By Gareth Vaughan
Uncertainty is a key feature of the Auckland housing market right now, with "softness" in the market likely to remain through the rest of 2014, says John Bolton, principal of Auckland mortgage broker Squirrel.
Bolton told interest.co.nz in a Double Shot interview a mixture of factors were contributing to this uncertainty.
"The LVR restrictions are there, they're doing their job, they've definitely contributed to slowing down the market along with two OCR increases, (and) the prospect of further OCR increases. And the other thing not to forget is that we've got an election coming up this year as well," said Bolton.
"So when you look at the mix you've got an OCR that's going up, an election that's looking less and less obvious in terms of what the outcome will be, and you've got LVR restrictions and a lot of commentors in the market talking about what potential impact all of these things will have on house prices. And it's that uncertainty around house prices that really slows the market down."
"Housing's a confidence driven market. What we saw in 2013 was a lot of speculation, a lot of people just jumping on the ladder as house prices escalated. What we're seeing now is the reverse of that, which is people being a little bit more cautious, a little bit less certain, and potentially sitting on the fence a lot more just to see how this market shakes out," Bolton added.
The latest figures from Barfoot & Thompson, Auckland's biggest real estate agency, show May sales volumes down 175, or 14%, year-on-year to 1,109. The median price rose to $645,000 in May from $619,550 in April 2014. It's not far off the record $652,000 set in March, and is up 13% year-on-year.
The latest Reserve Bank data on the high loan-to-value ratio (LVR) restrictions it has enforced on retail banks' low equity residential mortgage lending, show it was just 5.4% of total new commitments in April before exemptions, or 4.3% after exemptions, versus the limit of 10%. Meanwhile, the Reserve Bank has increased the Official Cash Rate (OCR) twice so far this year, by 25 basis points each time, to 3%, and is expected to lift it again next Thursday.
'Softness in house prices'
Asked whether he thinks the median Auckland price will follow sales volumes down, Bolton said there was definitely some softness in house prices.
"The interesting thing is a lot of the metrics that we have don't really give us any clarity in terms of what's really going on. Last year we had a lot of people that were renovating old houses and then selling them back into the market. So they were potentially buying them cheap and selling them high, and those sorts of things drive the statistics quite a bit," said Bolton.
"What we can see in the market at the moment is where a house is really well marketed and it's the right property, there's still a market there for it and a good property on the right day will still get a high price. But what we're starting to see is houses falling through the cracks. Houses that aren't marketed well, or aren't presented well to the market, houses that have got problems, maybe a code of compliance problem or something like that, and those properties are definitely selling cheaper than they would have last year."
"So that softness is starting to come through and I'd expect to see that continue to get a bit of momentum through the winter, which is traditionally a quiet period, particularly going up to the (September 20) election. I think it's safe to say that August, September, October's going to be probably quite quiet in the housing market. And if the sellers are there and the buyers aren't, then that softness will definitely come through," Bolton said.
Ahead of the election the opposition Labour Party is pledging to introduce a Capital Gains Tax on investment properties.
In terms of the LVR restrictions Bolton said they are clearly contributing to slowing the Auckland housing market down. However, banks are now rejecting a lot less high LVR borrowers.
"Since March-April we've found the market has slowed down and the banks now can comfortably handle the above 80% business that we're putting into them," said Bolton. "So we're not getting nearly as many declines as we were at the start of the year and I think that's just a symptom of the market slowing down."
There are also less sales through auctions, he said, with more customers, especially first home buyers, able to buy through negotiation.
"Auctions are a very expensive way to buy properties especially having to do your due diligence up front. It's always going to be a buyer's preference to be able to buy by negotiation," said Bolton.
Opportunity for first home buyers
Although a lot of would-be first home buyers are "lacking confidence and back on the fence", some rational ones who don't get too nervous are taking advantage of market softness.
"We've still got a reasonable chunk of first home buyers out there probably taking advantage of a bit of softness in the market at the moment, less competition, and feeling like there's an opportunity to buy. Whereas perhaps in 2013 there wasn't. It was just crazy," Bolton said.
However, talk late last year and early this year of floating mortgage rates rising to 8% as the Reserve Bank embarked on an OCR tightening cycle, has impacted the first home buyer market.
"Going into next year I think you'll probably see things settle down a bit and you'll get a bit more of that confidence coming back into the market," Bolton said. "The thing with first home buyers is they do tend to jump in and out of the market on mass. And when they jump back into the market on mass you get a little bit of momentum and the confidence builds, and you'll probably get another surge."
Bolton also noted strong immigration into Auckland. Statistics New Zealand figures showed in April New Zealand had a seasonally-adjusted net gain of 4,100 migrants, which is the second highest monthly total ever. Auckland takes the Lion's share of immigrants.
"There's this odd situation where we've got potentially a bit of softness coming through in the housing market at a time when we've got really strong immigration. I think that immigration factor will kick in again next year," said Bolton.
70 Comments
I dont think there is any uncertainty . This market has gone crazy , the clowns have taken over the circus , and opened the animal trainers drinks bar, and are now drunk
Its certainly not going to end well .
And everyone would be well advised to sit on their hands while it all unfolds .
With FOUR things to deter buyers , namely a possble CGT, static rents , Higher OCR rates , and cash deposits up front , one would have expected the market to go into a decline .
- CGT risks would normally deter speculators
- Static rents should serve to deter investors.
- High cash deposits should remove FHBs , and
- High interest rates would make the banks tighten lending.
There is no real evidence of this just yet , just agents saying there is no good stock , and yesterday more reports of prices going up and up relentlessly.
The hangover is coming
Boatman please, prices briefly went backward then have played accelerated catch up since. If they do dip (Which I doubt) the smart ones will just ride the wave and hang on to the next so called bubble (Cycle).
Put the doom n gloom and property owners in a bucket, look at the last ten years, I know what crowd I'd rather take advice from.
Yeah just like shares (eg xero) that run too hard too fast; price out paces underlying value appreciation. What generally happens is a small pull back and what people like to see is consolidation. This happened after 2008. Then up we go again.
The regions have had 7+ years of consolidation since 2007 price peak. During that time wages have increased, debt has been repaid, deposits have been saved. All the while prices have been stagnant.
Im picking the excitement of the auck market will die and we will see consolidation, up to 5% falls in nominal terms possible (real terms prehaps 10% plus), while the regions grow at similar rates or slightly above inflation, spurred on by investors getting out of auckland and into better valued markets. Fun times, will be interesting to watch what happens how ever it unfolds. (of course how the media works, we will never see a boring, middle of the line prediction as I've just made, you'll either get 'prices soaring' or 'prices plumet'..)
"The interesting thing is a lot of the metrics that we have don't really give us any clarity in terms of what's really going on. Last year we had a lot of people that were renovating old houses and then selling them back into the market. So they were potentially buying them cheap and selling them high, and those sorts of things drive the statistics quite a bit," said Bolton.
Durrr... I reckon an experienced Real estate agent would have a better feel for the mkt.
sounds like this guy does'nt really know ... and is mostly talking in circles....
Why not interview some of Barfoots top agents... in different sectors of the mkt...??? I'd find that of more value.
Kimy , I know voting for Labour is like a turkey voting in favour of a second Christmas .
I just dont understand how anyone in their right mind could vote for a party promoting such a dumb idea .
We forgo consumption , go without some luxuries to save and invest for our old age , so we are not a burden on the state , and then a Labour Government wants to take a chunk of it away after we have risked it in investments .
So when the State is required by its citizens to provide all of those services we demand, you are suggesting that capital gains are sacrosanct and untouchable.
Fortunately even the head of the Bank of England is now starting to question the easy gains/rewards in the financial sector. What difference are capital gains? You expended no effort to achieve them. Certainly a lot less than most who earn their income.
This issue keeps on and on and on, going round and round the dance floor
I wish we could bury it once and for all - it's getting tedious
A simple interim solution (just to get it started) is to make the personal owner-occupied residence CGT free with the proviso it is lived in, by the owner(s), for 5 years. Under 5 years, tough. Everything else is subject to CGT and any CGT losses are quarantined or ring-fenced and carried forward and preserved for up to a maximum of 5 years.
Gee, I feel real, real sorry but you could easily emigrate to somewhere that suits your needs.
Try Mali or Nigeria.
;o))
Socialist? Even the more right wing regimes (USA?) have their services. It is all a matter of degree. Even the GOP is not just the Tea Party.
On the other hand the US practices Socialism in protecting its to-big- to-fail banks!
you can keep your overpaid useless vulture medical system (who have poisined me more than once, and stuffed up more than one operation). And definately don't want your welfare system (which I wouldn't need if taxation wasn't so high).
Internet was developed without government help, the government institutions who were contributing would hve done so anyway, and the private sector was developing it anyway, using dark bandwidth and private repeaters...it was only the taxpayer subsidised parallel system that shoved us out of the market by utilising their existing taxpaid utilities and using their cross subsidisation that took our customers.
Roads a re a public good, but are inefficiently used, as the deliberate corruption which was used to downgrade railservices in favour of tax revenues from road and fuel use.
As for the electricity...go private and PV/SHW
BBlll........try being self-employed and getting any of the beloved Socialist assistance that everyone else loves and enjoys!
Why do you think Trusts and other entities are used to remove assets away from direct ownership!
If you are self-employed and own in your name your business you will not get any assistance if you get sick. You will not be able to have surgery at a time convenient to your business so are enforced to have medical insurance just in case you need surgery.
If it wasn't for business there would be no Social programmes as there would be no income generation taking place in the first place.......if people want Social programmes then they need to be listening to what business's need to keep things moving along.
There is a very narrow line between Socialism and Communism. NZ is a State controlled economy which allows elections. You cannot do anything without asking and paying some bureaucrat!
Rather than introducing CGT which might or might not work at all, why don't they introduce stamp duty with exemption on first home buyers, The rate of duty can vary for owner-occupied or investment property. I know in Oz it's an important factor when one looking at property investment - and yes if you get caught for cheating there will be a BIG fine waiting for you.
Not sure if thats true. My ex was initally approved for a FHB loan, even though we had owned a house. Because she no longer owned a house personally they were initally willing to give her lots of FHB advantages (until they found she'd mis-declared her personal income)
so if you sold all your house holdings into a company then there is good chance of being a FHB again. I think this was so Trustees and Settlors wouldn't lose their personal right to be FHBs.
It's never an equal playing field. Poorer you are the more GST you will pay as % of income etc. Money makes money, assets make assets, the more you have the more you can get more easierly. Wealth accumulates in ever smaller segments of society. You need mechanisms to tip balance towards meritocrocy.
However this landlord would need to be involved in some other business for them to be GST registered.
For the majority 'mum and dad' salary earners with 2 or 3 rentals, they would not be GST registered.
The majority set the market rent in any given area.
I reckon the majority would NOT be registered for GST.
Spottie.....those Mum and Dad investors are competing in the market place with other PI they cannot set higher rents just because they may not be registered for GST!
IF the majority of investors are Mum and Dad salary earners and they are not structured with say a LTC then they would not be able to offset any losses (shortfalls in rental income to costs) against their salaries. So they would be suffering a double whammy and probably not be able to stay in the property market very long under your reckoning as they are also pricing themselves off the rental market because they charge more if they are not GST registered.
Maybe you underestimate the ability of other people to work things out for themselves.
According to IRD site you can register for GST if taxabvle activity (volunatry under 60K turnover). Taxable activities don't include ... exempt supplies, such as:
- letting or renting a dwelling for use as a private home
So he's probably wrong, landlords can't register for GST if/as they don't charge GST.
unless you're putting in extra services. such as charging letting fees, maintainence services, listing fees, performing advertising, agent work.
Everything which goes beyond the recent clarification of a property management which is considered a listing service.
which is why earlier I mentioned that there are some areas which don't qualify for GST.
eg individuals letting private dwellings. Which is why they don't register, and they would be paying more... but that's why the GST doesn't affect them, they wear the minimal cost and don't pass it on.
However, businesses that operate doing domestic letting fequently find that their activities will put them over the bar if they aren't careful. In which case GST does affect them and their clients. It's also why a branch of property management & sales will have armslength style separation between residental and commercial operations.
if you're not registered for gst, becauser if you are you can claim gst back - although I could be wrong on that one. My primary cost is Interest, which is zero rated. Next is rates, which I'm don't stinge on a little bit for services rendered. Maintaince is minimal as the properties are in good nick, tools are owned and much of the basic stuff is done by yours truly. instead of valueadd contractors. If I was a larger operation, I'd have to be registered anyway, for that particular operation.
except, as has already been pointed out, you are paying out GST, just not receiving it. so there is gst activity. However the majority of landlords are likely not making more than threshold turnover so don't HAVE to register, and don't want the paperwork.
In many businesses the GST threshold is quickly bypassed because it's based on turnover. That means total goods INWARDS is significant. Making even $100/mo (NP before tax) from trading GST goods is likely to push the boundary.
However, PI doesn't have large inwards gst turnover, nor does it have compulsory GST outwards. so registering is not a big compulsory.
Likewise, GST is charged on the upstream of the business revenue - when the product is at it's highest value in the business.
Therefore, in a successful business, net GST will be owing...and considering most PI doesn't have significant outgoing GST, it is often better for the PI to wear the smaller cost of the GST consumed, than to penalise their customer by collecting GST for the government off their, usually inelastic, rental price.
Sadly it's not funny.
And was interesting that the Green and Labour parties totally ignored that fact when stirring up voters over the GST rise. 2.5% increase when you've only got $10-150 discretionary income (25c - $3.75) is very little, when rents $100-350.
But think of the poor person on an income of $2000/wk, who could easily have a freehold property (and who has little excuse for not have alternative energy assistance). They probably have near $1350 a week discretionary spend for a whopping $33.75 increase.
110 = 0.27%
500 = 0.75%
2000 = 1.69% poor things. four times the contribution by income
When you have $150 left after housing a week you pay 15%GST on all of it as you must spend it all on GST rated stuff to live.
When you have $1350 left after housing you can choose to pay less GST - like buy GST rated stuff with half of it and invest the other half. So only 7.5% of your disc income has gone to GST and the rest is earning you more $.
I know some poor people and $3.50 is much more signifigant to them than $34 is to me.
We're not talking "significant", and yes I've had to forgo butter to buy bread before, and consider a roll for a day bcause a whole loaf of bread was too much for the cashflow.
With the 1350, you can invest it... but if you have a positive yield, then you will pay your GST on the 1350. even if you keep compounding it, which makes you even wealthier and richer then your income goes up and you'll pay GST on the earnings you consume eventually.
Thats the beauty of a GST style taxation its paid on consumption, so the consumers pay for what they personally use from the system, no free ride. each time you reinvest instead of consume, it goes back into the system to work for others, when it comes back you get to choose to consume or reinvest into community. is that not good?
Well Steven using that analogy....your education or qualification should be seen as an asset also.....if you get paid more each year because of that education/qualification then perhaps that increase in value should also have to pay CGT! After all the value of your education/qualification is a gain/profit on your asset.
Or are you perhaps selective in what you would see as an investment?
The business activity from assets is already being taxed. The same as wages and salary.
actually if he gets paid more, then his PAYE increases, so he is being taxed for it.
the CGT part that would be interesting, is when they make it on unrealised gains, then he would be paying PAYE on what the top professionals using their qualifications would be receiving, as that is the market point. (of course the corollery to that, is if he's not making the correct (top professinal) market income...he's practising tax evasion and should be prosecuted and proibably imprisoned immediately)
Auckland has never had a housing shortage.
Look at the auction rooms seen on cambell live last night. 80% getting passed in below reserve with only single bidders. Bidding wars are over.
So lets assume prices have flat lined at best (reality, small declines already happening, best insight into this is via QV e-value subscription which updates any particular house every week by considering local sales, I have posted one of these a few weeks back on interest.co.nz for birkdale northshore which illustrated price falls this year.)
And zero new houses have been built by the govt. accord etc. Physical supply essentially unchanged (prob worse relative to pop increase).
Something has effected the market significantly, something completely unrelated to the actual number of physcial houses in auckland (something every man and their dog had been blaming for the price rises).
So whats going on?
Simple as can be. Human nature. Something buffet is an expert on. Unless you consider it you'll always be confused by 'the market', which happens to consist entirely of... humans...
Emotional buying by people thinking they are going to miss out.. buyers that planned to buy 'at some time in future' feel forced to buy NOW before prices rise another 100k. Sellings (potential sellers) equally effected; considering selling now, why not hold off till next year and book another 100k tax free profit!
This extremely simple dynamic has caused 90% of the price movements. The underlying value of the property in auckland (intrinsic value, shelter at a given location) has been virtually unchanged over past 3 years, yet the price has rocketed.
If Labour get in and build 100k houses in auckland we will see a Ireland style collapse.
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