008, the forecast over the following years, compared to a 1.7% increase in the region’s economy benefits from a two years sees a 5.7% rise in nationwide activity nationwide. Within the region, the sustained lift in dairy incomes. consents, but a 6.5% decline in new Bay of Plenty market enjoyed a strong lift dwellings in WBG. The largest slowdown in sales in the first part of 2007, although in construction within the region is likely activity was starting from a relatively low to occur in Waikato. base after a soft performance in 2006. 20 www.pmigroup.co.nz “As with much of the rest of the country, house price growth gained momentum in early 2007 before levelling off in the middle of the year.” Median house prices ($000) Median house prices ($000) Waikato / Bay of Plenty / Gisborne Graph 6.1: Waikato/Bay of Plenty/ Gisborne median house prices ($000) Waikato / Bay of P 350 lenty / Gisborne 350 300 300 250 250 200 200 150 150 100 100 50 50 93 95 97 99 01 03 05 07 09 93 95 97 99 01 03 05 07 09 Graph 6.1 Graph 6.1 a Annual house sales tot l Annual house sales of la Graph 6.2: Waikato/Baytot Plenty/ Gisborne annual house sales total Waikato / Bay of Plenty / Gisborne Waikato / Bay of P 21,000 lenty / Gisborne 21,000 19,000 19,000 17,000 17,000 15,000 15,000 13,000 13,000 11,000 11,000 9,000 9,000 7,000 7,000 93 95 97 99 01 03 05 07 09 93 95 97 99 01 03 05 07 09 Graph 6.2 Graph 6.2 New ways of thinking™ 21 Hawke’s Bay State of play Rents Population Rental growth has slowed in Hawke’s Bay The increasing flow of New Zealanders House prices over the last year, but was still close to heading overseas is anticipated to affect After an extended period of strong house 6.0%pa by the middle of 2007. Sluggish Hawke’s Bay’s population growth over price growth between 2003 and 2005, the price growth throughout much of 2006 the next 2-3 years, dragging population Hawke’s Bay housing market was one of has provided some scope for gross rental growth down towards 0%pa. The the country’s weakest performers over yields to improve, and they recovered region’s unemployment rate (including 2006, with price growth falling as low as from a low of 4.4% in early 2006 to Gisborne) is now the highest in the 2.0%pa in September last year. However, 4.7% by June this year. Average yields country, averaging 4.6% over the year the market regained momentum until in Hawke’s Bay are now at their furthest to June 2007. The possibility of better mid-2007, with house price growth above the national average in more than job prospects elsewhere is also likely to reaching 9.2%pa by June this year. four years. keep a limit on Hawke’s Bay’s population Holiday houses are an important facet growth. of the property market in Hawke’s Bay, Construction meaning that price growth in the region is A number of apartment projects have House sales likely to be relatively sensitive to shifts in disturbed the trend in residential Sales growth is forecast to be consistent consumer confidence. construction activity in Hawke’s Bay over with the nationwide trend over the next Population the last two years. Year-end growth has three years, with a 26.1% fall in sales bounced around from 43.0%pa in March volumes predicted over the two years to Hawke’s Bay’s estimated population 2006 to -18.4%pa in March 2007, but June 2009. The risks to this forecast are growth lifted slightly over the year to lifted again to 1.7%pa by August this probably on the downside, with demand June 2007, from 0.2% to 0.3%pa. This year. Growth in building activity is even for holiday houses and coastal property improvement was caused by an increased stronger when apartments are excluded, likely to come under the most pressure if birth rate in the region, with the number at 9.8%pa. economic growth remains soft for longer. of births climbing to a ten-year high. Both international and interprovincial Forecast Construction net migration numbers were stable over House prices Hawke’s Bay’s high level of residential the last year. Hawke’s Bay typically construction activity is inconsistent with gains a significant number of residents The recent momentum in house price the region’s slow population growth. from Auckland and Gisborne, but loses growth is likely to continue into 2008. The recent increase in building consent residents to Wellington, Canterbury, and Given the soft patch in property values numbers is likely to slow in early 2008, Otago (often for tertiary study). that occurred in Hawke’s Bay in 2006, and a 21.1% drop in activity is forecast for there is probably less risk of a downward House sales the year to June 2009. Consent numbers correction in house prices in Hawke’s House sales growth in Hawke’s Bay are forecast to reach a six-year low in Bay than in some other provincial areas, has generally run slightly ahead of the 2009 before stabilising over the following but some price falls are anticipated over national average over the last 2-3 years. 12 months. 2008/09. An oversupply of housing Between June 2005 and June 2007, combined with relatively weak population house sales volumes in Hawke’s Bay growth is expected to result in a 2.3% fall lifted 5.6%, compared to a 1.7% rise in in prices over the year commencing June nationwide activity. Growth in Hawke’s 2009. Bay has started slowing since April this year, but by August was still slightly faster than the nationwide average. 22 www.pmigroup.co.nz “Given the soft patch in property values that occurred in Hawke’s Bay in 2006, there is probably less risk of a downward correction in house prices in Hawke’s Bay than in some other provincial areas.” Median house prices ($000) Hawkes Bay Median house prices ($000) Graph 7.1: Hawke’s Bay median house prices ($000) Hawkes Bay 350 350 300 300 250 250 200 200 150 150 100 100 50 93 95 97 99 01 03 05 07 09 50 Graph 7.1 95 93 97 99 01 03 05 07 09 Graph 7.1 a Annual house sales tot l Graph 7.2: Hawke’s Bay annual house sales total Hawkes Bay a Annual house sales tot l Hawkes Bay 4,500 4,500 4,000 4,000 3,500 3,500 3,000 3,000 2,500 2,500 2,000 93 95 97 99 01 03 05 07 09 2,000 Graph 7.295 93 97 99 01 03 05 07 09 Graph 7.2 New ways of thinking™ 23 Taranaki/Manawatu/Wanganui State of play and Wanganui meant that turnover for the Forecast region as a whole fell 0.8% over the year House prices House prices to June 2007. After a period of very strong House price growth in Taranaki/ turnover, buyer demand in the Wanganui Property values in TMW are forecast to Manawatu/Wanganui (TMW) has market in particular appears to be easing be the worst performing in the country outpaced nationwide house price growth significantly. over the next 24 months, with an average for the last three years. Since June 2004, decline of 8% predicted over the two house prices in the region have risen Rents years to June 2009. An oversupply by 85.4%, almost double the national Gross rental yields dropped to a new of housing in the region, a shrinking increase of 42.8% over the same period. low of 4.6% in April this year, but growth population, and reduced demand from The largest increase, of 110.9%, has in rents climbed to a two-year high of investors given high mortgage rates occurred in Wanganui. In June this year, 9.4% by June. Combined with slowing will all contribute to house price falls. price growth was still running at 18.1%pa, house price growth, the lift in rents has Wanganui is likely to be most impacted, but by August growth had eased to led to a small recovery in yields over with prices predicted to drop by more 11.5%pa, which was slower than national recent months. The biggest increase than 11% over the next two years. house price growth for the first time since in yields has come in Taranaki, where Population mid-2004. House price growth in Taranaki rental inflation is still strong at 11.2%pa. has slipped into single figures for the first Yields in Taranaki have increased 0.6 TMW’s population is forecast to shrink time since 2003. percentage points over the last six by 0.7%pa on average over the next months and are now at their furthest three years. The region’s unemployment Population rate has edged higher over the last two above the national average in over two TMW’s population shrank by an years. A substantial reduction in housing years and is now the third highest in estimated 0.4% over the year to June affordability in Taranaki since 2003/04 the country behind Gisborne/Hawke’s 2007, as overseas departure numbers has meant that the rental market has Bay and Northland. Net international from the region increased to their highest stayed strong in that part of the region. migration is likely to continue rising as level since 2000/01. Within the region, people head overseas, and there is no Manawatu’s population growth eased Construction sign of the flow of people moving into to a six-year low, but remained positive Residential building activity has now other parts of New Zealand diminishing at 0.1%pa. Taranaki’s population fell been continually increasing for over either. by 0.3%, while Wanganui lost 1.5% of six years in TMW. Between June 2001 House sales its population. In terms of population and June 2007, the number of new movements within New Zealand, TMW dwelling consents in the region rose Weak buyer demand is likely to become loses the largest numbers to Waikato, 135.7%, compared to a 37.2% rise in increasingly apparent in the TMW Canterbury, Bay of Plenty, Wellington, activity nationally. Activity in Taranaki housing market over the next 12 months, and Otago. (up 265.2%) and Wanganui (up 204.3%) and sales volumes are forecast to fall has more than trebled over the six-year 23.8% over the two years to June 2009. House sales Investor demand has been one of the big period. Construction work in Manawatu Sales activity in TWM failed to and Wanganui remains buoyant, drivers of the region’s market over the demonstrate the increase that was but there are signs of a slowdown in last few years, but with the gap between evident across much of the rest of the Taranaki, with consent numbers falling TMW and nationwide rental yields having country in late 2006 and early 2007. 2.4% over the year to June 2007. closed from 2.5 percentage points to 0.5 Taranaki recorded a small upturn in sales percentage points since early 2003, there volumes, but poor results in Manawatu is likely to be much less interest from investors going forward. 24 www.pmigroup.co.nz “House price growth in Taranaki has slipped into single figures for the first time since 2003.” Median house prices ($000) Median house prices ($000) Construction Taranaki/M anawatu/Wanganui Graph 8.1: Taranaki/Manawatu/Wanganui median house prices ($000) Taranaki/M anawatu/Wanganui The signs of lower construction activity 300 300 in Taranaki are set to spread into other parts of the region as house price growth 250 250 continues to ease. The annual consent 200 total is forecast to decline 31.2% over the 200 next two years, a much larger drop than 150 the 22.4% predicted for New Zealand 150 as a whole. Falling property values 100 and a shrinking population base are 100 strong impediments to new residential 50 developments going ahead. 50 93 95 97 99 01 03 05 07 09 93 95 97 99 01 03 05 07 09 Graph 8.1 Graph 8.1 a Annual house sales tot l a Annual house sales tot l Graph 8.2: Taranaki/Manawatu/Wanganui annual house sales total Taranaki/Manawatu/Wanganui Taranaki/M 10,000 anawatu/Wanganui 10,000 9,000 9,000 8,000 8,000 7,000 7,000 6,000 6,000 5,000 5,000 4,000 4,000 93 95 97 99 01 03 05 07 09 93 95 97 99 01 03 05 07 09 Graph 8.2 Graph 8.2 New ways of thinking™ 25 Wellington State of play Rents Population Our index shows rental growth in Net international migration trends House prices Wellington reaching 16.6%pa in June this have remained surprisingly positive for House prices in Wellington have been year, but this figure appears to have been Wellington’s population growth over among the strongest performers in the distorted by a large number of low-quality the last four years. Overseas departure country in late 2006 and early 2007. In units being let in mid-2006. Correcting numbers are still 19.8% below their June this year, house price growth in this anomaly suggests that the underlying 2000/01 peak (compared with the Wellington was running at 16.3%pa, with trend in rental growth is more like 3-5%pa. nationwide figure now just 7.8% below its some of the fastest price growth being Gross yields have been reasonably stable peak), and arrival numbers have held up recorded in suburbs that traditionally over the last year, holding in the 4.3-4.5% as well. We expect the region’s population have a high proportion of rental housing. range, despite anecdotal evidence of good growth to deteriorate as economic growth By August, Wellington’s house price investor demand for rental property earlier slows, with a forecast average of 0.4%pa growth had eased to 12.3%pa, but was this year leading to higher house prices. over the next three years. still ahead of the national average. Construction House sales Population Residential building activity in Wellington The emerging downturn in sales activity Wellington’s population growth was dragged lower in late 2006 and early in Wellington is forecast to continue maintained an estimated 0.9%pa 2007 by a dearth of apartment consents. into 2008, with sales volumes declining over the year to June 2007. Small There were no new apartment projects for six 18.1% over the June 2008 year. Demand improvements in international and consecutive months, the first time such a lull is expected to soften most noticeably in interprovincial migration and a lift in the had occurred since 1995. Total apartment traditional rental suburbs, although the birth rate have all helped the region’s consents for the year to June 2007 were owner-occupied market will be affected population growth edge up over the last down, by more than half on the previous by weaker population growth as well. The two years. Wellington attracts people year, to 182. Nevertheless, the trend in overall forecast for sales activity in the from most other regions around the traditional house construction remains Wellington region over the next 2-3 years is country (Auckland being the most notable positive, with non-apartment consents up broadly in line with the nationwide trend. exception), with the largest net inflows 10.8% over the year to June 2007. coming from Taranaki and Hawke’s Bay. Construction Forecast Residential building activity is likely to House sales House prices be decrease over the next two years in Sales activity in the Wellington region Wellington, with the consent total in outperformed the national average The slowdown in house price growth in 2009 forecast to decline to a 12-year low. between mid-2005 and early 2007. Over Wellington is expected to continue until The relatively high level of apartment the two years to June 2007, house sales early 2009. The strength of investor demand development in Wellington over the last volumes in Wellington climbed 6.2%, over 2006/07 is fading as prices have few years is expected to take some time compared to a 1.7% lift for New Zealand lifted and financing costs have increased. to be absorbed by the market, and so as a whole. However, the region’s Potential buyers are also likely to be the rate of new apartment construction property market has shown signs of cautious ahead of next year’s election, as is likely to be subdued over the next two softness over the last few months. Sales the possibility of a change of government years. Faster economic and house price growth eased to 0.4%pa in June this year could affect public sector employment in growth are predicted to lead to a 13.9% and had slipped to -0.4%pa by August. Wellington. House prices are forecast to rise in consent numbers over the June rise just 1.6% over the two years to June 2010 year. 2009 before regaining momentum with a 5.3% increase for the June 2010 year. 26 www.pmigroup.co.nz “By August, Wellington’s house price growth had eased to 12.3%pa, but was still ahead of the national average.” Median house prices ($000) Median house prices ($000) Wellington Graph 9.1: Wellington median house prices ($000) Wellington 450 450 400 400 350 350 300 300 250 250 200 200 150 150 100 100 93 95 97 99 01 03 05 07 09 93 95 97 99 01 03 05 07 09 Graph 9.1 Graph 9.1 a Annual house sales tot l a Annual house sales tot l Graph 9.2: Wellington annual house sales total Wellington Wellington 14,000 14,000 13,000 13,000 12,000 12,000 11,000 11,000 10,000 10,000 9,000 9,000 8,000 8,000 7,000 7,000 6,000 6,000 93 95 97 99 01 03 05 07 09 93 95 97 99 01 03 05 07 09 Graph 9.2 Graph 9.2 New ways of thinking™ 27 Nelson/Marlborough State of play Rents property values over 2006/07, particularly Rental growth in NM has responded to with the supply of property rapidly House prices the increase in house price growth in late increasing as new dwellings are completed. After house price growth peaked at more 2006, with rents up 9.1% over the year than 50%pa in Nelson/Marlborough (NM) Population to June 2007. Housing is still relatively in 2003, the region’s property market The net international migration outflow unaffordable in the region following was much weaker in 2004 and 2005. over the year to June 2007 suggests the large lift in prices in 2003 and However, price growth of 13.9%pa over slower population growth over the next 2004, implying that demand for rental the last year exceeded the nationwide few years for NM. Slower economic accommodation remains strong. Gross average for the first time in three years. growth will result in a further increase in yields are slightly down on where they Recent data shows the Marlborough the number of people heading overseas were a year ago, but have recovered from market is stronger than its Nelson from the region, lowering population a low of 4.0% in December 2006 to 4.3% counterpart, with prices in August up growth to an average of 1.1%pa over the by August 2007. Rental growth has been 18% from a year ago in Marlborough, next three years. Within the region, the consistent across the region, meaning compared to a 7.3% rise in Nelson. Tasman District is likely to be the fastest that yields have been squeezed a bit growing area, particularly in the eastern Population more in Marlborough as house prices areas close to Nelson. have been rising more quickly. NM’s population growth has held steady at 1.3%pa for each of the last three years, House sales Construction although we note that net international The signs of slowing sales growth are The annual consent total in NM jumped migration turned negative in 2006/07 predicted to intensify heading into 2008. 29.2% over the year to June 2007, a for the first time since 2001 as departure The NM market is forecast to be a worse clear reflection of increased demand for numbers have continued to rise. The performer than the national average over property and rising house prices. The lift region’s lifestyle means that it remains a the year to June 2008, with a 21.8% drop was most pronounced in Nelson City, popular destination for people to move in sales activity predicted. Recovering where consent numbers were up 49.1% to from most other parts of New Zealand population growth over 2009/10 is likely on the previous 12 months. Nevertheless, (especially Auckland). The only net outflow to lead to a robust recovery in buyer activity in Nelson (including the Tasman of any significance is to Canterbury. demand and sales volumes, particularly District) is still 21.8% below the peak in Nelson and Tasman, with growth House sales reached in 2003. Consent numbers in reaching 12.3%pa by mid-2010. Marlborough have recently surpassed the Changes in house sales volumes in NM previous highs reached between 2004 Construction are still slightly errant, and more amplified, and 2006. than shifts in activity at a nationwide level. Building activity in NM is likely to Sales growth in NM peaked at 21.2%pa Forecast ease over the next two years in line in February this year, but growth had with broader weakness in the housing House prices eased to 9.4%pa in June and 1.1%pa by market. An oversupply of new houses is August. A lack of house price growth in The current momentum in house prices expected to lead to a 15.9% decline in 2004 and 2005 eventually appears to have in NM is forecast to slow in the coming dwelling consents over the June 2008 encouraged buyers back into the market. months, with price growth predicted to year. Construction in Nelson is forecast However, high interest rates and the decrease to 3.6%pa by June 2008. On to start recovering from mid-2009, but renewed increase in prices this year have average across the region, price falls are the Marlborough market is expected to started to quell demand, as has been the not expected over the next two years. remain oversupplied for longer and not case across most of New Zealand. However, small price falls are possible in stabilise until 2010. Marlborough following the strong lift in 28 www.pmigroup.co.nz “Recent data shows the Marlborough market is stronger than its Nelson counterpart, with prices in August up 18.0% on a year ago in Marlborough, compared to a 7.3% rise in Nelson.” Median house prices ($000) Nelson/Marlborough ($000) Median house prices Graph 10.1: Nelson/Marlborough median house prices ($000) Nelson/Marlborough 400 400 350 350 300 300 250 250 200 200 150 150 100 93 95 97 99 01 03 05 07 09 100 Graph 10.1 93 95 97 99 01 03 05 07 09 Graph 10.1 a Annual house sales tot l Graph 10.2: Nelson/Marlborough annual house sales total Nelson/Marlboroughtot l Annual house sales a Nelson/Marlborough 4,500 4,500 4,000 4,000 3,500 3,500 3,000 3,000 2,500 2,500 2,000 93 95 97 99 01 03 05 07 09 2,000 Graph 10.2 93 95 97 99 01 03 05 07 09 Graph 10.2 New ways of thinking™ 29 Christchurch State of play Rents Christchurch and cool property prices. Rental growth has accelerated slightly House prices Population over the last year, with average rents House price growth in Christchurch The nationwide lift in people heading rising 5.5% over the 12 months to June accelerated over the second half of 2006 overseas has yet to be reflected in 2007. However, with rents increasing and into 2007. Price growth had lowered Christchurch’s population figures, but more slowly than house prices, gross to 6.5%pa in September last year, but it is expected to materialise over the yields have been pushed down from by June 2007 was stable at 13.7%pa. A coming year. The city’s population growth 4.5% to 4.2% since mid-2006. But with number of the areas with stronger price is forecast to ease to 0.6%pa in 2007/08, population growth holding over 1%pa, growth are suburbs with a relatively high its slowest rate since 2001. Population demand for rental accommodation proportion of rental housing. growth will not be helped by signs of an remains more buoyant than might have increase in the region’s unemployment Population been expected, and may lead to further rate, which may be due to the difficult rent increases over the next year as Christchurch’s estimated population trading conditions that have been faced landlords look to restore yields. growth for the 2006/07 year was by manufacturers. 1.1%, in line with the average of the Construction previous two years. International and House sales The residential building rate in interprovincial migration flows have been Sales volumes in Christchurch are Christchurch rose 17.3% over the year relatively stable over the last three years. predicted to fall by 25.1% over the next to June 2007, substantially more than Christchurch enjoys a net population two years as buyer demand for property the 3.8% increase recorded nationally. gain from almost every other part of New cools. Employment growth within the city Apartment building in the city has Zealand, but continues to lose people to itself is likely to be relatively subdued, climbed to an all-time high, with the areas surrounding the city that are within and it will take some time before the number of apartment consents more commuting distance. effects of strong dairy prices create an than tripling between June 2006 and economic and housing market recovery in House sales June 2007. Apart from a brief increase in Christchurch. activity in 2004, the apartment market House sales growth in Christchurch in Christchurch had been relatively quiet Construction reached 9.1%pa in April this year, but since 2001. However, it now looks to have had slowed to 1.7%pa by June. Sales Christchurch’s slower property market worked through the oversupply that was volumes have since started to decline, will lead to a lower rate of house created by a rapid rate of construction and the trend in activity is worse than building activity over the next two years. between 1997 and 2001. the nationwide average for the first time Apartment consent numbers are currently in 3_ years. At this stage, buyer demand Forecast elevated but are forecast to ease from is holding up well in the southern and 394 in the year to June 2007 to between House prices south-eastern part of the city. 200 and 270 over each of the next two House price growth in Christchurch is years. Weak house price growth will forecast to slow in 2008 in line with the also result in less construction of new nationwide trend, and some price falls townhouses and standalone housing, are possible over 2008/09. Weaker with total activity forecast to fall 17.9% growth in domestic spending will over the two years to June 2009. negatively affect economic growth in 30 www.pmigroup.co.nz “As has been the case in a number of other regions, house price growth in Christchurch accelerated over the second half of 2006 and into 2007.” Median house prices ($000) Christchurch Median house prices ($000) Graph 11.1: Christchurch median house prices ($000) Christchurch 400 400 350 350 300 300 250 250 200 200 150 150 100 97 98 99 00 01 02 03 04 05 06 07 08 09 100 Graph 11.1 99 97 98 00 01 02 03 04 05 06 07 08 09 Graph 11.1 Annual house sales tot l a Graph 11.2: Christchurch annual house sales total Christchurch Annual house sales tot l a Christchurch 12,000 12,000 11,000 11,000 10,000 10,000 9,000 9,000 8,000 8,000 7,000 7,000 6,000 6,000 5,000 93 95 97 99 01 03 05 07 09 5,000 Graph 11.2 93 95 97 99 01 03 05 07 09 Graph 11.2 New ways of thinking™ 31 Provincial Canterbury/Westland State of play Rents come under pressure as persistently high Rental growth has generally held in the 6- oil prices make commuting for a significant House prices 9%pa range in PCW over the last year, with distance more expensive residents. House price growth in Provincial growth of 6.6%pa for the 12 months to June Canterbury/Westland (PCW) was higher Population 2007. Gross rental yields have drifted down to than the nationwide average between Two factors are expected to result in slower 4.3%, but demand for rental accommodation 2004 and late 2006. Average prices in population growth in PCW over the next remains relatively strong across the region, PCW are now 112.3% higher than they three years. Slower population growth in particularly on the West Coast. There is scope were four years ago, compared with a Christchurch is likely to lead to a reduced for further rent increases over the next year 68.2% increase nationally. Price growth migration of people into the surrounding as landlords look to boost yields. eased to 12.6%pa in June this year, but areas. The increase in the number of as in most other provincial areas, has Construction New Zealanders moving overseas is also remained at high levels for longer than Residential construction levels have expected to affect population growth in had been expected given the region’s continued to rise over the last year in PCW, with a lift in the number of departures performance historically. PCW, reaching a new record high of 2,348 from the region. Population growth in the dwelling consents over the 12 months to region is forecast to average 0.8%pa over Population June 2007. The annual consent total has the next three years. PCW’s population growth held at an more than doubled from its low point in estimated 1.2%pa in the year to June House sales 2001. The Selwyn and Ashburton Districts 2007. Although international departure The rally in real estate activity between have been among the biggest contributors numbers have been steadily increasing mid-2006 and mid-2007 has shown early to the lift in activity, while construction over the last four years, this trend has signs of cooling over the last few months. By in Kaikoura, Buller, Grey, and Waimate is been offset by a greater number of June 2008, the annual house sales total is also at historically high levels. people arriving from overseas. The spill- expected to be down 21.9%pa, with a further over of people from Christchurch into Forecast 7.8% fall over the next 12 months. Sales the surrounding areas has continued its volumes in the Selwyn area are likely to House prices contribution to population growth as well. come under the most downward pressure. PCW’s house prices are expected to House sales maintain some momentum until early Construction The pick-up in sales activity in PCW this 2008, but a period of flat or falling property An oversupply of new housing in PCW is year has been relatively strong, with values within the next 2-3 years appears expected to be evident over the coming volumes up 10.8% over the 12 months inevitable given the substantial lift in year. The Selwyn District currently has the to June 2007 (compared to 4.8% for all prices that has occurred since 2003. The highest build rate in New Zealand, with New Zealand). The strength of activity in very high build rate in many parts of the the number of new building consents neighbouring Christchurch, combined region also suggests that an oversupply over the year to June 2007 equivalent to with the confidence boost caused by the of housing is developing, which will limit about 6.3% of the area’s dwelling stock large rise in dairy prices, appears to have further price growth. Some caution may be (the nationwide average was 1.6%). This underpinned the ongoing demand for needed when interpreting median price housing oversupply and falling house property in the region. North Canterbury, figures for the region due to an increasing prices are likely to lead to a significant Timaru, and the West Coast have been proportion of activity taking place in areas downturn in house building, with the weakest performers of the region over close to Christchurch (where land and consent numbers forecast to fall 24.4% the last year. property values are naturally higher than in in PCW over the two years to June 2009. outlying parts of the region). Additionally, Nationally, the decline over the same land values outside Christchurch could also period is expected to be just 12%. 32 www.pmigroup.co.nz “House price growth in Provincial Canterbury/ Westland (PCW) ran ahead of the nationwide average between 2004 and late 2006.” Median house prices ($000) Provincial Canterbury/Westland Median house prices ($000) Graph 12.1:Canterbury/Westland Provincial Provincial Canterbury/Westland median house prices ($000) 300 300 250 250 200 200 150 150 100 100 50 97 99 01 03 05 07 09 50 Graph 12.1 99 97 01 03 05 07 09 Graph 12.1 Annual house sales tot la Graph 12.2:Canterbury/Westland Provincial Provincial Canterbury/Westland annual house sales total Annual house sales tot la Provincial Canterbury/Westland 6,000 5,500 6,000 5,000 5,500 4,500 5,000 4,000 4,500 3,500 4,000 3,000 3,500 2,500 3,000 2,000 2,500 93 95 97 99 01 03 05 07 09 2,000 Graph 12.2 93 95 97 99 01 03 05 07 09 Graph 12.2 New ways of thinking™ 33 Otago/Southland State of play the highest in the country apart from Population Wanganui. Population growth in the region is House prices forecast to average 0.2%pa over the After slipping as low as 4.0%pa earlier Rents next three years, slightly lower than the in 2007, house price growth in Otago/ Rental growth over the year to June 0.3%pa average of the last three years. Southland (OS) recovered to 10.7%pa 2007 was relatively subdued in OS, with International migration flows will be less by June this year. However, region-wide average rents in the region rising by just favourable for the region, although the numbers do not tell the full story. Price 3.7%. Gross yields have drifted slightly effects are expected to be partly offset growth has remained subdued in Coastal lower across most of the region. The by some improvement in the region’s Otago at 5.7%pa, while prices in Central largest decline in yields has occurred in interprovincial population movements. OS Otago Lakes remain volatile, and by Southland, dropping from 6% to 5.1% has a net inflow of residents from every August 2007, prices were up 7.4% on the between June 2006 and June 2007, North Island region except Wellington, previous year. Southland has been New despite average rents climbing by 11.2% but loses a large number of people to Zealand’s star performer over the last over the same period. Demand for rental Canterbury. 12 months. The median house price had accommodation remains strong in stagnated at around $127,000 in early Southland, but the Coastal Otago market House sales 2006, but annual growth in June this year is softer than in 2004/05. Sales growth in OS has started to soften had lifted to 29.7%pa, with the median over the last few months, and this trend price now close to $180,000. Construction is expected to continue through until The construction industry in OS has Population early 2009. Sales volumes are predicted responded to the unexpectedly strong Population growth in OS was estimated to fall 27.8% over the two years to June performance by the region’s housing at 0.3% over the June 2007 year, 2009, before staging a modest recovery market between 2002 and 2005 by lifting with that lift almost solely due to the in 2009/10. Medium-term prospects are the residential build rate. Over the last expanding population in Central Otago weakest for Southland given its shrinking two years, consent numbers have risen Lakes. International emigration flow population growth and the likelihood 17% in OS, compared with a 3.3% fall has continued rising across the region of investor demand decreasing from its nationally. The largest rise has been in (particularly from Central Otago Lakes), recent strength. Otago, although growth in the coastal part and are now close to the previous of the region has slowed since late 2006. Construction peak recorded in 2001. Birth numbers Building activity in OS is expected to be have also reached an 11-year high as Forecast weaker throughout most of the next three Queenstown continues to grow. House prices years. Consent numbers are forecast House sales Momentum in house prices in OS is expected to drop 22.4% over the two years to Sales activity has been buoyant in OS, to continue into 2008, with anticipated price June 2009, compared to a 12% decline reflecting strong buyer demand across growth of 6.5%pa still ahead of the national nationally. The largest falls in activity are much of the region. Sales over the year to average (3.9%pa) by June next year. However, likely to be recorded in Southland and June 2007 were up 10.8% on the previous buyer demand will come under pressure as Coastal Otago. However, Central Otago 12 months, and when Coastal Otago is lower yields, high interest rates, and potential Lakes will not be immune to declines. The excluded, growth was up at 14.8%pa. difficulty in finding tenants all start to recent funding problems experienced by Demand for property in Southland has deter investors from property in OS. Small finance companies are likely to negatively probably been largely driven by investors, price falls are forecast in 2009 and 2010, affect the ability of developers to go with property relatively cheap compared with Central Otago Lakes likely to be the ahead with some apartment projects in to other parts of New Zealand, and yields best-performing part of the region. the Queenstown area. 34 www.pmigroup.co.nz “Sales growth in Otago/Southland has started to soften over the last few months, and this trend is expected to continue through until early 2009.” Median house prices ($000) Otago/Southland Median house prices ($000) Graph 13.1: Otago/Southland median house prices ($000) Otago/Southland 300 300 250 250 200 200 150 150 100 100 50 93 95 97 99 01 03 05 07 09 50 93 95 Graph 13.1 97 99 01 03 05 07 09 Graph 13.1 a Annual house sales tot l Graph 13.2: Otago/Southland annual house sales total Otago/Southland tot l Annual house sales a Otago/Southland 11,000 11,000 10,000 10,000 9,000 9,000 8,000 8,000 7,000 7,000 6,000 6,000 5,000 5,000 4,000 93 95 97 99 01 03 05 07 09 4,000 93 95 Graph 13.2 97 99 01 03 05 07 09 Graph 13.2 New ways of thinking™ 35 DISCLAIMER The information contained in this publication has been obtained from Infometrics and does not necessarily represent the views or opinions of PMI Mortgage Insurance Ltd (“PMI”). This publication is provided for informational purposes only and is not intended to constitute legal, financial or other professional advice and has not been provided with regard to the investment objectives or circumstances of any particular reader. While based on information believed to be reliable, no guarantee is given that it is accurate or complete and no warranties are made by PMI as to the accuracy, completeness or usefulness of any of the information in this publication. The opinions, forecasts, assumptions, estimates, derived valuations and target price(s) (if any) contained in this material are as of the date indicated and are subject to change at any time without prior notice. The information referred to may not be suitable for the specific investment objectives, financial situation or individual needs of recipients and should not be relied upon in substitution for the exercise of independent judgement. Recipients should obtain their own appropriate professional advice. Neither PMI or its related parties shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way from the information contained in this material. This material may not be reproduced, redistributed, or copied in whole or in part for any purpose without PMI’s prior written consent. 36 www.pmigroup.co.nz Consider the possibilities with PMI! PMI is dedicated to providing you with the highest level of service and simplified product solutions every time. We draw from our knowledge and expertise to supply you with the resources that you need to stay informed. Experience the difference through our proactive approach and commitment to providing you with solutions that are tailored to grow and support your business. Explore the possibilities available to you today! 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