Despite all the predicted doom and gloom following the Government’s recent changes to many aspects of the residential rental market we have not witnessed any rush by investors to get out of the market. We have only lost 2 properties (3 rental agreements) as a result of investors selling.
On the other hand, we have witnessed strong interest from investors – especially from Auckland, Hamilton and Wellington – in investment property here in Christchurch. And over the past couple of weeks local investors have re-emerged and looking to expand their portfolios.
Despite every effort by the Government to bring residential prices down there has been little success in doing so. A shortage of new listings on the sales market, low interest rates, increasing numbers of Kiwis returning home, sadly an increase in divorce and separation are all contributing to ever increasing prices. We attended several auctions recently on behalf of clients and we were stunned by the prices being paid for very average, or even below average, properties. Admittedly most were to owner occupiers but for investors this is making it very hard to get an acceptable yield – they are depending on ongoing capital gains to make their investment viable.
Things are changing – in both directions.
Depending on how you are viewing these changes on the plus side is that banks have reduced their rules around lending on apartments. This will make it easier for both new home owners and investors to purchase apartments over 38 sq. mtrs. New home owners now only require a 20% deposit compared to a 50% deposit on apartments greater than 45 sq. mtrs. Apartments are becoming much more acceptable to New Zealanders either buying or renting. They are often closer to town, require no, or little, transport to get to work, have no gardens etc which suits the lifestyle of many buyers. Banks were always tough on lending on apartments as they deemed them to carry a greater risk due to owner’s difficulties in maintaining values, repairing defects, leasehold tenure in many cases) and the bureaucracy of many body corporates.
On the other hand, there are signs of interest rates increases. The first round of these has already happened and albeit modest in size it is thought to be the first of several increases over the next couple of years. What’s the impact of increases? Assume a mortgage of $350,000 (very modest by todays standing). Assume that mortgage rates rise to 6% as predicted by some commentators (some say even more). Then the changes are:-
$350,000 interest component only.
3.0% = $10,500 pa
3.5% = $12,250 pa
4.0% = $14,000 pa
4.5% = $15,750 pa
5.0% = $17,500 pa
5.5% = $19,250 pa
6.0% = $21,000 pa.
So, a family with a mortgage of $350,000 would need to find another $10,500 after tax to meet mortgage commitments.
For those of us who can still remember interest rates of over 18% a shift to 6% may seem minimal but it is still going to have a considerable impact on home owners. And will cause many new home buyers to delay a purchase and stay on as renters.
Commentators are now predicting that the reserve bank will lift the official cash rate much sooner than originally thought. With inflation hitting 3.5% and house prices staying high there are signs that a tighter monetary policy is on its way. Some are saying that the OCR will lift in August but the majority are saying November.
And this all comes at a time when consumer non-mortgage spending is at a high. Data from credit bureau Centrix shows non-mortgage spending in June was $600,000,000 up 38% over May. Non-mortgage spending is defined as credit cards, personal loans and buy now pay later schemes. Much of this increase has been spent on top-end luxury cars. Spending has been encouraged by low interest rates and a strong job market. So, any increase in interest rates is going to impact on this type of borrowing as well.
Selwyn District used to be a ‘sleepy hollow’. Rolleston – once dubbed the town of the future – is finally living up to the hype. Just 20 minutes to Christchurch it is expanding every day. And it’s easy to see why. Affordable, new houses and a high sense of community. In 2001 Selwyn was home to 16,000 people. In 2021 it had grown to 70,000 people with another 20,000 planned over the next 10 years.