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Home / Business / Personal Finance

Trying times

By Bruce Morris
NZ Herald·
7 Mar, 2010 03:00 PM6 mins to read

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Hamilton city. Photo / Kenny Rodger

Hamilton city. Photo / Kenny Rodger

When Auckland, followed by Wellington, Christchurch and Dunedin, began to wade out of the residential property mire in the middle half of 2009, the provincial cities and towns waited patiently for their turn. But it never really came.

The year started as 2008 finished - miserly sales and sliding median
prices across the country. No one was selling unless they had to. Better to refinance at super-low interest rates and ride things out.

But the autumn breathed fresh life into the market in Auckland, and then the other main centres. The talk of post-recession green shoots was enough to satisfy buyers the bottom had been reached - with prices down almost 10 per cent across the whole country - and in they climbed on the back of cheap mortgage money.

There may not have been a lot of buyers, but there were certainly more of them than sellers. The result: houses started selling quickly, with multiple offers and auction bids pushing up values right through the winter.

By year's end in the main centres, supply had started to edge up, swallowing much of the demand and putting pressure on prices. But it was a welcome spurt for homeowners and real estate companies, even if volumes were about half the levels of the market peak.

Beyond the big city limits, however, the news wasn't quite so encouraging. While Auckland's prices were up 5.1 per cent, according to QV's residential property index, over the year (and more in the nine months to December 31), most of the upper-North Island provincial regions struggled. Gisborne (down 5.6 per cent) and Whangarei (down 5.2 per cent) had grim years. And it wasn't a lot better in Taupo (down 1.4 per cent), Hastings (down 0.2 per cent), Tauranga (up 0.1 per cent), Rotorua (up 0.4 per cent) and Hamilton (up 1.8 per cent).

Out among the provincial towns and pasture, it was a sea of red - from 2.3 per cent down in the Far North to a drop of 9.7 per cent in Hauraki and 6.4 per cent in South Waikato, although the lower North Island did a little better.

So where to now? As illustrated in today's tables, the last quarter of 2009 gives some pointers but there's nothing to suggest the upper-North Island provincial cities and towns will be restoring relativities any time soon with Auckland or Wellington.

As Richard Allen, QV valuation manager, Waikato, notes: "I can't see any pickup in the next 12 to 18 months. Interest rates will go up, there will still be uncertainty in the economy, no investors will be in the market, and farmers are not expecting a bumper year. So I don't know where the stimulus will come from."

The May budget may help to eliminate some of the uncertainty over tax changes but nothing has been forecast to suggest that will stop people sitting on their hands and send them rushing out to open homes.

Hanging over many of the coastal areas in the North Island - especially in the Far North, but also elsewhere in Northland, like Mangawhai, and through Coromandel Peninsula and the Bay of Plenty - is a vast backlog of sections at depressed levels that others bought for big money with no chance in sight of a return in full. Much of this land was developed during the height of the boom, at prices almost plucked out of the air. Some people bought at those levels and values have now tumbled as developers are forced to quit the land at whatever they can get for it.

Those "bargain" sections flow through to values of local residential real estate and that is further undermining prices. After all, if a section that was originally for sale at $250,000 goes for half that (and there are plenty of such examples through the North Island), why would anyone be interested in paying $475,000 for the house-and-land package opposite? Better to plonk a $250,000 new house on the section and save yourself $100,000.

Those pressures don't apply in the bigger cities because few sections are available and the demand supports prices.

Of the northern provincial cities, Hamilton may be doing the best, though the market is no better than flat. The east side of the Waikato River is doing best, and the north and south-east are standing out.

Up in Whangarei, the last quarter data shows a similar flatness, with prices down across most areas and no sign of a pickup. The big rural Northland towns - Kaitaia, Kaikohe and Dargaville - all struggled, though Kerikeri seemed to hold up well.

Rotorua may be doing a little better after a very ordinary 2009. L. J. Hooker's Malcolm Forsyth says his office has noticed increased activity with more listings since the Government revealed part of its tax strategy.

Over in Tauranga, pockets of the city are doing well, particularly the established areas like Matua, The Avenues and Pillans Pt. But the more modest suburbs, - such as Welcome Bay, Ohauiti, Merivale and parts of Gate Pa and Greerton - haven't had a good start to 2010.

Across the bridge, prices and demand in Papamoa East have fallen away, and Mt Maunganui has started to lose its "invincibility status", says Shayne Donovan-Grammer, QV registered valuer, Bay of Plenty.

That's not a label he ever applied to the patch, but it is one local property owners often imagined was the case. The events of the last two years have illustrated that even the North Island's premier beach suburb is not immune to the fluctuations of the property market.

The data tables which Property Report publishes today don't include apartments but - as in Auckland - they have been major casualties of the downturn and over-supply.

Donovan-Grammer says a rash of developments on over-priced land has brought forced sales and seen apartment values tumble by as much as 30 per cent. Two-bedroom apartments with sea views that carried $650,000 price tags have gone for $450,000; superior units that might have fetched $1.2m at the market peak can be bought for $850,000. And that may not be the end of it.

"People are just hanging in there on these apartments and thinking that the green shoots will be along shortly," he says.

"Well, good luck to them but I wouldn't have the same confidence."

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