to Valu in Review for May 2004. This is a summary of news articles in the press over the last month. We hope you

Read, learn, enjoy ...

... and happy investing!
 

Property investors have generally positively received Dr Cullen’s budget.

The benefits for investors are as follows:

1. Increase in the accommodation supplement ($750m). Main points are more people will qualify and those families with children will not have the supplement reduced until a higher level of income is reached.

A new higher accommodation supplement band has been introduced for parts of Auckland. The supplement under the previously highest band has been increased (Wellington, Queenstown, Nelson).

The changes are being introduced in two steps. From October families can earn more before the supplements are affect. April 2005 sees the increase in supplements and the new supplement band being introduced.

2. A review of the Residential Tenancies Act ($700,000).

3. In an effort to make the decisions of the Tenancy Tribunal more transparent an online database of decisions will be established. It is hoped that this will lead to more consistency in Tribunal rulings and greater faith in the system by landlords ($1.3m)

4. The Residential Tenancies Act is to be extended to include Boarding Houses ($3.4m).

 

As at April 2004, saw a small increase in prices on a national basis according to the REINZ. The national medium price is up 19.5% on April last year. Volume of sales for the month is up from 9,047 in April last year to 9,594 (11,371 in March 2004). In March it took 27 days to sell a house, in April it was 29 (April 2003 was 29 days as well)

Region	March	April
National Medium price	$240,500	$242,000
Northland	$205,000	$200,000
Auckland	$320,000	$330,000
Waikato/ BoP/ Gisborne	$200,000	$191,250
Taranaki	$150,026	$140,000
Hawkes Bay	$195,000	$210,000
Manawatu/ Wanganui	$128,000	$128,000
Wellington	$261,000	$273,000
Nelson/ Marlborough	$275,000	$254,000
Canterbury/ Westland	$198,000	$197,500
Otago	$180,000	$180,000
Southland	$120,000	$137,000

 

The prediction is that house prices will drop – it is just a matter of when and by how much. In recent months there has been an increase in correspondence on this matter. Two banks believe the peak was in September last year with some other banks saying we are at the peak or just past it.

Some of the key indicators of a slowing in the property market are starting to shine brighter. These include:

Migration has slowed down for the last couple of months.

Rents have not kept pace with increase in house prices (meaning less returns for investors). In some regions house prices have increased 40% over the last year while rents have only increased 13 – 15% during the same period.

Interest rates are expected to increase in June and July. This will be followed by further small increments throughout the rest of the year as the Reserve Bank wants to reduce the inflationary effects of the boom on the economy. The Reserve Bank wants to avoid a “bust” in the housing market by increasing interest rates too quickly and in too big an increments.

The unemployment rate continues to fall, there appears to be increases in wages with some big national wage collectives due for renewal (nurses) and a recent report indicating that women are under paid in the State Service Sector, which the Government wants to correct. There is also a shortage of skilled workers. This leads to income growth and stronger domestic demand which the Reserve Bank controls by interest rates.

The most recent ASB Bank Housing Confidence Survey has noted an increase in respondents that believe it is a bad time to buy and a drop in the number of people that think that house prices will continue to increase (12% compared to the average of 50% for the whole of last year).

The supply of completed houses coming onto the market for sale will increase as builders finish off houses started last year. This should help to reduce the demand for housing.
 

Initial recent research into sprinklers in houses indicates that they may not save as many lives as envisioned. This is due to the fact that many household items are made from plastic, which produces significant levels of toxic fumes before it will activate the sprinkler system. The best means of defence is to have a smoke detector as well.

While high-rise buildings are subject to different sprinkler standards it is unclear if the results will apply to apartments.
 

The Central Government would like to see Auckland’s various councils make it a requirement for developers to set a proportion of their developments aside for lower social economic housing. The central Government sees this as a way of keeping lower income earners closer to the CBD. As the cost of inner city housing increases the lower income earners are being forced to re-locate further away from the CBD.

This land could then be used for either private low cost housing or State owned houses.

The Government has a number of possible incentives for developers.
 

The local regional council has been buying land to future proof the growth in the area. 130 ha of farm/ rural land has been signed up for purchase. It will be re-zoned in the future to industrial/ commercial. The land will be farmed until it is needed at which time it will be developed, not necessarily by the council, to become a business park.
 

As a result of the February storms the Manawatu-Wanganui Regional Council is increasing the rates by 11.8%.

The general rate rise will be in the vicinity of 2.2% plus a $0.50 loading per property for new regional facilities.
 

As the shortage of land in Queenstown and Wanaka drives prices, those looking for holiday homes, investment properties and even those on lower incomes working in Queenstown/ Wanaka are looking to central Otago (Cromwell, Alexandra, Ranfurly).

Consequently prices in these regions have increased significantly. In one quoted instance land prices have increased from a Government Valuation of $100 in 2001 to $20,000 (Ranfurly – the last of the towns to experience the “boom”).

New industry in Central Otago has also been credited with the increase in prices.
 

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