Listings Surge, Investors Adapt, and Regulatory Changes Loom
The residential real estate market has started the new year a little softer, with fewer sales in January. However, there is confidence in the market as buyers and sellers adapt before regulatory changes are due to start later this year.
Although January is typically a slower month with summer holidays, year-on-year we saw the number of property sales increase across the country, according to the latest data from the Real Estate Institute of New Zealand (REINZ).
Market dynamics
Nearly 3,000 properties were sold in January, reflecting a 4.9 percent increase from the same period in 2023. However, it’s a better story in the regions. When you exclude Auckland, property sales were up 16 percent year-on-year.
As more of the story unfolds you find there was a 10.4 percent increase in property listings when compared to January 2023. This signals the market is on the cusp of a significant upturn, REINZ CEO Jen Baird said.
“Listings increased by 10.4 percent nationally and 5.4 percent for New Zealand, excluding Auckland, year-on-year. The biggest increases in listings compared with the previous month were seen in Wellington at 148 percent, followed by Gisborne at 84 percent, Canterbury at 81 percent, and Auckland at 76.8 percent,” she said.
There has been little change in the median sale price across the country throughout the past year. January saw the national median sale price ease a little to $760,000. When you turn to the regions, prices are holding strong in some areas. Northland, for example, has seen its median sale price rise 10.8 percent year-on-year.
“Despite the wave of listings favouring buyers, the challenges of last year, including the cost of living, inflation, interest rate changes, and government reforms, mean some buyers remain cautious. However, most regions are reporting more buyer activity across the board, with some seeing a particular surge in first home buyer interest. Vendors are also being confident but realistic with prices as activity increases over the summer months. This is likely to resolve in inventory moving over the coming more active months in the year,” Baird said.
Baird highlights a crucial regulatory change – the Residential Property Managers Bill.
“This regulation provides much-needed structure to a sector that collects rent from 670,000 tenants and manages billions of dollars in assets for everyday New Zealanders. As disincentives are removed, this is important regulation to monitor as it may change market activity, inviting investors back or to refresh their portfolios, making more housing available for those who are not in the market,” she said.
Market sentiment
Independent economist Tony Alexander provided a deeper understanding of the shift in investor sentiment by reflecting on results from his regular surveys.
Alexander’s surveys a year ago indicated a net 55 percent of agents observed fewer investors, whereas now, a net 24 percent report witnessing increased investor activity. However, Alexander emphasises that this surge in investor interest is not translating into significant price pressures.
“A year back many agents said they were seeing more investors looking to sell as to buy. Now a net 14 percent say they are seeing more investors wanting to sell. So yes, investors are in the market and looking, but they are also catching up on selling, with some pressured to do so by the need to shore up their business,” Alexander said.
He believes the imminent shift in the bright-line test, reducing the holding period from 10 years to two years, will play a pivotal role. Investors, although reluctant to pay capital gains tax, might be prompted to sell to realise the value of their assets to make things easier for their business.
Rental market challenges
Shifting the focus to the rental market, Alexander’s surveys indicate a net 22 percent of landlords find it easy to secure good tenants this month, a notable increase from a net 3 percent a year ago. Despite the growing pressure in the rental market, rent increases have not accelerated rapidly, with landlords seeking an average rise of just over 5.6 percent.
“The rule of thumb in New Zealand is that you can only price to what the market will bear and property owners don’t always seek to get as much as humanly possible. This perhaps helps explain why there is no new rush of investor buying to outweigh selling now. Costs are soaring for things like rates, insurance, and maintenance, but returns are not necessarily keeping up with those cost rises and landlords for now are reluctant to try and gain compensation,” Alexandra said.
He underscores the significance of the return of interest expense deductibility, noting that it could improve cash flow positions for investors. This, in turn, might delay or alter their plans to exit investments.
