KEY POINTS:
Slowdowns, chills, falls, levelling. These words were used relentlessly this year to describe the outlook for New Zealand's property market. But experts were wrong, largely underestimating the strength of the market. Even this month's sales are much more robust than the Reserve Bank's projections and the warnings of governor, Alan Bollard, who consistently bemoans New Zealanders' preoccupation with housing ahead of owning shares in companies.
"He's like an old fella standing on his porch, shaking his walking stick at the kids on bikes racing past," said BNZ chief economist Tony Alexander. So what will the market be like in 2007? Place your bets now as we ask the experts to give us their forecasts.
Gareth Kiernan
Infometrics senior economist
Kiernan said it was only now, after a five-year boom, that the property market was finally seeing signs of the long-predicted slowdown. Higher interest rates and the effect of the high Kiwi dollar on export incomes had combined to affect property prices in provincial areas, with Kaikoura and Mackenzie Country particularly hurting, he said.
The outlook is good for home buyers, definitely in Wellington and probably in Auckland, areas where employment growth and migration is still occurring. He said high numbers of new dwelling consents in the last months of 2006 suggested there would be an oversupply of new homes by mid-2007, which could keep house price growth down or at least stable. As a result, Kiernan said, property buyers would have more time to make decisions and not face 2006 pressures in paying top-dollar to get into the market and beat off competition.
The outlook is not so good for provincial areas. The catch-up boom of the last few years was all but over, Kiernan said. Coastal property areas and resort locations like Queenstown may also face a chill. "The wider economy is slowing and income growth is not quite as sure as, maybe, two years ago," he said. "One of the first things you cross off your list if things are a bit tight is a holiday home. I wouldn't pick a lot of growth in those over 2007."
Another thing: Expect status quo for investors and renters in 2007. "There is anecdotal evidence of too much rental property out there at the moment but at the same time affordability is pretty tough for first-home buyers." While some in the industry suspect some investors may sell properties to release equity, Kiernan's number-crunching suggests the trend will be really noticeable about 2010-2015 when a large number of baby boomers hit retirement.
Stephen Hart
Publisher of Where To Live In Auckland
Hart said Auckland's rising house prices had defied naysayers. He said 2007 would see a blurring of "demarcation lines" in gentrifying areas - streets near the borders of popular suburbs will increasingly prove popular, leading to ever-higher prices.
The outlook is good for home buyers. "The momentum is switching from a sellers' market to becoming a buyers' market," said Hart. House prices might still rise in 2007 but data now shows they are becoming more difficult to sell. He said central city suburbs in grammar school zones were still good bets.
The outlook is not so good for new development suburbs. While such areas as Auckland's Stonefields (at Mt Wellington quarry) and "the Dannemoras and Flat Bushes" might indeed sell well, Hart said he was sceptical of their attractions and would always pick an area that had a proven track record. "Are we really going to trust the developers to tell us what the personality and the nature of these new suburbs are going to be?" He also predicts that real estate agents will have to work harder in 2007 as buyers become noticeably fussier. "[Buyers] will require more reassurance that a house is all it promises to be - and they're right to think like that." Expect fewer auctions next year and buyers demanding more evidence of sale prices. "'Sale By Negotiation' marketing is the hallmark of the [previous] sellers' marketplace," said Hart. "That doesn't help buyers and 2007 is all about helping buyers."
Another thing: The publisher has noticed a changing attitude towards blue-collar suburbs and predicts more of the same for the year ahead.
"I do hear people happy to admit they live in Mt Wellington where once they wouldn't," he said. "It won't be too far down the track that Mt Wellington conjures up images that Ellerslie now does."
Andrew King
Auckland Property Investors Association
King agreed house prices were surprisingly robust during 2006. "Most areas in Auckland have continued to increase in value. Rents have also increased but not as much as we would have thought," he said. King expects 2007 will see the current growth in house prices to stall and by the end of next year a "neutral situation" to emerge in which rents will increase, possibly significantly if immigration is up and new building consents fall.
The outlook is good for vendors selling do-ups. "The majority of investors will not be looking to buy an ordinary house because the rental yields have fallen by about 30 per cent over the last two or three years and the return on that ordinary house simply isn't sufficient to provide a decent cashflow given that house prices are likely to remain static." In 2007 he believes canny investors should be looking for properties they can add value to.
The outlook is not so good for investors who want a big return from "ordinary houses" (see above).
Another thing: King said 2007 would see a trend towards established investors selling some properties to enjoy their time in the sun.
Kieran Trass
Property market analyst
Trass has, unlike others, consistently predicted that the property market would be strong throughout 2006.
The outlook is good for banks, who are stretching their criteria (100 per cent loans anyone?) to expand their client base - and for homeowners who qualify and are prepared to take these mortgages on.
The outlook is not so good for small-town New Zealand, where yields are already too low for property investors. Also in trouble? Auckland CBD apartment market - "there's far too many and not enough people want them" - and coastal property; "potentially in for tough times".
Another thing:"If you're an investor you'd be better off to buy in a better area because there's too many investors chasing the same stock in the cheaper areas, pushing the values of those properties up out of proportion."
Tony Alexander
BNZ chief economist
Alexander said the property market had performed surprisingly well in 2006, despite insiders picking it to slow down in response to slower jobs growth, a slight rise in interest rates and a feeling that investors would exercise caution. "Which they didn't."
The outlook is good for long-term investors who aren't highly indebted. He advises those looking at residential property investment to "place a higher than usual emphasis on how you might alter the property in the next year or two to get your rent up."
The outlook is not so good for first-home buyers waiting for prices to drop - or at least stop climbing. Incomes may go up in 2007 but so will house prices. Alexander picks house price inflation slowing to below 5 per cent by the end of 2007. "The environment will be less panicked, it's going to settle down but prices will on average still rise a bit." Previously high-performing regions may also suffer. "Farm incomes are under a wee bit of pressure from the high currency and secondly, farmers are going through a period of consolidation that is going to continue for a while." He says local and out-of-town regional investors may also get a reality check on the sustainability of rental prices considering income levels in these areas.
Another thing: On beachfront and seaside property: "watch out for the tsunamis and global warming! It always amazes me that everyone seems to show such high favouritism to those sorts of properties and they are going to be the worst affected by our climate change."
Murray Cleland
Real Estate Institute president
Cleland said the market had stayed strong throughout 2006. "People kept telling us we were going to see a drop but crikey it hasn't happened," he said. A shortage of listings in 2006 had kept buyers keen "and that's still there today".
The outlook is good for vendors of lifestyle blocks. Cleland said these properties were star performers in 2006 and that wouldn't change. "There's nothing surer than people liking that way of living." Despite other predictions, Cleland said small towns would perform solidly. "I've grown up in the rural communities and they don't suffer ups and downs that some of the cities do. When you come to the farming sector, you find farmers will tighten their belt, they'll ride through any downturn and they'll come out the other side pretty solid."
The outlook is not so good for first-home buyers. "If interest rates rise, that'll put pressure on." He also thinks rental returns will stay much the same for investors.
Another thing: The great rush to water has peaked. "It'll be a levelling out period [in 2007] for the coastal stuff," said Cleland.
The future
* A buyers' market in 2007 - but first-home buyers will still find it tough.
* Rural regions will suffer.
* Status quo for rental investors.
* Auckland CBD apartment market will be vulnerable.
* Over-supply of new homes by mid-2007.
* Lifestyle blocks will continue to be star performers.
* Real estate agents will have to work harder to reassure buyers.
