This month's newsletter is a little later than normal but we can confirm that the Official Cash Rate, the tool for controlling inflation, and which also affects mortgage rates, has increased. The property market continues to show signs of strength and not the collapse that has been talked about for so long. This month has seen the award of a substantial amount of money to a "leaky home" owner with the builder being mainly held personally liable, although the Council's insurers have paid out.

A reminder that the financial year-end is just a matter of weeks away. Have you purchased any investment property in the last year? If so, and you have not called Valuit for a depreciation apportionment, please do it now. As always

Read, learn, enjoy ...

... and happy investing!
 

The Reserve Bank, on 8 March, increased the Official Cash Rate by 0.25% to 7.5%.

In the speech accompanying the announcement, the Reserve Bank advised the increase was aimed at property investors and the continued strength of the property market. The Reserve Bank is frustrated by the housing market and its inflationary effect on the economy. It is this frustration that has seen the Bank warn of a further possible interest rate increase, tightening of tax rules, restricting banks to the amount they can lend by increasing their capital requirements (how much cash they must keep). However the problem remains that there is a substantial number of mortgages on fixed terms and any increase in the OCR simply does not affect them in the immediate term. The average rate for homeowners on a fixed rate is 7.7%.

Research undertaken by AMP Capital Investments shows that Real House Prices have increased on average 2% per year for the past 46 years (inflation adjusted). Since 2001 house prices had increased 75%, which makes them 40% above their long term average. AMP Capital Investments predict that house prices will fall by 10% in the next few years. However they did admit that is was possibly that a downward adjustment was not required and that a new "level" in the housing market had been found. Meanwhile other economists have stated they see house prices continuing to increase at above 10% for a while yet.

The quarterly ASB Bank survey for the period ended December 2006 found that, of the 600 respondents, 54% expected house prices to increase (up from 36% for the previous quarter). 10% of those surveyed expected a decrease (previously 16%). What the survey did find was that the confidence in the direction of the housing market had yet to be converted into the respondents believing now was a good time to purchase. Only 7% of people believed it was a good time to buy.
 

Real Estate Institute of New Zealand figures for January 2007 show the median house price fell to $327,000. This was $3,000 less than December.

The number of sales for January was 7,566 (January 2006, 6,360). The median days to sell were 38 (January 2006, 38)

Figures for the year ended December 2006
- National growth: 9% (up from $300,000 to $327,000)
- Fastest growing region: Southland (up 25.6% from $124,500 to $156,000 in January 2007)
 

Rents have been increasing in Wellington with tenants having to pay more than they did 3 years ago. Anecdotal evidence suggests that rents are going up quicker than tenants wages (nation median wage increase is 13% over the last 3 years) - meaning less in the tenants pocket at the end of the week.

There appeared to be a shortage of rental properties in some areas with queues of tenants and "bidding" for properties.

Despite the increase in rents, the increases are not keeping up with the increases in property prices.

Massey University believes that:
- there is a shortage of affordable housing as there has been net migration in the past year of 14,700 people.
- Affordability has decreased with increased house prices, wages not keeping up, and interest rate rises.
- Falling rates in home ownership, meaning more people have to rent and more incentives for landlords to purchase more property.
 

A new study, commissioned by the Auckland City Council, looked at
- the cost per square metre of building materials
- labour costs
- contractor overheads.

comparing Auckland to Sydney, Melbourne and Brisbane.

The study found that
- Cost of building a small new house (145 sqm), in some parts of NZ, is 85% more expensive than in Australian Cities
- For large houses (202 sqm) that figure can increase to 91%

The authors acknowledge that the figures used in the comparison were not "perfect" and would require some further detailed work. The Government picked up on the flaws in the comparison and consequently rejected the report for the inaccuracies.

In the 6 years ended July 2006 the cost of building a house in Auckland increased 60% for a large house and 65% for a small house.

The cost to build a house in the Auckland Region is between $1,388 and $1,601 per square metre.
 

The website,www.landlordcheck.co.nz,has been established so that tenants can provide feedback (positive and negative) on landlords and property managers. Landlords and property managers do have the right to reply.

The aim of the site is to improve the quality of service provided by landlords and property managers to their clients (tenants).

Landlords that have had positive feedback from their clients are able to list vacancies on the site for free.
 

In a High Court judgement a homeowner has been awarded $250,900 for a "leaky building" in Waitakere City. The Council's insurer has pledged to pursue the builder of the house for the majority of the award. In the award the court found the Council was 20% liable and the rest of the liability lay with the builder. What is interesting about the case is that the judge found the builder himself personally liable for the loss even though his company has folded. It is now expected that more cases will be bought against builders personally.
 

In 2006, developers erected up to 2000 units (costing $600m) and this year there are 150 planned (and 650 already under construction). This number excludes those apartments where plans are yet to be lodged with Council. This is following the expected cycle according to Wellington based consultants DTZ.

In 2005 Auckland had 11,500 units and this has grown to approximately 14,800 by the end of 2006.

Developers believe that the new development contributions that the Auckland City Council wants are too expensive and make many projects unviable. Other factors leading to developers looking outside of Auckland are:
- Increased compliance costs (resource and building consents)
- Reduction in the number of Asian students
- Declining apartment values
- Rising building costs
- Concerns over quality and size of apartments