The horse has bolted - but what will come next?
From investor deposit level changes, bright line tests, radical taxation changes, this current government seems very intent on stamping a mark (or any mark) on the rampant property market. I am going to try and outline what may happen next with the property market?
Why am I going to try and go out on a limb and crystal ball gaze into what may happen? Well, I get asked everyday what will happen? It certainly is very topical around our kitchen table. So, why not put a stake in the ground and try and figure this all out.
Firstly, my personal view is the horse has bolted many years ago with the NZ property market. Many multiple changes of government over numerous decades and each and every government has tinkered around with the property market – why? Because it’s a political football. Easy to attack, easy for each consecutive government that gets voted in to say “they will come in and fix it” – so why do they always fail?
Well, it’s because it’s difficult to change…. it’s a complex market, it has many moving parts, multi-faceted and above all New Zealanders actually like investing in this market largely due to it being very easy to understand. Unlike buying shares, commodities, or investing in businesses it is easy to understand. You get an asset that you physically can see and above all it has been a great market to make good returns in. History and numbers don’t lie, and I do not think that property investing will change in a hurry.
The dream of every New Zealander owning a quarter acre section, or even a small home on a small section has completely bolted. Why do we even aspire to this lofty goal? In Europe and the USA they have had generations of families never owning their own home, they rent and guess what they are very happy with this situation. You either are a property owner or not….is this so bad? Only you can decide. In New Zealand we think ownership is a right and is achievable for everyone (which by the way it can be with effort and saving) but this is where the problem lies – quite frankly the desire and the want is lacking for many. Unfortunately, we now have had families in New Zealand with multiple generations of not owning a home and guess what they won’t. Sadly, for many people they live on the breadline on the government benefit, or they are earning the minimum wage and struggling to put food on the table.
So let’s get real here - saving a $140,000 deposit (20%) on a $700,000 dollar home is generally not going to happen!
So why do governments tinker around with the property market? Answer politics. They should probably let it go, and let the property market have its natural ups and downs - like any other market. The problem to call it the same as any financial market is it’s a physical and asset and a home which is meant to be a roof over your head. In my opinion the latest Brightline test going to 10 years is just another inhibitor, and removal of tax advantages is just going to make rents increase and the ability to save harder for the very people this government are trying to help.
So where does this all go - “what will come next”?
Firstly, you are seeing the signs of it the media coming back from behind the couch and start leaking negative comments into their daily news.
The media are fixated with property. They have been loving the soundbite headlines. “How much has your property increased this month” for example. They will quickly move into the negative mode.
I have already noticed just over the last few weeks headlines like auction clearance rates dropping to lowest level in one year. Open home attendance falls. You will see much more of these sound bites over the next three months.
Secondly, you will see REINZ figures coming out which will show lower level of sales month on month. Just remember we have come through an incredible market post covid, and we are heading into winter and generally a slower period for housing – so obviously you will get a lower level of sales. This will be heavily reported on.
Thirdly, don’t forget you have just had a government just roll out some quite radical changes which people are trying to get their heads around them and so am I. Investors and homeowners right now will be going to their local accountants, and getting advice for the 2021-2022 and beyond – I think they won’t be as active as the six months. Especially until they have worked it out. Again, pointing to a slower market. The media will really grab this and start headlining with it and start to put negative sentiment well and truly into the market place.
This will pick up pace right through the winter and spring. At the latter end of spring this will compound into many more listings coming onto the property market with more supply and possible downward pressure on prices. You will see the greed and FOMO slowly get kicked to the curve and numbers of home sellers and prices potentially will normalise.
Then roll forward to late Spring & Summer which is New Zealand’s normal buying season will come to play. You will see many transactions taking place.
I suggest that there will be some extremely good buying during this period for first home buyers, and actually most parts of the property market. I feel by that stage New Zealanders will be very “au fait” with the latest changes, true property investors will be very active, and the market may do a bounce and accelerate away again.
The media will be way to slow to report the bounce and it won’t be until nearly this time next year that they will start to report on the upward trajectory of the market again. I don’t see any property crash or correction coming anytime soon especially with interest rates at this level.
Wind forward two years housing will be bubbling away very nicely and with the New Zealand election cycle being so quick – guess what will happen. There will be more sweeping statements from the opposition and the current government defending their actions about housing.
It will be the same outcome, that the housing conversation will bounce around the political spectrum but the fundamentals of lack of supply and demand in New Zealand coupled with low interest rates will hold true. That is why I am still of the same opinion that property is a great investment for some New Zealanders if they can afford to get into the market.
My tip to buyers right now is to buy in winter – you see the house at its worst. If you like it when it looks its worst, you will love it in summer. Vendors selling in this market will find this lucrative as you are not competing with the summer frenzy! Best of luck out there.
Cheers, Tyson Walker