The cheap end of the apartment market is perking up. A few years ago the shoe box apartment market was grossly over priced. Then when it crashed it became grossly under priced. Now the astute investors are piling in the sure and certain knowledge that another correction is on the way. Apartment prices should settle at around two thirds of their original price and rents will continue upwards strongly in the central city areas.
Published 29 July 2011
Bob Dey ReportHectic bidding saw 4 cbd apartments sold at Ray White City Apartments’ auction yesterday in a value range of $4500-5000/m², well above the price level of a year ago, when auction sellers were lucky to achieve prices at 3500/m².
The flurry of activity was also in sharp contrast to auctions I went to on Wednesday, where bids had to be more painstakingly drawn out. Yesterday’s auction also ended on a quieter note, with no bids on a leasehold unit in the Sebel Suites on the Viaduct Basin. Auction results:
Queen St core
Altitude, 34 Kingston St, unit 17F, 39m², 2 bedrooms, rates & body corp levy $4778/year, rent $360/week fixed to 12 October, sold for $180,000 (Matt Shirley & Judi Yurak)
Uptown
Volt, 430 Queen St, unit 1025, 41m² including balcony, 2 bedrooms, rates & body corp levy $4616/year, rent $380/week fixed to January, sold for $200,000 (Matt Shirley & Judi Yurak)
Volt, 430 Queen St, unit 215, 43m² including balcony, 2 bedrooms, rates & body corp levy $3860/year, rent was $365/week but currently vacant, sold for $180,000 (Matt Shirley & Judi Yurak)
Victoria Quarter
Victopia, 135 Victoria St, unit GJ, 43m², 2 bedrooms, rates & body corp levy $2892/year, current rent #340/week, sold for $195,000 (Harrison Lingard)
Waterfront
Sebel, 85 Customs St West, unit 316, leasehold, one bedroom plus study, ground lease, body corp levy & rates $13,262/year, rental assessment $550-650/week, no bid (Gillian Gibson)
A net 48% of businesses expect better times for the economy over the coming year, up marginally on June.
Sentiment is strong across all the sub sectors, with business confidence levels residing well north of their historical averages. The elevated readings in general business confidence continues to be reflected in respondents’ own activity outlook.
A net 44% of businesses anticipate an increase in activity, up 5 points on June. This continues to be reflected in expected gains in profits (+24, up 4 points), investment (+18, up 3) and employment (+19, up 9).
The July results are tremendously encouraging.
They have been taken amongst a backdrop of global uncertainty, softening commodity prices (from highs), firming expectations that interest rates will be moving up (a net 59 percent of respondents expect higher rates) and a rising currency, though the majority of the New Zealand dollar’s movement over the month occurred after most responses were received.
Our composite growth indicator from the survey is now pointing to 5% growth over the year ahead.
With growth in the first quarter of the year coming in at 0.8% (annualised 3.2 percent) and revisions to prior quarters, the noted mismatch between business sentiment (which has been portending of better times for a year) has been settled. Reality is catching up with the expectations.
With every step along the recovery path different challenges emerge.
New Zealand’s story looks good. Yet on a relative basis to global peers it looks remarkable, and the danger in such instances is that financial markets front-run the story so far via a higher currency and expectations of higher interest rates that one nucleus of support, namely loose financial conditions disappears before the party has moved beyond 9pm.
A net 29% of businesses expect to raise prices.
The latter is not overtly high nor a catalyst to rising rates in itself, though with a net 50% of businesses in the construction sector expecting to lift prices, the RBNZ’s June assumption of subdued construction cost inflation looks wishful thinking.
The construction sector is now leading the charge across confidence, activity, employment, investment and pricing intentions. An emergency policy setting for the OCR is no longer required. An OCR at 2.5 percent is on borrowed time.
The unwind of policy support will present challenges. We are only six months into an expansion phase (well technically nine months by the time the official data catches up!). The New Zealand dollar has been turbo-charged higher of late. The global economy remains frail. A banking sector crisis has been replaced with the potential for a sovereign equivalent.
The global economy desperately needs leadership, yet the fiscal austerity required screams of populist promises of alternative solutions. Beware such promises and magic potions - for typically they are snake-oil. There is much for the RBNZ to monitor and weigh up. The risk is that a relatively uncomplicated decision becomes complicated. Sometimes when you have a job to do, you’re better to just get it done. Brace for interest rates to move up. Call it taking the Official Cash Rate from being extraordinarily low to just exceptionally low.
Auckland residential market continues to firm
NBR
The Auckland property market in June saw the median price drop from $464,000 in May to $461,000, and sales numbers down from 2218 to 2096.
However, Crockers research said the market is stronger than it has been for some time, compared with 2010. At 11,311, sales numbers for the first six months of the year are at their highest since 2007, and the June 11 figure is 27% higher than the 10,305 sales closed in the same month last year.
Similarly, the median sales price is up 3.6% on last June, the strongest house price inflation since 2007.
The movement is greater in Auckland than the rest of New Zealand, where the median sales price is up 2.1% on last year (to $360,000) and the number of sales closed is up 14% compared to last year (to 5229), Crockers said.
Rentals in the Auckland two-bedroom market have been stable for the past three months at about $365 per week, just over 20% higher than the average for the rest of New Zealand.
The three-bedroom market has also stayed steady over the past three months, following significant rises in the earlier part of the year off a January low. In June the average rental price was $486 per week, 30% higher than the national average of about $350 a week.
Crockers suggests that with the Auckland property market strengthening this year, “it’s worth taking another look at Auckland versus the other metropolitan centres, in terms of the relative returns rental properties offer.”
Dunedin rates best for rentals
Returns on rental properties declined in all four centres to the end of June 2007 (on the back of fast-rising prices), before recovering. Dunedin, especially, took off and remains the best major centre in New Zealand in which to own rental property.
Auckland returns have been slower to recover and for the past three years have been at the lower end of the four-city range.
“One reason for this is that while Auckland rental levels have risen, in line with the other centres, so has the city’s property prices – at a time when other cities have experienced minimal price rises.”
In comparing the cities, it should be noted that the data for Christchurch is based on available information and that the property market in that area will obviously have been affected by earthquake events in the past year.
Auckland residential market continues to firm
NBR
The Auckland property market in June saw the median price drop from $464,000 in May to $461,000, and sales numbers down from 2218 to 2096.
However, Crockers research said the market is stronger than it has been for some time, compared with 2010. At 11,311, sales numbers for the first six months of the year are at their highest since 2007, and the June 11 figure is 27% higher than the 10,305 sales closed in the same month last year.
Similarly, the median sales price is up 3.6% on last June, the strongest house price inflation since 2007.
The movement is greater in Auckland than the rest of New Zealand, where the median sales price is up 2.1% on last year (to $360,000) and the number of sales closed is up 14% compared to last year (to 5229), Crockers said.
Rentals in the Auckland two-bedroom market have been stable for the past three months at about $365 per week, just over 20% higher than the average for the rest of New Zealand.
The three-bedroom market has also stayed steady over the past three months, following significant rises in the earlier part of the year off a January low. In June the average rental price was $486 per week, 30% higher than the national average of about $350 a week.
Crockers suggests that with the Auckland property market strengthening this year, “it’s worth taking another look at Auckland versus the other metropolitan centres, in terms of the relative returns rental properties offer.”
Dunedin rates best for rentals
Returns on rental properties declined in all four centres to the end of June 2007 (on the back of fast-rising prices), before recovering. Dunedin, especially, took off and remains the best major centre in New Zealand in which to own rental property.
Auckland returns have been slower to recover and for the past three years have been at the lower end of the four-city range.
“One reason for this is that while Auckland rental levels have risen, in line with the other centres, so has the city’s property prices – at a time when other cities have experienced minimal price rises.”
In comparing the cities, it should be noted that the data for Christchurch is based on available information and that the property market in that area will obviously have been affected by earthquake events in the past year.
Auckland residential market continues to firm
NBR
The Auckland property market in June saw the median price drop from $464,000 in May to $461,000, and sales numbers down from 2218 to 2096.
However, Crockers research said the market is stronger than it has been for some time, compared with 2010. At 11,311, sales numbers for the first six months of the year are at their highest since 2007, and the June 11 figure is 27% higher than the 10,305 sales closed in the same month last year.
Similarly, the median sales price is up 3.6% on last June, the strongest house price inflation since 2007.
The movement is greater in Auckland than the rest of New Zealand, where the median sales price is up 2.1% on last year (to $360,000) and the number of sales closed is up 14% compared to last year (to 5229), Crockers said.
Rentals in the Auckland two-bedroom market have been stable for the past three months at about $365 per week, just over 20% higher than the average for the rest of New Zealand.
The three-bedroom market has also stayed steady over the past three months, following significant rises in the earlier part of the year off a January low. In June the average rental price was $486 per week, 30% higher than the national average of about $350 a week.
Crockers suggests that with the Auckland property market strengthening this year, “it’s worth taking another look at Auckland versus the other metropolitan centres, in terms of the relative returns rental properties offer.”
Dunedin rates best for rentals
Returns on rental properties declined in all four centres to the end of June 2007 (on the back of fast-rising prices), before recovering. Dunedin, especially, took off and remains the best major centre in New Zealand in which to own rental property.
Auckland returns have been slower to recover and for the past three years have been at the lower end of the four-city range.
“One reason for this is that while Auckland rental levels have risen, in line with the other centres, so has the city’s property prices – at a time when other cities have experienced minimal price rises.”
In comparing the cities, it should be noted that the data for Christchurch is based on available information and that the property market in that area will obviously have been affected by earthquake events in the past year.
Has the time really come for interest rates to rise? Certainly that’s the view of Tony Alexander from the BNZ.
In my view, raising rates now or even in the near future would be a foolish thing to do as the signs of ” recovery” are still merely just that- signs.
The higher inflation rate we had in the past few weeks was skewed by the rise in GST and it would seem sensible to me to wait a few more quarters to see if inflation has really got hold or not.
You will recall that Alan Bollard got the rise in interest rates horribly wrong in the middle of last year ( and I said so at the time) and almost drove the economy into recession once more.
There is an argument that the “emergency” cut in interest rates to cover the Christchurch tragedy could be reversed taking the OCR back to 3% – which is still the lowest on 40 years but no more than that until the trend is certain .
And of course any increase in interest rates will drive the NZ dollar higher still so that brings more strain on the exporters- not a good look in election year- and also hit the poorest among us even harder.
But Alan Bollard and his advisers live in another world from the rest of us.
Logic and pragmatism are not there forte.
Politics and the world of statistics make very unhappy bed fellows.
“Time’s up’ for low floating mortgages
HAMISH RUTHERFORD
25/07/2011
Stuff.co.nzHomeowners on floating interest rates should quickly look to lock in fixed rates before prices move up in coming months, a leading economist warns.
Tony Alexander, chief economist at the Bank of New Zealand, said that during the past fortnight there had been clear signs that the economy was gathering speed.
Economic growth was rising faster than experts had predicted, and inflation had hit a 21-year high.
This meant interest rates were likely to increase sooner than expected in an effort by the Reserve Bank to stop inflation getting out of control.
“What this means for borrowers is that time has now run out for comfortably sitting floating, planning to fix before fixed rates rise,” Mr Alexander said.
“Such rises are probably just around the corner, with some banks’ fixed-borrowing costs up 0.3 per cent from just a fortnight ago. If I were a borrower … planning to fix, then I would see high risk in waiting any longer.”
Only a week ago, Mr Alexander said floating rates were likely to offer better value for several months.
An increase in the official cash rate, which looks increasingly likely in September – with even a slim chance of an increase on Thursday – would have an immediate impact on floating rates offered by all of New Zealand’s banks.
Floating mortgage rates have become increasingly popular in New Zealand in recent years because the rates offered have been so much lower, averaging 5.9 per cent since March.
According to the Reserve Bank’s figures, 853,000 households were on floating rate mortgages in May, up from 629,000 a year ago and 382,000 five years ago.
A few weeks ago, most economists had expected the Reserve Bank to leave interest rates unchanged until at least December, but recent figures have resulted in a big change in thinking.
ANZ chief economist Cameron Bagrie said it was now possible that the Reserve Bank could increase the official cash rate this week, and that it would have to come up with a good reason not to raise them in September.”
The proposed capital gains tax presented by Labour has achieved two things
(a) A necessary discussion on a subject that had to be aired – whether for or against
(b) Guaranteed that Labour will not win the next election .
The proposal as described has been badly cobbled together and will alienate too many people when the logic is digested.
To tax share transactions is seriously flawed as encouragement should be given to invest and if necessary divest shares as and when required.
Farmers being taxed on their land holdings is also a very bad move. The farming lobby is very powerful and it is well known that it doesn’t take prisoners.
“Grandfathering” property purchases so that the tax does not apply to current or future investments until the law is brought in would create the biggest property boom in history as investors buy up big before the door closes.
And of course rent would sky rocket as post-tax investors would need to cover the 15% proposed tax when doing their sums.
Worse still there is no allowance for inflation, no sliding scale for time held, and worst of all exempting private homes transactions when we all know that the biggest speculators of all are the Mums and Dads who buy and sell their own homes.
Just to add a twist we see that the proposed tax will end up as death duty or an inheritance tax. Passing on a property under a will is to be free of the tax but the inheritor will pay tax if they sell the property later.
All the folk who love the idea of “taxing the rich” always quickly change their minds should it ever apply to them .
I am of the opinion that this notion will sink with all hands because of its seemingly last minute crudeness and rough edges.
The delicious irony is that now National must appose this idea leading up to the election which ensures that the whole subject of Capital Gains Tax will remained buried for years – if not for ever.
By Alex Tarrant
Interest.co.Labour will contest the November 26 election with a 15% capital gains tax on assets other than the family home, a 39% top personal income tax rate for incomes over NZ$150,000 and a tax cuts for the majority of taxpayers.
The task of winning the election will prove to be a hard one, with Labour languishing behind National in the polls – it sat below 30% before this package was announced while Prime Minister John Key continues to trump Labour’s Phil Goff in preferred Prime Minister stakes.
Labour is touting its new policy as a credible alternative to the government’s economic plan, which includes NZ$5 billion-NZ$7 billion in proceeds in the next five years from selling off minority stakes in four state-owned energy companies as part of an attempt to reach a budget surplus in 2014/15 with net government debt remaining below 30% of GDP.
The policy released today was centred around a 15% capital gains tax on all capital assets bar owner-occupied housing from the 2012/13 financial year. The tax would not collect much revenue in the short-term. Only NZ$18 million would be collected in 2012/13, with annual revenues rising to NZ$2.27 billion per year in ten years time, according to research done for the Labour Party by BERL.
Rents remain at record highs
Newstalk ZB July 14, 2011, 12:30 pm
By Anna Cross
The average weekly rent for Auckland property eased in June, but it’s still at record highs.
Aucklanders paid an average of $420 a week last month, which was down $7 from May.
However, the average weekly rent for June is the third highest on record, as it’s $17 higher than last year and $32 more than two years ago.
Barfoot and Thompson General Manager Peter Thompson says in the past six months average weekly rents have ranged from a high of $434 to a low of $402.
He says never before has there been this level of movement in a six month period.
Here’s the BNZ-REINZ Residential Market Survey released today.
Worth a read.
Download the report here
(8 pages PDF 50kb)
It seems bizarre to say the least, that any one would vote for higher taxes but that’s what the Labour Party is advocating.
The topic of tax, especially capital gains tax, has brought out the usual crowd of tall poppy haters, envy promoters and those who would love to see people get taxed- that is until they are the ones who get taxed.
The whole question of tax is an aberration which is hard to believe. I am sure in a 100 years from now people will look back and wonder if we were all a little touched in the head.
Here we are paying tax on everything, even the air we breathe, giving the money to the politicians, who then bribe us with our own money to vote for them.
Not to forget that all the while these same politicians are being paid by us ( plus perks) so they can continue taking our money to bribe us over and over again.
Hardly any of them have ever had a real job, a job where if you don’t work you get no money. Few if any, know what it feels like to be unable to pay for today’s groceries.
It is surprising how some die-hard capitalists even advocate more tax especially when most of them have made a killing tax free out of the very market they now want to punish.
I have noticed that trait often with the super rich or those whole control vast sums of cash. Politicians are particularly prone to this as they deal with millions and billions of dollars. Much like the captains of the failed finance companies that collapsed in the recent past . In the end they start to believe that other peoples money is theirs to do with as they like.
I call it the “arrogance of wealth” a disease all too prevalent in today’s society.
Wealthy may get double hit from Labour
VERNON SMALL Dominion Post 13.7 11The wealthy could get socked twice when Labour unveils its tax package tomorrow, with a new top tax rate in the pipeline as well as a broad capital gains tax that will raise more than $2.3 billion.
The new top rate is expected to hit income above $120,000, but Labour has refused to say what rate will be applied.
The current top rate of 33 per cent cuts in on income above $70,000.
The capital gains tax will be set at 15 per cent, but the family home and personal assets up to a set threshold are expected to be exempt.
It is likely to apply only after the law is passed, so Labour is expected to forecast only modest income in the first few years. But revenue would ramp up to more than $2.3b over the next decade.
Leader Phil Goff will sell the package as an alternative to National’s partial asset sales plan, which is forecast to raise $5b to $7b over the next three years.
Labour also needs to generate extra revenue to pay for its promise to introduce a tax-free threshold at $5000 and remove GST from fresh fruit and vegetables at a total cost of about $1.6b.
Party sources said Labour’s forecast debt reduction programme would be slower than National’s but in the long run would take debt lower, aided by the continued dividend stream from assets National would sell.http://www.stuff.co.nz/dominion-post/comment/columnists/vernon-small/5249586/Game-on-as-Labour-prepares-to-sell-capital-gains-tax-plan.
link: http://www.stuff.co.nz/dominion-post/comment/columnists/vernon-small/5249586/Game-on-as-Labour-prepares-to-sell-capital-gains-tax-plan
Tony Alexander the Chief Economist for BNZ says:
A Capital Gains Tax?
The media are reporting that next Thursday Labour will announce they will go into the election with a set of tax raising proposals including a capital gains tax on investment property perhaps at 15% effective for new purchases from a future date. The aim it appears is to turn NZers back into a nation of home owners as opposed to renters – back to someone’s view of the good old days – and raise revenue to pay for a tax free threshold of perhaps the first $5,000 of income and the removal of GST on fresh fruit and vegetables (what an admin nightmare that will be, and why not books as well, or school charges, detergent, rates, electricity, water charges?)
If a tax were introduced what would the impact be? The analysis is actually quite simple and it goes like this. Australia has a capital gains tax and their housing is less affordable than ours. Most other countries also have a CGT and their housing markets have experienced major booms and busts. Therefore introducing a CGT is not likely to lead to noticeably cheaper houses or stop the house price cycle. We will still borrow and buy housing when we believe prices are going to rise, and sell them when we feel prices will fall.
The long term effect on NZ house prices is likely to be to increase rather than lower them. This arises first because investors with existing properties will be reluctant to trade them. That is, if you already hold one investment property and want to sell that then a bit later on get a new one you will shift your capital from tax free to taxed status. Therefore those with properties purchased before the CGT effectiveness date will tend to hold onto them and not make them available either for other investors or owner occupiers. These properties may be redeveloped however depending upon the treatment under the tax system of such activity. If such activity results in being captured by a CGT then they may be allowed to run down.
In addition, if you are thinking about building houses to let the introduction of a CGT will reduce the likely long term return therefore this will lead to a combination of higher rents and reduced construction. This latter effect would not matter if we had an ample supply of houses in NZ, but we do not. We have a shortage of about 45,000 dwellings and by reducing returns to investors the resulting reduction in construction will lead to an even greater shortage. That is where the upward pressure on house prices will come from – after what would likely be a short term dip.
As we pointed out some time ago, the horse has bolted with regard to introducing a CGT on residential investment property. Had it been introduced when houses were plentiful the reduction in investor construction may have had not much long term impact. But now it would be a sizeable factor keeping prices up. There should of course be a CGT on residential investment property and its absence does cause a distortion of investment choice in our country. But the time has passed to introduce it – unless that is one makes substantial changes which will permit a rapid increase in housing supply and reduce other costs facing property developers. That is where real change needs to occur to address NZ’s worsening housing issue – cut the costs of building new houses. This would involve a substantial loosening up of zoning restrictions, an easing back on the building code, removal of developers levies imposed by councils, somehow boosting competition in the building materials sector, encouraging us to buy low unit cost cookie-cutter houses rather than our preferred individually designed ones , etc. The chance of any of these things happening seems fairly low – as in nil and buckleys. And finally, it pays to remember that one of the factors driving the surge in house prices and the eventual oversupply in the United States was a set of policies aimed at increasing the home ownership rate. People were encouraged to buy property they could not actually afford – the zero equity, near zero documentation loans for instance. Now many of those folk are destitute. New Zealand’s deficiency is not in some theorised cultural preference for housing for which we have never seen documented evidence, but our fairly obvious preference for borrowing over saving. Where we differ substantially from other countries is not home ownership or our investment in housing but our lack of financial assets caused by our lack of saving.
Will introducing a CGT, raising the top marginal tax rate, and whatever other tax boosting proposals to come from Labour cause us to save more, to work harder, to gain more education, to take more business risks, to stay in New Zealand? Or will we join our cuzzies across the ditch? Plus, if Labour introduce a CGT it seems reasonable to extrapolate the taxing trend into a tax on farm land price gains – especially given Labour’s recent attack on the low tax they claim flows from the farming sector. On that issue, this week I spoke with farmers in a number of locations in the deep south and some have noted that they’ve only paid tax in 4 – 9 of the past 30 – 40 years. Their wealth accumulation derives from higher land prices and not production yield even though that is where all their invention and innovation goes.
Is it likely that we will see a capital gains tax on residential investment property soon? Not really given what the political polls are showing.
The SFO released this warning today which is very good and useful..except I think it comes a little late in the piece.
Where were they when the BlueChip was in full swing, not to mention all the shonky shoe box apartments,over priced
sections by weed infested lakes, leaky houses, holes in the ground that would never rise etc etc?
But it has to be said in their defence that many people are still naive believing that millions can be made in a week or two.
It’s-oh-so easy – not.
SFO warns investors of inflated property valuations
Created 08/07/2011 – 1:40pm
The Serious Fraud Office (SFO) has issued a warning to investors to be wary of inflated property valuations when considering whether to invest in either properties or companies which had significant property development portfolios.
The warning follows a number of SFO investigations into cases where property values had been significantly overstated to the detriment of persons investing either directly in the over-valued property or indirectly in companies owning property portfolios.
SFO chief executive, Adam Feeley, said “In recent weeks we have concluded investigations involving property valuations where we have been disappointed to see investors making bad investment decisions based on information which can only, at best, be described as optimistic values. It is imperative that investors are made aware of the underlying assumptions on which the valuations are based.”
The SFO said that in most cases investigated, the valuations had been commissioned by the owner of the property, or property-related company, who had an obvious financial incentive to inflate valuations beyond what was commercially realistic.
In some cases, the valuations were at the margin of what could be regarded as professionally justifiable, while in a few extreme cases, properties had been valued 500% over their market value.
“Where there is a clear intention to deceive an investor with false information, the SFO will lay criminal charges against all parties to that offence, including any valuer who is knowingly a party to the deceit,” Mr Feeley said, “however in many instances the valuations fall short of what is required to meet a criminal standard of proof for fraud.”
Mr Feeley said that the best protection for persons investing in property was to commission their own valuations, but the SFO recognised that this was not always feasible.
“An important part of our role is to identify alternative forms of redress where the conduct complained of does not meet the criminal standard of proof.”
Mr Feeley said that the SFO was making referrals to the Valuers Registration Board in respect to some transactions, and that further matters were under SFO consideration.
“There are a small number of valuers who are undermining confidence in a profession which is an important adjunct to investment decisions, and we are determined to work closely with the valuation profession to ensure rogue valuers are not tolerated.”
He said that the SFO had no doubt that the New Zealand Institute of Professional Valuers was equally committed to addressing dealing with instances of valuers failing to meet professional standards.
“The SFO acknowledges that the cases we deal with are exception, and we know that valuers generally operate to very high professional standards. Nonetheless, the impact of these few individuals has had a disproportionate impact on the investment market.”
The SFO noted that investors wishing to obtain advice on property valuations can contact the NZ Institute of Valuers for further information.
