First home buyers in New Zealand have been paying the highest prices relative to each area’s average property value, according to some research from CoreLogic and CoreLogic’s property economist in New Zealand, Kelvin Davidson talks about that today.
Transcripts:
Kevin:   First home buyers in New Zealand have generally been paying the highest prices relative to each area’s average property value, according to some research that’s just been released by CoreLogic in New Zealand. Joining me to talk about that, CoreLogic’s property economist in New Zealand, Kelvin Davidson. Kelvin, thanks for your time.
Kelvin:   No worries.
Kevin:   Looking through your research, a number of points I want to make, but firstly, just give us a bit of an overview. What has it revealed for you about what and where first home buyers are buying in New Zealand right now?
Kelvin:   Yeah, so what it reveals to me is that first home buyers are still pretty active around the market. They’re even finding some ways of buying into the most expensive places, even though prices in, say somewhere like Auckland, are a million dollars on average. The first home buyers are still finding a way in.
Kelvin:   So they’re pretty active right across the country regardless of price, but if anything, probably a bit more active in the cheaper markets. And that’d be the these are cheaper, these are regional markets outside the big cities. By the looks of it, being able to access perhaps a better property in those regional markets because prices are just that bit lower.
Kevin:   You’re certainly getting a lot more bang for your buck in the regional areas. Just before we move into that, can I just ask you? The comment you made there about finding creative ways to get into the market, even the most expensive markets. What are some of the things that you’re seeing them do, Kelvin?
Kelvin:   There are two things. First, well, this is not probably particularly creative, but they do here in New Zealand, they do have access to KiwiSaver for a deposit, so that’s superannuation scheme that people pay into. And what you can do as a first home buyers is withdraw your money from that early and use it for a house deposit.
Kevin:   Yeah, that’s certainly is a big bonus. Is there anything else they’re doing, Kelvin?
Kelvin:   Yes, the second thing with the … they’re showing a willingness to compromise, really, on either location of the property or the type of property. So more willing to move to the edges of a big city and perhaps take an apartment, rather than a standalone property, so a couple of things going on there.
Kevin:   Yeah, very good. Can we just talk about the regional areas? Because you made a very good point there, and we’re seeing the same thing in different parts of the world, actually. The regional areas are starting to outshine some of the cap city areas because of affordability. But what, in your opinion, makes one regional area outshine the others?
Kelvin:   Well, what we’re seeing in New Zealand is regions, perhaps in the Central North Islands and certainly Dunedin and the South Island are the ones that are running pretty hot. Shortage of properties on the market there and lots of demand, so prices are going up. And really, I think in general, just outside those big cities, it just really does come down to that affordability thing, prices are lower. And it’s helped by the fact that people have generated quite a lot of equity, say in the Auckland market over the last 10 years, and seeing a little bit of a trend for people to cash up in Auckland and move out to these regional markets across the lower North Islands, central lower North Islands, and down to Dunedin as well, [crosstalk].
Kevin:   Yeah, sorry, Kelvin. Is there much of a trend that you’re seeing for people to live remotely because of infrastructure, transportation improving the internet, allowing people to go out into these regional areas more?
Kelvin:   Yes, that’s happening. It’s hard to show a figure, but certainly, anecdotally, you talk to a lot of people, I do it myself, actually. So there is that going on and I think that will happen more and more, but it is just a little bit hard to prove with data. It’s more anecdotal.
Kevin:   In your report too, you talk about first home buyer market share and what’s happening with that. Give me an observation about that, what’s the trend there, Kelvin?
Kelvin:   So the trend for first home buyer market share is pretty strongly up. And it’s been a long term thing, really, over the last five or six years, just first home buyers slowly, slowly improving their share of the market. They’ve got up to about 25% now, more or less, across the country. So really, competing with investors to be the sort of active buyer group and competing for those properties on the market.
Kelvin:   It’s a pretty strong market for first home buyers in the country at the moment. That is a market share in a quiet market, so the actual number of purchases by first home buyers is perhaps relatively low in kind of a sort of historical context, but their market share is good. And yeah, as I say, access to KiwiSaver and that willingness to compromise. As well as banks, banks are targeting first home buyers, so there is money available, if you can raise the deposit and you can prove that your income and expenses are satisfactory, and that you can service in a risk scenario as well. So if interest rates went from 4% to 8%, in that extreme scenario, the banks want to see that you can still afford the mortgage, and there are first home buyers out there that can do that. So if you can do that, banks have got some good deals.
Kevin:   Are there any disincentives that the government or the banks are putting forward to try and discourage investor activity in New Zealand, similar to what’s happening in Australia? It’s had a somewhat devastating effect on supply and demand. Is there anything similar happening in New Zealand?
Kelvin:   Yeah, there’s a lot going on around investors at the moment from the government, so they’ve been targeted for a little while, actually. Now, government will say it’s targeted at speculators rather than the true, genuine long term investor, but I think, either way, everybody gets caught up in the net. And there’s a lot of measures been introduced around improving the state of rental properties, so that imposes an extra cost on landlords. What we’re seeing coming up in about a month’s time is the removal of the ability to use losses on rental property to offset other income, so that’s another sort of extra cost, effectively, that landlords will have to face. And just today, there’s been an announcement that a Tax Working Group we have has recommended that the government impose a capital gains tax on investment property. Now, that’s still a couple of years away and the government has to accept the recommendation and survive the next election. But it’s just another thing that makes, I guess, the economics of property investment harder.
Kevin:   When we talk about disincentives for property investors, you know, as we’ve seen in Australia, you do see them start to vacate the market, not become as active, and that has an impact on things like market share. I know you mentioned there first home buyer market share about 25%, but what’s happening in real numbers? Is volume falling off because of the disincentives?
Kelvin:   Well, volume is down across the market. It’s a fairly tough market out there in terms of activity. Prices are high, and yet there’s still credit available, but it’s not as loose as it might have been in the past. Yeah, well, overall volumes are down, and so when certain groups have increase in their market share, a lot of the time, it’s actually that they’re managing to hold on better than other groups, rather than necessarily increase in absolute terms. So yeah, it is changing market shares within an overall quiet market.
Kevin:   Excellent, great talking to you. My guest has been Kelvin Davidson. Kelvin is a property economist with CoreLogic in New Zealand. Kelvin, thanks for your time.
Kelvin:   Thank you very much.