Harcourts CEO Bryan Thomson has predicted an improvement in property prices in provincial and coastal areas in 2010 as rural export revenues improve, interest rates remain low and demand returns for holiday baches and sections. Here are his full comments.
"While compared to the dark days of 2008 there has been significant improvement in the residential real estate market in the main centres this year, in other locations and segments of the market things have continued to be challenging," Mr Thomson says. "In the major metropolitan centres there has been a marked increase in the volume of house sales and prices have been positively impacted in recent months by the imbalance between supply and demand, but overall sales numbers in most locations remain below historic averages. "For example in provincial centres the market has not seen as much buoyancy as the big cities, partially because the rural economy has slowed and as a consequence of the financial environment, property investors appear to have been more cautious about provincial locations, while the volume of farm sales has dropped right off and demand for coastal property has been low too. "In 2010 however I believe that in addition to ongoing solidity in the residential marketplace in the main centres there will be an improvement in the provinces too, all stimulated by attractive floating mortgage interest rates, far better than predicted unemployment figures and positive immigration. "Improvement in dairy farm income should have a positive impact on provincial areas too and see farm sales start to improve as well, meanwhile we also expect to see more activity in coastal areas in 2010, with the easing economic situation helping renew interest in baches and sections in coastal locations."My view The Fonterra payout is improving and dairy commodity prices are likely to push it higher still above NZ$6.05/kg for the current season, but the missing ingredient this time around is easy bank credit. Banks have stopped lending to farms for dairy farm sales because they are over-exposed and they know it (as does the Reserve Bank). Also, many farmers will want to borrow more or sell other assets to participate in Fonterra's 120% dry share capital raising early next year. Many farmers are also chastened by their near death experiences early this year and are reluctant or unable to go on the equity withdrawal spending sprees on coastal and provincial property that they did from 2005 to 2007. Thomson may also be relaxed about variable mortgage rates being around 6%, but that's unlikely to last much longer than March or April of next year. My pick (and the forecasts of those in the market) is that the Reserve Bank will hike the Official Cash Rate by at least 100 basis points and possibly 200 basis points by the end of 2010. That means property buyers should be prepared for 8% interest rates by the end of 2010. That may stymie the price improvements Thomson is expecting. Your view? We welcome your comments and insights below.