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

The news this month has been dominated by the effects of the long term increase in house prices and how it is becoming increasing unaffordable for Kiwis to realise the dream of purchasing their own home. A number of options have been floated to assist first time house buyers into their own home as ownership rates continue to fall (and are expected to continue to fall for the next 10 years).

There is still another month or so to run on our promotion for chattel valuations completed in August and September so do not forget to get in quickly to ensure you go in the draw for a mystery weekend for two (details to the right).

In the meantime

Read, learn, enjoy, ....

.... and most importantly - happy investing!
 

Economically it has been a fairly quiet month for announcements. According to one economic commentator it could be argued that NZ has experienced a slowing of growth, as opposed to a downturn, when figures are compared to a year ago (as at June quarter).

Consumer spending is slowing. It is believed the reasons are increased costs of petrol, food, electricity and gas, mortgages and local body rates. Although to a minor degree this has been off-set by an increase in the number of jobs (a record of 22,000 new jobs created in the quarter ended 30 June), wage inflation (increasing at its fastest level since the early 1990's), together with one of the lowest unemployment rates NZ has experienced (3.6% for the June quarter) and tax credits available to some families.
 

There are indications that there is an increase in the number of people defaulting on their mortgages as mortgages renew with a rate increase from approximately 6% to around 8%.

The indication has come from both real estate agents and finance companies (non-bank lender). Both industries have noticed an increase in the past three months of people defaulting on their mortgages. This has ranged on mortgages from $300 to $4,000 per month. The non-bank lender expects that the months of October and November will be the deciding months for many with a mortgage.

Gennerally those in financial difficulty do not end up by going to an actual mortgagee auction. With the assistance of family and re-financing of debt a substantial number of properties are withdrawn from mortgagee auctions.
 

Research undertaken on homeownership rates by AC Neilson/ Wizard Home Loans as at March 2006 and compared against March 2005 indicated that ownership rates dropped 12% from 1.44 million people in 2005 to 1.27 million in 2006 (and Auckland's ownership rate dropped 26%). Massey University and the Government noted that these figures appeared high. The Government said census figures were due out soon, which would put the ownership rate at 63% (a decade ago it was 75%).

A few weeks after the above articles were released another article appeared stating that the ownership statistics are predicted to keep falling over the next 10 years. Predictions are that it will fall from 68% currently (indicated at 63% above by the Government) to 62% across NZ in 2016 (and as low as 58% in Auckland).

Note: It is hard to actually define what the ownership rate is, as people re-structure ownership entities into Trusts etc, which can influence surveys.

The Centre for Housing Research predicts the following over the next 10 years:
- Nationwide. Number of rentals to increase by 26%.
- Nationwide. Number of owner occupied households to increase by 6%.
- Auckland. Number of rented homes to increase from approximately 179,000 to 234,000 (up 31%).
- Auckland. Number of owner occupied dwellings to increase from approximately 289,000 to approximately 328,000 (up 13%).

Commentators are not sure what will happen to the yields on investment property, especially if house prices continue to increase and rents do not keep pace.

 

The Government has announced changes to its Welcome Home Loan scheme. This scheme was designed to assist first time homebuyers but the numbers who have applied for and taken out a loan (1,774) has been substantially below what the Government expected (58,000) when the scheme was initially incepted. Changes announced to the scheme include:

- Increasing the amount of the deposit for the loan scheme from $150,000 to $200,000 for those without a deposit; and
- up to $280,000 if the applicant had a deposit (15% of the portion of the loan over $200,000).
- Changes take effect from 8 September 2006.

It is believed that with these changes it would enable borrowers of the revised scheme to access 22% of all house sales without a deposit, increasing up to 50% of all house sales with a deposit.

Commentators on the property market believe that the announced changes will only drive up all house prices and the way to reduce the cost of houses is by freeing up more land for urban development.

Another idea floated by the Government as under consideration is Shared Equity schemes. This is where the lending institution (e.g. bank) or the Government owns a share of the property by providing the deposit for the property. Typically this is around 30%. This "deposit" is repaid to the financial institution or Government when the property is eventually sold (hopefully as a result of a capital gain in the property). Currently the Government is waiting on information from a taskforce that is reviewing a scheme in the UK and has indicated that a similar scheme maybe in the NZ 2007 budget.

50 year mortgages have also been floated as a possibility. In Australia one lender is already offering 40 year mortgages and at least 2 other lenders were considering 50 year loans. Most loans would not last 50 years as Kiwis tended to sell houses within 10 - 17 years.

Finally, a number of developers are offering the option of leasehold residential land. This is where the developer (or another party) retains the ownership of the land and purchasers buy the right (or title) to the building.
 

Both the figures' from the Real Estate Institute of NZ and QV indicated that, for July, the market was relatively stagnant. There was a nominal increase in median house prices, and a fall in the volume of houses sold. The fall in the volume could be a reflection of the traditional quieter winter months, increased mortgage rates, and buyers and sellers more determined on "their price" for a property.

Research undertaken on house prices over the last 5 years in North Island towns has indicated that it has been the provinces that are booming and not the cities. Substantial gains in value have been made in New Plymouth (178%) and Gisborne (141%). A number of North Island towns have pockets of houses where the value of property is equal to that in Auckland. This includes Tauranga, Papamoa, and Coromandel.
 

The Government has reviewed the process of dispute resolution and consumer protection. Under changes announced (and to be introduced in 2007 once the required legislation is past)
- local authorities must place notices on files (LIM's) of any leaky home
- there will be a 20 day time limit on dispute mediation
- it will be easier for class actions to be bought by owners of apartment block units
- Adjudicators would have more power.