Owning rental properties in New Zealand is an exciting yet challenging endeavour, especially when the market seems to shift with every news headline. Whether you're a landlord just starting out or an experienced investor, understanding the latest trends and predictions is key to staying ahead. In this blog, we'll demystify the current state of the property market, break down what experts are forecasting, and offer practical strategies to help you navigate the future with confidence.
What Are the Current New Zealand Property Market Trends?
The New Zealand property market is experiencing a fairly flat phase, characterised by subtle fluctuations and regional variations. As of May 2024, the QV House Price Index indicates a slight national decline of 0.2% over the past three months, with the average home value now standing at $923,713. While this is an increase of 3.9% from the same time last year, this figure still remains 13.2% lower than the peak we saw in late 2021.
Key Regional Highlights
- Auckland: Leading the downturn with a 1.4% decrease, marking four consecutive months of negative growth. The average home price here is $1,268,196.
- Rotorua: Showing resilience with a significant 2.5% increase, bringing the average value to $665,278.
- Invercargill: Recording the highest growth at 3.2%, with homes averaging $486,276.
- Wellington: Facing a 1.2% decline, with average home prices at $1,003,751.
- Christchurch: Bucking the trend with a 1.4% rise, bringing average prices to $770,898.
How This Effects Supply and Demand
New Zealand's rental market is a vibrant mix of high rental yields and demand-supply shifts. Landlords are finding rental returns particularly enticing in hotspots like Rotorua and Invercargill, where property values have increased by 2.5% and 3.2%, respectively.
Despite this, high interest rates and economic uncertainties are creating a more cautious tenant market. With new housing developments slowing down, the supply remains relatively stable, leading to increased competition among landlords for quality tenants. This evolving landscape requires strategic management and a keen market sense to maximise rental income and ensure investment stability.
Influencing Factors
When it comes to the property market, a variety of factors come into play, each with its own unique impact. To truly navigate the current landscape and make savvy investment decisions, it’s essential to understand these dynamics. So, let’s dive into the top five factors that are shaping the market right now:
Economic Conditions
The economic backdrop plays a significant role in the property market. Interest rates remain high, the average floating mortgage rate is 8.55%, while the average 1-year fixed rate is 7.07%. Besides being a challenge for existing homeowners, these high rates also act as a deterrent for potential buyers. Inflation, although stabilising, still affects the cost of living and property maintenance. Employment rates have shown resilience, with an unemployment rate of 4.3%, providing some support to housing demand. However, the overall economic sentiment remains fairly cautious. If we had to sum things up in one sentence we’d say it appears as if the good aspects of the economy aren’t enough to outweigh the negative impacts resulting in tight market conditions.
Government Policies and Regulations
Two key government policies are poised to significantly influence New Zealand's housing market. The first major policy is the restoration of interest deductibility for residential property investors. Scheduled to be fully reinstated by 1 April 2025, this policy aims to alleviate financial pressures on landlords by allowing them to deduct mortgage interest costs from their taxable income. By making residential property investments more financially attractive, the government hopes to benefit both landlords and renters, ultimately contributing to a more stable and accessible rental market.
Another crucial policy adjustment is the modification of the bright-line test, which taxes capital gains on investment properties sold within a specified period. The government plans to reduce this period from 10 years to two years. This change is expected to stimulate property transactions by allowing investors to sell properties sooner without facing significant capital gains taxes. As a result, the market could see an increase in property listings as investors move to capitalise on this more favourable tax environment, potentially increasing housing availability and market activity.
Demographic Shifts
Demographic changes, including population growth and migration patterns, are key drivers of housing demand. New Zealand's population grew by 2.5% in the past year, driven by both natural growth and net migration. Urban areas like Auckland and Wellington continue to attract a significant portion of this growth, increasing demand for housing and rental properties. However, regional areas are also seeing a rise in population as people seek more affordable living options.
Technological Advancements
When people think of technological advancement, they often don’t consider its effect on the housing market. Yet, the New Zealand housing market is slowly but surely being transformed by cutting-edge technological innovations. Virtual Reality (VR) is revolutionising the way stakeholders visualise properties, allowing for immersive virtual tours that aid in better decision-making.
Additionally, drones have become indispensable for site analysis, offering high-resolution aerial views that streamline planning and monitor construction progress while Building Information Modeling (BIM) fosters collaboration among architects, engineers, and contractors. This reduces errors and enhances project efficiency when it comes to new builds. These technological advancements are evolving with the needs of modern occupants and investors.
Environmental Considerations
The final influential factor in the property market is the environment. Areas prone to natural disasters, such as flooding and earthquakes, are seeing shifts in buyer and insurer behaviour, especially after the record-breaking 2023 Floods. The national push towards sustainability has also led to greater demand for eco-friendly homes, with features like energy-efficient appliances becoming selling points.
Expert Predictions
Industry experts have varying forecasts for the New Zealand property market, reflecting both optimism and caution. Here’s a summary of the key predictions:
Short-Term Forecasts
In the short term, most experts predict a modest recovery in the housing market. According to ANZ, house prices are expected to increase by around 4% this year, with the potential for further growth if interest rates drop faster than anticipated. Economist Tony Alexander offers a more optimistic outlook, projecting an even higher increase of 15% in 2025, driven by strong demand and a relatively limited supply.
Long-Term Forecasts
Looking further ahead, the long-term outlook remains positive but cautious. Over the next five to ten years, property prices are expected to grow steadily, albeit at a slower pace compared to previous boom periods. Experts highlight that demographic shifts, such as continued population growth and urbanisation, will sustain demand in urban areas.
According to an article by Newshub, former prime minister John Key reveals that house prices could potentially double in the next 10 years. "I know that... sounds nuts” he claimed before explaining that “New Zealand is a small country, we have a population that's rising, net migration's pretty positive most years - so that adds to demand.”
Overall Consensus
There is a general consensus among experts that the property market will avoid significant downturns and instead experience gradual, sustained growth. The main area of disagreement lies in the pace of recovery and the extent of price increases. While some, like Tony Alexander and John Key, are highly optimistic about a robust rebound, others, including analysts from major banks like ANZ, predict more moderate growth due to potential economic headwinds and high interest rates.
Impact on Landlords
While changes in New Zealand’s property market affect everyone, we expect to see a profound impact on landlords. With rental incomes expected to rise in high-demand areas like Auckland and Wellington, landlords can anticipate better returns on their investments. However, fluctuating tenant demand and shifting preferences towards more sustainable and tech-enabled homes will require landlords to stay agile.
Strategies for Landlords
In light of this news, the natural question is - how should landlords prepare? First and foremost, we recommend landlords diversify their portfolios. Investing in a mix of residential and commercial properties, or even different regions, can spread risk and enhance returns. Adjusting rental rates and lease terms to reflect market conditions can help attract and retain tenants, ensuring steady income.
Investing in property upgrades and sustainability initiatives, such as energy-efficient appliances and smart home technologies, can not only increase property value but also appeal to eco-conscious tenants. Of course, staying informed about market trends and regulatory changes is crucial. Regularly reviewing industry reports, attending property seminars, and networking with other real estate professionals can keep landlords ahead of the curve and adaptable to market shifts.
Conclusion
Navigating the property market doesn’t have to be intimidating. By taking into account the above predictions and implementing our recommended strategies, you can remain resilient in the face of fluctuations. For more tailored solutions, don’t hesitate to contact the team at The Rent Shop. Our experts are here to help you optimise your rental income and manage your property portfolio effectively so you can stay one step ahead of the property market.
