NZ Property Market Outlook 2021. Part 1/3

Influential Trends

• Migration: Unlike refugees, safe-harbor expats are returning to New Zealand with funds and professional earning power. This influx will likely underpin demand for property.
• The worldwide trend towards working from home is at odds with the burgeoning tiny-house movement. Larger properties with a study or potential office will likely attract extra demand.
• An aging population continues to downsize into low-maintenance residential accommodation, often in competition with first home buyers and investors.
• New construction is gradually ramping up with a two year completion lag for major developments

Australia

In the 1990s it was normal for around 40% of NZ residential properties to remain unsold after 90 days on the market. Many vendors were moving to Australia. Emigration declined when Australia began restricting access to social security for NZ citizens. Considering what you could buy in desirable locations in Australia for $500K NZD, the NZ market would weaken again if migration to Australia on even terms were reinstated.

Conversely, developers would be negatively impacted considering the current cost to build a 200m² dwelling in NZ is roughly $600,000 or $3,000 per m². Australia's appetite for skilled workers (who would also boost their property market) may grow.

Lending

Any cooling impact of Loan to Value Ratio restrictions will likely be offset by low interest rates and buyer enthusiasm. Interest rates are unlikely to rise given that NZ / Australian banks are awash with cash from worldwide increased savings rates (up to 10% of GDP in some countries).

At 2.75%, an 800K loan is probably earning a bank up to 10-15K per year. Banks will be unable to resist lending to low risk borrowers with a reasonable deposit. Many potential first home buyers will have seen their Kiwisaver investments quickly recover and grow throughout 2020.

Taxes

The Bright-line test means you pay tax on the sale of a property if you buy and sell within five years excluding your family home. As evidenced in Australia, a Bright-line extension is unlikely to dissuade property investors. High property prices are a reflection of supply constraints.