By Gareth Vaughan
Auckland house prices are down about 10% from their peak earlier this year with the clamp down on money flowing out of China the main reason behind this, according to John Bolton, managing director of Auckland mortgage broker Squirrel.
Bolton notes that the official property market data is generally two to three months behind what's actually going on in the market. The Real Estate Institute of New Zealand's November data is due out this week. In advance of it Barfoot & Thompson, Auckland's biggest real estate agent, has reported a record median price for November of $795,000, but an 11% year-on-year fall in sales volumes with 986 homes sold in November.
"October-November was really slow. We had a significant drop off in our business over that time period. The vast majority of that was in the Chinese market. We saw volumes in the Chinese market literally drop off a cliff," Bolton says.
By Chinese market he largely means ethnic Chinese who are New Zealand residents with access to money from China.
"It's essentially New Zealand resident Chinese, probably recent immigrants within the last 8 to 10 years, having access to large amounts of foreign capital. So a lot of money flowing in from China," says Bolton.
More than the measures introduced here in this year's Budget requiring foreign property traders to have IRD numbers and NZ bank accounts, or the restrictions introduced requiring Auckland property investors who borrow from banks to have a 30% deposit, Bolton says the slowdown has been mainly driven by Chinese authorities making it harder for people to take money out of China.
"And essentially that's the big thing that changed in October. It wasn't so much the rules here, it was the clamping down in China itself. There were two big things that happened over there. There was that massive sharemarket correction that they had, and I think that was actually felt quite significantly. And the second was the Chinese government cracking down on the outflow of money pretty much after the sharemarket crash. That really tightened things up and that was really noticeable," Bolton says.
All these changes within a short period of time mean lots of people are sitting on the fence, waiting to see what happens to the Auckland property market over the next few months, Bolton suggests. A similar thing happened when the Reserve Bank introduced its initial loan-to-value ratio restrictions in 2013, he adds.
"My view of it is that come February, once we get through Chinese New Year, I think you'll see the Chinese starting to come back into the market a lot stronger."
"If you look at it from a global perspective there's a lot happening in China at the moment. Particularly with (the yuan) becoming a reserve currency and starting to deregulate and probably free up their foreign exchange again," Bolton says.
A 10% drop
He reckons Auckland house prices are about 10% down on peaks earlier in the year.
"I think personally, without looking at statistics, my feel from what I see in the market is that house prices have come off about 10% from their peak which was around May-June. But that doesn't necessarily translate into the results," says Bolton.
"Back in May-June our buyers were pretty much having to pay too much, that little bit extra to secure a property, whereas now with the auction rates declining and everything else, the same pressure's not there on the house prices. And there's an ability to negotiate, or an expectation that they can get the price down a bit."
"In certain areas it's really obvious. Particularly the areas around Auckland where there has been a high proportion of Chinese buyers. They're just not in the market (now) and that has definitely softened the prices there. I think most people have a view that the market will come back and most people aren't in a position where they need to sell. So hence you're seeing auction clearance rates dropping, the number of house sales falling, because people are literally just withdrawing from the market until the house prices come back and that strength is there again," Bolton says.
Owner-occupier buying opportunities
Meanwhile, with the new lending rules in place for property investors in Auckland, Bolton sees buying opportunities for owner-occupiers.
"I think there's an opportunity in the market at the moment for anyone who is looking at owner-occupied property to get in. Our first home buyer market's actually going quite well at the moment. Because of auction (sale) rates falling the opportunity for them to get into the market at the moment's a hell of a lot better than it has been."
"Last year was near impossible for people to get into the market whereas this year it does feel more sensible, albeit Auckland house prices are really high. But the opportunity to buy is there right now through probably to February-March," Bolton suggests.
Against this backdrop he says Squirrel's on target for a record month in December, despite the Chinese slowdown, with the firm set to break through $100 million of settlements for the first time.