to Valu in Review for March 2006. This is a summary of news articles in the press over the last month or so.

This month we have the usual economic overview, which shows the economy, seems to be finally slowing up. There is a good mix of articles on mortgage rates, survey results on the "average" property investor, costs of conveyancing likely to drop and other articles of interest.

Read, learn, enjoy, ...

... and most importantly - happy investing!
 

The Official Cash Rate ("OCR") was left unchanged at 7.25% at its review on 9 March by the Reserve Bank ("RB"). In the review the bank was talking hard to remove expectations of interest rate cuts this year (particularly as the housing market is only just starting to slow down). The RB made it clear that it wants 2 years of economic slow down to remove any inflationary pressure from the economy. The economy is starting to show signs of slowing down. This includes;

- The overall synopsis for Building consents in February is that while consents are up the "new" buildings sector is flat and is softening compared to previous months.
- Gross domestic product fell in the December quarter (the first time in 21 quarters).
- The balance of payments deficit of $13.5 billion, year ended December 2005, is the biggest for 30 years. This is the difference between what as a country we earn and what we spend internationally.
- The NZ dollar is falling in value (down 12% since the start of the year) against other currencies making imported goods (such as petrol) more expensive - but providing some relief for exporters whose goods will be cheaper overseas and more competitive in NZ.

Migration may off-set some of this slowdown. In February the gain was 3,100 people (Year ended February the gain was 8,300 people). It is believed that we will not see a mass exodus of those people that have immigrated in the last 4 years or so, returning to their native countries. Consequently the migration numbers are set to slowly rise.

Some economists are picking a cut in the OCR is possible as early as June or July (and at least a 50/50 chance by at least September) given the economic data since the OCR review at the start of March.

The next OCR review is 27 April.
 

Two years ago the mortgage rate war was just taking off. Banks were starting to target borrowers by offering very competitive rates on 2 year fixed mortgages. This campaign peaked in December 2004.

The first of these mortgages are starting to come up for renewal now with the majority up for renewal in December this year. Those mortgages expiring will be faced with an increase in interest rates. This year approximately 42% of all mortgages expire.

The banks are preparing to grab their share of the mortgages renewing. The banks are under considerable pressure from their owners to maintain growth and grab more market share.

It is believed the banks will again look to gain market share based on offering the best (lowest) interest rate as well as other incentives (for example holidays, free seminars, cash back offers).

It is believed that into the future 35% - 45% of all mortgages will renew each year as people fix for 2 or 3 years.
 

The NZ Mortgage Brokers Association of NZ is currently undertaking a campaign to lift the profile of mortgage brokers.

The association believes that slightly less than 30% of people use a broker when taking out a loan and they would like to lift that to 40%.

To raise the image of brokers the Association has introduced training standards and a professional development programme for mortgage brokers. Brokers must also recommend loans from a minimum of 6 lenders (there are approximately 80 lenders in NZ).
 

The results are out for the survey in which 378 responded. Key points found by the survey includes:

- 40% thought house prices would stagnate or fall.
- 1% thought house prices would continue to increase at the same rate as the previous 2 years.

- Over 50% of respondents planned to invest in other areas.
- Almost 50% of respondents had added at least one property to their portfolio in the last year.

- Median value of property portfolio was $900,000 (2005 = $860,000)
- Median income was $47,000 (2005 = $45,000) on 3.3 properties.
- Median total equity was $405,000 (2005 = $395,000).
 

Conveyancing costs are set to fall as Parliament has created a new profession called "Licensed Conveyancer" with the passing of the Lawyers and Conveyancing Act.

Lawyers will no longer have a monopoly on undertaking conveyancing for the buying and selling of homes.

It is envisaged that the new Act will increase protection to consumers, and give the public greater confidence in the legal services industry. This is done by:
- creating a legal complaints review officer;
- creating a disciplinary tribunal to deal with more serious misconduct cases by lawyers and conveyancers;
- Outlining specific consumer protection such as fidelity funds, professional indemnity insurance, and what practitioners can call themselves (lawyers or law practitioners);
- Legal fees must be disclosed up front.
 

The Residential Tenancies (Damage Insurance) Amendment Bill has recently been introduced to Parliament.

The Bill, if passed, would require landlords to insure tenant's interests. This is to protect tenants as most tenancies were joint tenancies at common law. This meant that all tenants were jointly liable for any damage caused to the property they were renting. This was irrespective of if they caused the damage or not.

Currently the insurers of landlords chased all tenants of the property for any damage caused to a property. The aim of the Bill was to protect tenants who were not liable for the damage caused by other tenants.

The NZ Property Investors Federation is opposed to the bill.
 

The average annual income for a household in New Zealand before tax is $65,520. A survey of the incomes of State Housing tenants shows that the income of the top 5 households is between $78,500 and $95,000 after tax.

In the last 3 years Housing NZ has converted 39 houses from 3 bedrooms to 4 bedrooms. The average cost has been $105,000. In most instances the houses also had additional modernisation undertaken as they were originally built in the 1950's.

A tenant of Housing NZ has recently won a legal victory to have his rent reviewed based on "special circumstances". This arises from a number of circumstances based around the Labour Government policy that Housing NZ charges a quarter of the tenants' income as rent, the property being transferred from Auckland City Council control to Housing New Zealand, and the income earnt by the tenant being erratic.
 

Research undertaken by one of the larger inner city real estate/ property managers firms in Auckland indicates that over the last three years rents for apartments have fallen from an average of $410 in 2003 to approximately $331 now.

This was a reflection of a number of new apartments being available for rent, the new apartments being smaller in size and therefore having lower rents and cheaper construction costs.

The re-sale value on apartments fluctuated. Some were increasing in value (higher end desirable apartments) and others dropping.

Towards the end of 2005 there were 11,500 apartments in Auckland (and 20,700 residents). This is set to increase this year to 13,500 apartments (and 25,000 residents) as new blocks under construction are completed. One researcher believes by 2009 the CBD could have 21,200 units.