In the past few weeks, the Government and Reserve Bank have moved to slow the Auckland property market through the introduction of several measures:
- Keeping the Loan to Value Ratio (LVR) speed limits as they are in Auckland but loosening them across the rest of the country.
- Requiring that investor loans in Auckland have a 30% deposit and that banks hold more capital against these investor loans. This will potentially raise those interest rates a fraction.
- Ensuring that any sale of a residential property anywhere in NZ not owned by the occupier and sold within two years will incur capital gains tax.
- Requiring foreign buyers to have a New Zealand bank account and IRD number plus a link back to their home country IRD number.
Wow! Quite a few changes in a short space of time, and all aimed at addressing increasing Auckland values.
The latest CoreLogic/QV Monthly House Price Index has just been released so let’s look at the current state of play. The topline result is that nationwide values are up 9.0% year on year and 3.1% over the past three months. However, the multi-speed nature of the New Zealand property market makes this number next to meaningless. We really have to look at Auckland separately.
Auckland values are rising much faster than anywhere else. No news there. In the past twelve months values have increased 16.1% and 5.4% over the past three months. Part of the reason for the rapid increase is a bit of catch-up following a slow-down in 2014, when the market reacted following the introduction of LVR speed limits in late 2013. Recent months have seen values recover some of that 2014 slow-down and return to the rates they were showing before the LVR speed limits came into effect.
The annual increase in Auckland is the fastest we have seen for several years, but it’s not the fastest it’s ever been. From 2002 to 2004, values were increasing at an annualised rate of over 15% and indeed peaked at over 21%. When we look back at the previous cycle to that, annual increases peaked at 26% in late 1994 and 22% in early 1996. So this latest rate of increase is actually not that extraordinary.
There is a strong historical correlation between an increase in sales activity and a subsequent increase in values. In recent months, sales activity in Auckland has been very strong, not far off what it was at the beginning of the previous boom in 2003/2004.
The CoreLogic/QV House Price Index is calculated using the latest three months of sales. Looking under the covers at data from just the past few weeks, there is no sign of a slowdown in Auckland values…yet. But the ink on the Government announcements is barely dry, so it will take a while for any slowdown to come through, if indeed they do.
So how are we looking across the other main centres? Really no change on what we have been seeing for months. Hamilton, Wellington, Christchurch and Dunedin are all up less than 5% year on year. Tauranga is the only other main centre that is showing a slightly faster rate of increase, up 6.7% year on year and 4.1% over the past three months.
This increase in Tauranga values could be attributed to a spread of the ‘Auckland effect’ whereby buyers are now considering cheaper alternatives to the expensive Auckland market. Equally it could also jut be local effects. There is little evidence that values are increasing in other areas close to Auckland, including Thames/Coromandel, Hauraki, and the Waikato District. Matamata-Piako values began increasing slightly in early 2013 with a brief drop in late-2014 probably in response to the LVR speed-limits. The past twelve months have seen values there increase 5.4%. Is this increase really from Auckland buyers or something more local? Much more likely it is local.
Clearly this apparent spread of buyers and values from Auckland is one to watch.
The move by the Government to apply capital gains to properties re-sold within two years also looks to be a smart one that will primarily impact the Auckland market. Our analysis of sales turnover shows that in Auckland the most common ‘hold period’ is 1 year. Compare that to the rest of the country where properties are most commonly held for 7 to 8 years. This rapid turnover of properties is also typical of periods when markets are rapidly increasing, and we saw it across much of the country during the previous boom in 2003 to 2007. At the moment it is really only an Auckland phenomenon.
Overall, I still believe that Auckland values will continue to rise for the next couple of years but at a slightly slower rate. I also don’t expect to see the rest of the country to follow Auckland up anytime soon.