Runaway market is set for consolidation

Strong growth in NZ over the past three years saw residential prices rise 52pc, but the peak is past, statistics show

THIS YEAR HAS seen the national median selling price for New Zealand residential property increase 16 per cent to NZ$250,000 (HK$1.35 million) from $215,000, according to Howard Morley, national president of the Real Estate Institute of New Zealand.

'A strong and growing economy, relatively low interest rates, positive migration since mid-2002 and the return of a significant number of New Zealanders attracted by a low exchange rate has meant demand for good quality, well-located houses outstripped supply,' Mr Morley said. 'Between June 2001 and June this year, New Zealand house prices rose 52 per cent.'

However, the growth experienced over the past three years cannot be sustained and commentators predict the market will soften and consolidate.

Statistics from the New Zealand Real Estate Institute show that sales volumes have peaked, with sales at fewer than 8,000 a month, compared with 10,687 in September last year.

'However we have yet to see the traditional spring recovery in volumes and confidence, so the next couple of months will be particularly interesting,' Mr Morley said. Residential Colliers International New Zealand director of project marketing Philip Toogood said central business district and waterfront properties were spearheading a trend that started in the early 1990s.

The number of completed apartments in Auckland, New Zealand's largest city, has doubled every three years over the past decade, with significant off-the-plan sales coming from overseas buyers.

While the low end of the market had slowed in recent months, Mr Toogood said the top end continued to perform well.

'Generally, with the Auckland apartment market, the lower the capital price, the higher the yield and the lower the potential for capital growth.

'The converse is also usually true: the higher the price, the lower the yield, but the higher the potential for capital growth,' he said.

'This comes about because apartment rentals tend to flatten out as the capital cost increases. However, buying in a prime location with the best views and aspect in the development is likely to increase the opportunity for capital growth.'

Yields in Auckland of 6 per cent to 8 per cent were much higher than Sydney at about 3 per cent, he said.

Rents are generally holding up as demand for inner city living increases and capital entry levels are still much lower.

Another key investment consideration is whether to buy a straight investment apartment or an apartment that has a private usage/recreational component.

'As a general rule, an investor with limited knowledge of New Zealand would be wise to focus on Auckland, which has proven apartment demand and a wider selection of apartments to choose from, and to which individual investor investment criteria considerations can be applied,' Mr Toogood said.

He said the only sector of the Auckland apartment market showing signs of falling behind was the small, low-end product tailored to cater for the student accommodation sector.

Demand focus is on the mid-range two-bedroom investment sector catering for young professional tenants, with prices from NZ$380,000 to $500,000.

There is also strong demand in the owner-occupier sector, with buyers seeking well-located, quality apartments.