Mortgage approvals by volume hit highest level in nearly 2 years and highest level by value since April 2009
November 30, 2011 – 04:04pm, Gareth Vaughan
Residential mortgage approvals by value rose in value to near the NZ$1 billion mark last week, their highest level since April 2009, according to Reserve Bank data.
The central bank’s latest mortgage approvals figures show NZ$966 million worth were approved in the week to Friday, November 25. That’s the highest weekly value approved since NZ$1.346 billion in the week ended April 3, 2009.
By volume, at 6,112, last week saw the highest number of approvals since 6,878 in the week to December 18, 2009
Read more here:
As we all know “position” matters. In the article below from NBR the author provides an insight into the manner in which one event can lead to another to the advantage of the astute.
When researching a property, not only should you look at the property as it is, but its surroundings and what the future may bring.
It does work both ways. A property may be sited where future events could drive up prices. Equally bad trends can do just the opposite.
It is vital that you do your homework thoroughly before making any commitment.
Railway extension may drive up Parnell property prices
Conor O’Brien Tuesday November 29, 2011 |A railway extension could could see Parnell property prices increase significantly.
Auckland Transport wants an extension of a railway designation into the Auckland Domain to allow tracks to be lowered for electrification and the construction of a Parnell station.
The work will take place between the Parnell tunnel and the bridge over Parnell rise.
The extension is for a 538-metre strip of land alongside the existing rail line covering an area of 2954 sq m and will enable electric trains to travel the rail. The project has a target completion date of September 2013, which would coincide with the arrival of new trains Auckland Transport’s rail improvement project director Nick Seymour says.
Read the rest here:
http://www.nbr.co.nz/article/railway-extension-may-drive-parnell-property-prices-co-105267
Valuations get hammered
Nov 26, 2011 Phil Taylor NZ HeraldAuckland Council’s revised property valuations are supposed to represent probable market value. The Weekend Herald put them to the test at a busy auction day.
It seems owners held off selling until after the Rugby World Cup. That, and the springtime bump, have Barfoot and Thompson’s auction rooms buzzing.
It is Wednesday, and five auctioneers take turns chomping through 74 properties. Sixty-four per cent sell. It takes most of the day so February must be a frenzy.
Read the rest of the story here:
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10768806
As predicted rents are on the rise fueled by last years budget moves and a continuing shortage of housing stock.
Note that the average increase is 6% nationwide so you can be quite sure that rents have risen far more in the main centres, especially Auckland
This is only the beginning. Rents are set to rise far more over the next year or two and will become a political hot potato, of that I am sure.
Housing costs squeezing households
25/11/201
People are spending more of their income on rents and rates, with housing-related costs rising while average household incomes remain flat.
In the past two years, the proportion of household income spent on housing costs increased from 15.1 per cent in 2008/09 to 16.0 per cent in 2010/11 according to Statistics NZ figures.
Components of housing costs that increased between 2008/09 and 2010/11 were:
average weekly expenditure on rent, up 6.6 per cent, and
average weekly expenditure on property rates, up 9.3 per cent.
But average spending on mortgages and loans was relatively unchanged over the two years.
Over the same two-year period, average annual regular income for households changed little – from $78,019 in 2008/09 to $79,159 in 2010/11.
The proportion of households spending 30 per cent or more of their income on housing costs increased from 19.5 per cent in the year ended June 2009 to 21.8 per cent in the year ended June 2011.
These results come from the Household Economic Survey of income, which is a shortened version of the three-yearly full Household Economic Survey
Link:
http://www.stuff.co.nz/business/money/6034457/Housing-costs-squeezing-households
More encouraging news from the respected ASB that the worst may be over and house prices may continue to rise after remaining flat for some years.
I predicted this at the beginning of the GFC and was roundly criticised for it by the ignorant. My prediction at the time was based on decades of experience on how Kiwis react
when it comes to selling their homes. Most people will only sell when under pressure. Otherwise they just hang on and either forget about selling or renovate where they are and make their current home more comfortable . Remember most forced sales arise from Death, Divorce or d’bank .
It is also a fact that the halving of interest rates has made a huge difference to the ability of most people to hold onto their homes or to buy.
A word of caution.
Interest rates may be low but inflation is lurking in the back ground. With inflation comes higher interest rates off set by higher prices for hard assets (including property) .
Keep an eye on inflation trends and be ready to switch to fixed rates the moment it re-appears.
Houses prices seen up just 3% nationally over coming year – ASB
Conor O’Brien | Thursday November 24, 2011Housing confidence remains stable despite dipping slightly in ASB’s latest housing confidence survey for the three months to October 30.
A net 24% of respondents believe it is a good time to buy a house, down 1% from 25% the previous quarter.
All regions responded positively that it was a good time to buy a house except for Christchurch which responded with a net -6%, compared to the rest of the South Island which reported 27% confidence.
Read the rest here:
http://www.nbr.co.nz/article/houses-prices-seen-just-3-nationally-over-coming-year-asb-co-104926
Published 22 November 2011
Colliers International agents have recently completed 3 industrial sales in East Tamaki, another in Penrose and a leasing transaction in Mt Wellington. Details:
SALES
East Tamaki, 333 East Tamaki Rd, unit B, 420.1m² of industrial space was sold by Number 333 Ltd to Rocky Li for $475,000 with vacant possession (Jolyon Thomson)
East Tamaki, 154 Harris Rd, unit B, 450m² of industrial space was sold by Kuaotuna Trust to MCF Investments Ltd (Michael Collins, Suva) for $483,698 on an 8.16% yield (Jolyon Thomson & Paul Jarvie)
East Tamaki, 154 Harris Rd, unit C, 250m² of industrial space was sold by Kuaotuna Trust to MCF Investments Ltd for $306,750 on an 8.16% yield (Jolyon Thomson & Paul Jarvie)
Penrose, 55 Hugo Johnston Drive, 4042m² of office space was sold by Kempton Holdings Ltd to Jerdi Partnership for $4 million on a 7.5% yield (Andrew Hooper, Hamish West, Jason Seymour, John Goddard, Peter Herdson & John Green)
LEASES
Mt Wellington, 82 Carbine Rd, 1150m² of industrial space was leased by Norak Properties Ltd to Road Signs & Traffic Control Equipment Ltd for one year at $112,500/year (Todd Kuzmich & Jonty Lamb).\
Bob Dey report
Home loan affordability worsened nationally in October because of a rise in median house prices, but an improving outlook for lower interest rates is boosting turnover and borrower demand.
The Roost Home Loan Affordability report for October showed a slight deterioration from September, largely due to a rise in the median house price to NZ$359,000 from NZ$350,000.
Floating mortgage rates were steady and fixed mortgage rates edged lower, moving in line with financial market expectations for a fall in the Official Cash Rate over the next year. Last month economists and markets had expected the next move to be a rise in the rate from midway through next year
Read commentary on the report here:
“Commercial & industrial property: creaky foundations or pillars of support?” ANZ Bank economist Cameron Bagrie asked in a market commentary this week. The material below is taken from his paper, but isn’t the whole paper.
“Economic barometers are giving no clear signal on commercial & industrial property prices. Higher interest rates have shifted valuations into the overvalued zone, but the magnitude is small. With no apparent supply-demand mismatch, and economic prospects remaining sound, commercial & industrial property remains a solid but unspectacular asset class for portfolios,” Mr Bagrie said.
“The market is awash with liquidity looking for a home. With the residential market looking extended, migration receding, yet economic prospects remaining sound, attention is turning to the commercial & industrial sector.”
In his research article, he checked the foundations underpinning the commercial & industrial sector:
Commercial & industrial rental growth has averaged a meagre 1%/year since 1991. With inflation averaging 2% over the period, real rents have been in decline. Stripping out the period of declining rents from 1991-1993 – a period where the commercial & industrial sector suffered from excess supply – raises annual rent growth to 1.5%, but it has still not kept pace with inflation.
Rents have fallen behind construction costs (the replacement cost of the building). Non-residential construction costs have broadly mirrored the rate of inflation. However, they have risen sharply recently (more than 10%) and this development is yet to be reflected in rents.
Price:earnings ratios
On a conventional price:earnings (p:e) ratio – the ratio of property prices to rents – commercial & residential property is looking expensive. The ratio has increased by 50% since 1991.
Lower interest rates imply a higher p:e. Easing inflation & a slightly lower real component to New Zealand interest rates has lowered average borrowing costs by around 40% since the early 1990s. This has improved affordability and lowered the yield required to cover the cost of capital.
But yields have fallen below the cost of capital. Commercial & industrial yields are sitting around 7-9%. Yields are at the lower end in strong-performing regions and where land & property is in scarce supply. The weighted average cost of capital for publicly listed property firms sits closer to 10%. Financing rates on commercial & industrial developments generally sit north of 8%.
Further capital gains and/or higher gross yields are being banked upon and the market needs to perform above average going forward. Given where interest rates sit, associated property expenses & the risk associated with property investment, the market is implicitly banking on annual capital gains in the order of 5% over the next 2 years.
To put this in perspective, in the long run commercial property prices should increase somewhere between the rate of inflation (2% on average) & real economic growth. The former should be the long-run driver of construction costs, while the value of land as a scarce resource is more likely to increase in line with the rate of real economic growth (the economy’s trend capacity sits around 3%).
Historically, nominal gains have easily surpassed 5% on average (although real gains have averaged 2.5%/year). Inflation is expected to settle around 2% on average going forward, and it is difficult to foresee a further structural decline in borrowing costs.
Our baseline models suggest the market is mildly overvalued. However, the degree of overvaluation is mild (5%) relative to the residential market, which is generally thought to be 5-10% overvalued.
But sound economic prospects and the lack of pending supply-demand mismatch imply prospects remain sound. Vacancy rates are low and we suspect there is an element of catch-up from the rental side of the equation pending. A positive output gap (demand) will persist well into 2005. The ratio of non-residential building consents to gdp (a measure of supply-demand mismatch) has remained static for the past 5 years. Given the historical relationship with the output gap, and stage in the cycle, our baseline model anticipates real price gains of just below 1%/quarter over the coming year.
But don’t go betting on further double-digit gains. Economic barometers are currently giving a mildly bearish view on commercial & industrial property prices and we are mindful of a degree of spillover into other property segments if aspects of the residential market pull back.
Higher interest rates have shifted valuations into the overvalued zone. However the degree of disequilibrium is small relative to history. With no apparent supply-demand mismatch (in contrast to the residential market), and economic prospects remaining sound, commercial & industrial property will remain a solid yet unspectacular asset class for portfolios.
Bob Dey Report
Published 15 November 2011
Net commercial property absorption has been positive this year, led by the cbd office sector, but rental trends have varied across the sectors. Now CBRE research director Zoltan Moricz is suggesting in the consultancy’s latest market review that earlier assumptions for demand drivers, and thus net absorption & vacancy, may prove optimistic for the rest of 2011 & 2012.
“Auckland’s property market indicators tended to improve over the past few months and the general feeling of cautious positivity continued to prevail in an increasingly gloomy global context. This has been assisted by Auckland’s economic growth being ahead of the national trend since the country initially emerged from recession.
“Net absorption has been positive at the broad sector level this year. The recovery has been strongest for offices, led by the cbd. In the non-cbd office market, despite some larger relocations to the cbd there has been sufficient leasing activity to compensate for these losses.
“For industrial, positive net absorption has continued due to take-up of both new supply & existing vacancy and the same is true for retail.
“However, in comparison to offices, both industrial &, especially, retail were fairly moderate in the size of their rebound relative to the overall size of these market sectors. With a moderate amount of new supply completions, positive net absorption led to improving vacancies in the first half of the year.”
Mr Moricz said the international downside risks were real & substantial, “but perhaps a balanced assessment is that the supportive factors behind New Zealand should help it outperform the global economy, but with lower growth than projections & sentiment indicated earlier in the year. Adopting this as the base economic scenario suggests that earlier assumptions for demand drivers and thus net absorption & vacancy may prove optimistic for the rest of 2011 & 2012.
“This will likely reflect a more cautious property market, with lower levels of occupier activity and a longer decision-making process, especially for companies where major decisions are approved offshore. Reduced activity levels will also weigh on market sentiment, with lessors likely to be less confident of finding tenants to fill any actual or potential vacancies.”
Mr Moricz said projected levels of occupier demand had been lowered, but supply would also be below historic averages over the next few years.
“In the cbd office market, about 35,000m² of new space will be completed to the end of 2013 and, in our view, demand will be sufficient to offset this and result in improving vacancies, although with some periodic fluctuations following new building completions.
“While the industrial rental rebound appears to have stalled in the third quarter, the general outlook for the industrial market remains favourable. Spare capacity for industrial occupiers has recovered to historic averages, indicating that continued economic growth will result in improving demand. Forthcoming new supply will have some negative vacancy impacts on existing premises, but vacancy forecasts show an overall downward trend.
“There is also life in the retail property market, although performance differences are pronounced between individual retailers & retail centres/locations. These differentials will strengthen, given the likely supply pipeline & its redistributive effect on retail spend.
“The continued recovery of property fundamentals should underpin the investment market, although the future trajectory of interest rates and any impact global developments may have on international credit markets will have a bearing. On balance, we believe that investment activity will return to longer-term averages from its recent lows and will be supportive of moderate, although sectorally varied, pricing improvements.”
Mr Moricz said rental trends had been more varied in the third quarter. Office rents stabilised early in the year, followed by reductions in incentives, resulting in higher net effective rents. Retail rents increased in dominant centres & strips, although they fell in some underperforming locations.
“The industrial sector has been more subdued and, partly due to increased competition in the development market, prime rental growth appears to have stalled.
“The investment market has been patchy. In some sectors there has been a pick-up in activity and some improvement in pricing. Offsetting this, some broker feedback also indicates a continuation of flat market conditions with a sizeable gap between vendor & purchaser expectations still to be bridged.”
In the office sector, a net 37,231m² of A grade space was absorbed in the first half of the year, including 31,500m² in the East Building in Britomart. As part of that Britomart gain, Westpac’s exit from 6800m² of the PWC Tower was also the main factor in reducing premium grade absorption.
In another grade change, the Media Design School moved out of 1800m² at 242 Queen St, contributing to negative net C grade absorption of 3380m², but moved into 4300m² of vacant space at 92 Albert St, turning B grade absorption positive by a net 3982m².
Mr Moricz said the overall Auckland cbd office vacancy rate was 13.8% (187,765m²) at June, down 0.5% (1896m²) from December. Prime (premium & A grade) vacancy declined from 9.1% to 8.6%, mostly due to the take-up of 6300m² in Zurich House (21 Queen St) and 4600m² at 28 Wyndham St.
Vacancy increased in the PWC Tower when Westpac vacated its 6800m² and at 41 Shortland St, where Ernst & Young vacated 6500m², both going to Britomart. Secondary vacancy (B, C & D grades) decreased by about 1800m² over the 6 months.
Net effective rents started softening in 2008, but Mr Moricz said that had stopped and rents had improved in both the second & third quarters: “Over the past 12 months, net effective rents have increased 1.8% for prime, while secondary has increased 2.7%. Net effective rents are at an indicative $279/m² for prime space and $156/m² for secondary. This is mainly due to incentives that decreased in the second & third quarters of the year.”
Mr Moricz said incentives had dropped to 15.1 months’ rent on a 9-year lease for prime and 14.8 months on a 6-year lease for secondary.
He said both prime & secondary office yields had firmed slightly in the second & third quarters – prime by 5 basis points to 8.8%. Secondary had improved this year, but were still 9 points below a year ago at 10.09%. That left prime yields 182 points off the June 2007 peak and secondary 199 points off.
There were no major office sales, but Mr Moricz said the cbd office investment market had still been reasonably active as a number of medium-sized secondary properties were sold to a mixture of on- & offshore private purchasers. One of the larger transactions was the former Ports of Ackland and St Laurence building at the start of Princes Wharf (139 Quay St), sold to an Asian investor for $34 million at an initial yield of 9.54%, partially vacant and with a weighted average lease term of 6 years.
Mr Moricz said industrial vacancy continued to decline, reaching 4.4% (499,000m²), down from 4.5% in December, through a combination of lower supply & increasing demand. Net new supply in the first half totalled only 31,000m². 18,000m² was taken out of stock to be refurbished for PMP in Enterprise Park, Wiri.
He said owner-occupiers had been driving industrial land values. After large falls in 2008, there’d been gradual growth since the end of 2009 and indicative values reached $348/m² in the September quarter – still 18% below the $424/m² March 2008 peak.
“Owner-occupiers are more willing to meet vendor expectations as they don’t have to factor a development margin into their purchase price. Hence values have been pushed upwards. Those developers/land bankers who are in the market for land have mainly been interested in development sites which have additional secure holding income over the short term while they attempt to secure a tenant. With development still continuing to be slow, the take-up of vacant industrial land has been subdued, averaging 30ha/year over the past 3 years compared to around 110ha/year during 2006-08.”
Mr Moricz said prime industrial rents had adjusted downward after growth over the past year, because of the global economic slowdown and increased concerns around future prospects, which seemed to have had a greater impact on large corporate industrial occupier activity & sentiment than for other sectors
“In addition, the development market for new design-build premises has intensified among larger developers and, as a result, rentals for recent design-builds have also been arguably lower than otherwise could have been achieved. Net effective rents for prime are at a blended office & warehouse rate of $108/m² and secondary at $69/m². Incentives on a prime industrial building sit at an indicative 6.4 months on a 9-year lease and 8 months on a 6-year lease for secondary.”
Mr Moricz said the investment market had become more active, with interest from institutions & overseas high-net-worth individuals. “There also appears to be a shift in motivations & sentiment. Some vendors have taken the position of looking at selling low-risk prime investments which at the present time will achieve a maximum price, and looking at reinvesting funds into higher returning/higher risk properties/projects.
“Brokers have indicated there are a number of properties in the $5-10 million price bracket under contract at present, which should see an increase in transaction volumes in the second half of the year. Reflecting the improvement to activity & sentiment, it appears some of the risk premium that has applied to secondary industrial property over the past 3 years is starting to unwind somewhat. We have assessed secondary yields at an indicative 10.07% in the third quarter, down from 10.13%.”
Auckland retail sales rose 5.7% ($1.2 billion) to $22.3 billion in the year to June, led by electrical & electronic goods, supermarket & grocery stores and food & beverage services, but demand continued to be patchy.
“In the cbd, the bulk of retailer inquiry over the past quarter has mainly come from international luxury brands and local food & beverage franchises. In Newmarket, inquiry for space along the Broadway strip has picked up with interest from both overseas & national chains> However, secondary locations like Nuffield St continue to struggle with new vacancies appearing.”
Rents in catchment-dominant shopping centres had firmed steadily this year – regional shopping centres by an indicative 4.1% to $952/m², large-format by 2% to $229/m². “In comparison, in centres more exposed to competitive pressure such as many district shopping centres, rents showed only a slight increase of 0.4% over the same period, realising a rate of $420/m². Prime cbd strip retail rents have remained relatively stable over the past year, but have shown some growth over the September quarter, with several rent reviews along Queen St indicating a market movement. Current indicative rents for prime cbd strip retail are $2410/m², ranging between $1700-3250/m², representing an increase of 1.7% since the September quarter last year.”
CBRE’s estimate of indicative market yields indicated the continued firming of large dominant-centre yields over the past year, due to the scarcity of these investments and the demand for them, as they continue to trade well and have good long-term prospects. Indicative yield movements over the past year ranged from a 13 basis point firming for regional to 7.84% and & 21 points for large-format retail, to 8.42%.
“On an annual basis, district centres were the only submarket to show an overall softening of yields – 22 basis points to 9.72%. This is because the smaller-sized district shopping centres have continued to struggle in competition with the larger centres. Also, in some cases, many of these centres are ageing and not as attractive as the more modern centres.”
Bob Dey Report
Pull up a chair and listen to this nine-minute audio programme:
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Olly Newland explaining his enhanced mentoring programme.
Listen to Olly Newland describe his mentoring programme here (9 minutes MP3)
Olly Newland provides a consulting and mentoring service for people committed to make serious progress with property investments … whether it be buying, selling, holding or troubleshooting.
With more than 45 years in the property game, there are few investors who wouldn’t benefit from his insight and experience.
Olly’s services are impartial and independent of any real estate agent or sales organisation, bank or other lender. Unlike some who purport to offer similar services, he does NOT broker real estate ‘bargains’ (houses, apartments, sections or developments off the plans) nor other related services such as financial planning.
Olly’s style is up front and he offers sound, road-tested advice, robust counsel to help people move ahead with property investment. He is not adverse to using somewhat unorthodox methods to achieve his clients’ goals. (Experience PAYS!) Olly offers a limited number of people one-on-one, totally private consulting and mentoring by phone, email, Skype video and face-to-face meetings seven days a week.If you’re interested in knowing more, visit Olly’s webpage on Mentoring www.ollynewland.co.nz or email him.
