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

Valuit in August and September was running a promotion for clients that had a chattel valuation completed in these months. The clients went into a draw to win a mystery weekend. We have a winner (See the other column).

The "leading" articles for the month is the fact that the Official Cash Rate remains unchanged at 7.25% and secondly that Carter Holt Harvey has been fined for incorrectly labelling timber that has been used in approximately 20,000 new homes.

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Read, learn, enjoy ...

... and happy investing!

 

The Official Cash Rate ("OCR") was left at 7.25% at its latest review on 26 October by the Reserve Bank. Leading up to the announcement a number of market commentators had been picking an increase in the OCR. Factors contributing to the Reserve Bank leaving the rate "as is" were a fall in fuel prices, annual inflation dropping to 3.5% for the year ended 30 September 2006 (down from 4% for the year ended 30 June. This was highest inflation has been for 5 years). It was noted that the housing market remains "resilient" with the expected fall in house prices not really materialising, with the banks actively competing for the huge number of mortgages starting to come up for renewal, and good immigration figures. The accompanying statement to the announcement was considered "hawkish". This means that there is still further possibility of an increase in the OCR at the next review in December
 

Timber sold by Carter Hold Harvey ("CHH") in 2000 to 2003 did not reach the strength that it was labelled as.

CHH has pleased guilty to a prosecution bought in the District Court for a breach of the Fair Trading Act and has been fined $900,000.

It is estimated that 20,000 new houses were built using the wrongly labelled timber.
 

This is a quarterly report put out by Massey University Real Estate Analysis Unit. The measure looks at house prices, mortgage rates and wage rates. For the quarter ended 30 September 2006 the index fell again, meaning it became less affordable for people to buy. On a regional basis however some became more affordable while others less affordable. It appears that the in affordability is being caused by the increase in house prices and interest rates, and wages not keeping up.

A housing expert from America visiting at the start of October believes that up to 60% of the population, or approximately 2.6 million people, could be renting within the next couple of decades. This is based on a report compiled with a Christchurch based developer/ investor. Key points include:
- NZ house prices are approximately 6 times average incomes. Making it one of the most expensive in the world.
- House prices are expensive in Auckland and Christchurch, as resource planning has imposed regional boundaries that limit supply of land for development. In responding to this issue the Auckland Regional Council noted that increasing the boundaries would make little difference to house prices but would, in summary, cause infrastructure and environmental issues and also threatens horticulture.
 

The results from QV's monthly property prices show that the prices in September "steadied" after a number of months of falling. QV's figures compare prices over the last three months with the same corresponding period in the previous year. The index showed that, nationally, house prices have increased 10.4% since last year (August was 10.5%, July 11.1%).

QV believes that the prices have continued to increase due to an over supply in the housing market not happening as predicted, continuing positive levels of net migration, and emotional factors such as the spring market conditions and lower fuel prices.

These figures are supported by the monthly sales statistics from the Real Estate Institute. September had a national median house price of $313,000 (equalling the highest recorded median price). This figure was up 7.9% on September last year.

The average days to sell were 31 in September (33 in August and 27 days in September 2005)
 

Building Issues Minister Clayton Cosgrove, has been talking tough towards the Real Estate industry in New Zealand. This follows a couple of high profile cases recently, where members of the real estate industry have been taken to the industry disciplinary body, and have received the maximum fine, but this does not represent the seriousness of the cases. Mr Cosgrove has called for submissions to be submitted prior to Christmas on how the industry should consider complaints against agents and the appropriate disciplinary actions against agents.
 

The IRD has recently issued a draft interpretation statement on how it believes the GST component of this type of accommodation should be treated. Under the present interpretation of the law, a property developer can sell an investor a unit in a serviced apartment complex, along with an agreement for the apartment to be leased to a property manager for that serviced apartment complex (commonly Hotels) without charging GST. The activity is zero rated for GST purposes as it is classified as a "going concern". Under the new interpretation this will not be able to happen.

The proposed interpretation will see these types of dwellings no longer classified as commercial dwellings.