to Valu in Review for March 2005. This is a summary of news articles in the press over the last month. We hope you …

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The Official Cash Rate was increased this month by .25% to 6.75%. Most economists seem to be agreeing that the economy will slow up by the end of the year/ beginning of next year (excluding any unforeseen catastrophic events). It is expected that interest rates will remain above average well into 2006.

It is possible that there will be further increases in the Official Cash Rate later in the year if the Reserve Bank does not feel that the economy is slowing down. The challenge facing the Reserve Bank is keeping inflation below the maximum 3% and the expectations are that it will continue at the upper end of the 3% limit until at least next year.
 

More than 50% of tenancies end within 10 months of starting.

In 1991, 62% of Auckland households headed by working adults aged 29 to 39 would have been able to afford and service a mortgage on a low-end 2 or 3 bedroom house in Auckland. This figure has now reduced to 31% according to Housing NZ.

NZ’s rate of home ownership is 68% compared to 73.8% in 1991.

The increase in house prices over the last 2 years has seen the average net worth of households increase to $235,000 (up $60,000).
 

A depositions hearing has started in Hamilton surrounding the alleged fraud of approximately $10m from property transactions.

It is alleged that the group targeted those people who could not obtain finance from first tier lenders. These borrowers went to mortgage brokers, who were a part of the group, seeking finance. The mortgage brokers then allegedly trapped the borrowers into signing sale and purchase agreements for their property. It is believed that a number of borrowers have subsequently lost their homes.
 

The pilot scheme set up in September 2003 ends in September this year. The objective was to offer 1600 loans to people that meet the criteria with no deposit or a 5% deposit. In December the lending criteria was changed but despite this only 850 loans have been provided (as at mid-March).

The scheme, in which the Government acts as a lenders mortgage insurer, appears to have worked better in the provincial centres where the cost of housing is lower.
 

Statistics released by the REINZ show that in February the median house price was $269,000 (a new record). The statistics also have some rental figures. In Auckland there are some interesting figures for the 12 months ended February 2005.

Median house price up 14.3% to $355,000
Median rental (3 bedroom house) up 2.7% to $380 per week.

Gross yield February 2004 - 6.2%
Gross yield February 2005 – 5.6%

While these figures are very primitive, professional property managers are also noticing that landlords are requiring the maximum rent possible and are not prepared to drop rents to obtain tenants. At the same time landlords are being squeezed by interest rate increases, the demand for rentals decreasing, oversupply of rental housing stock due to the building boom and new investors entering the market.
 

There is 2 distinct apartment markets. The high-end owner/ occupier and the medium-to-low investment market. At the high end of the market apartments were selling relatively quickly. At the other end the sellers are required to be more flexible on their price or wait longer to obtain their price.

There is no evidence of an overall fall in the apartment market.

Rentals. It has been noticed that those apartments at the less desirable end of the market in Auckland are being affected by decreased demand – resulting in owners having to reduce rent (by as much as $40 per week in some instances). Those affected apartments appear to be smaller one bedroom, low quality apartments targeted at students.

A fall in immigration and overseas students coupled with a number of apartment complexes guaranteed rental return periods expiring are placing downward pressure on these lower end apartments.

Research by Massey University indicates that the median apartment gross yield nationwide was 7.2% (higher than houses) but there was less capital gain in apartments.

Average rent for 1 bedroom apartment in Auckland, July 2003 was $330.
Average rent for 1 bedroom apartment in Auckland October 2004 was $290.

In the period October 2003 to October 2004 the median rent across all types of apartments dropped only slightly – suggesting relatively strong demand for all types of apartments.
 

The Overseas Investment Commission tightened the rules for people wanting to buy land in NZ in February 2002, in particular to waterfront property, for transactions over $10m or involving more than 5 ha of freehold land.

It has been noticed by real estate agents in the Queenstown area that the interest from overseas buyers has not been as high. It is believed the tougher rules and the high value of the NZ dollar are contributing to this.
 

The economists for the BNZ and Westpac banks are advising first time home buyers to bide their time as they believe that prices in the property market are set to fall.

Those regions that had steep increases in house prices were also expected to suffer a steep decrease. Regions mentioned were Hawkes Bay, Nelson and Taranaki.

The BNZ is predicting an average 10% reduction over the next three years and Westpac an average 5% decrease in prices this year.
 

Section purchased in June 2004 for $20.
The section was placed on Trademe and sold for $6,200 in March 2005.

The section is 506 sqm and is in Taneatua , Bay of Plenty. Rates are $700 per annum and the sections 2004 rateable value was $1,500.
 

Waitakere City Council and Rodney District Council. These districts are warning homeowners that they will be faced with increased rates this year as a result of substantial increases in land values following the QV assessments last year. The councils are starting the public consultation process on how the rates should be collected.

North Shore, Auckland and Manukau Council land values areas are being assessed this year with the flow on into rates in 2006-2007.
 

A new bill has been proposed to create the Waitakere Ranges National Heritage Area. The thrust of the bill is to protect the environment and any further development on the Waitakere foothills.

Landowners are concerned that under the bill their property rights will be very limited.
 

A new 26-hectare business park has been approved at Te Puna (just west of Tauranga) by the Environment court. The park is expected to relieve some of the pressure on commercial land and help grow the Bay of Plenty industry.