to the Valu in Review for May. The majority of items in the past month has been about the economy. Economic data reflects what many economists have been predicting for many months would eventually happen. The combination of the credit crunch in the United States, rising fuel and food costs, increasing unemployment is all fuelling the fire of a slowing property market. One piece of good news for property investors is the rent increases that landlords are either obtaining or expecting in the next year or so The Government has also released details of a pilot scheme to assist first time home buyers into the market. As always please read, learn, enjoy ...

... and happy investing!
 

The next review of the Official Cash rate ("OCR") is this week on Thursday, 5 June. At this stage many economists do not believe that the Reserve Bank will reduce the OCR. Instead many are picking a drop in the OCR in September.

Consumer spending has reduced substantially since the start of 2008. After taking into account both seasonal and inflation adjustments, retail sales for the quarter ended 31 March 2008 were down 1.2%. This result was substantially worse than economists were expecting. This is the largest fall in volumes in 11 years. The three "biggies" contributing to the fall in volume are high interest rates, a softening in the value of houses and a big increase in the price of food and fuel.

Employment figures for the quarter ended March 2008 show an increase in the unemployment rate from 3.4% to 3.6%. However of more concern to economists was that the number of people in work (which dropped by 1.3% or 29,000 people) and the big drop in the ratio of people either in work or seeking jobs (from 68.6% to 67.7%). Since these figures were released by Statistics New Zealand there have been a number of large scale redundancies around the country.

The Reserve Bank of New Zealand releases a 6 monthly Financial Stability Report. In the latest report it noted that the NZ financial system had so far withstood the global credit crunch fairly well. NZ banks typically borrow about 40% of their total funding from off-shore. It was further noted that NZ banks were exposed to a tightening in liquidity and availability of finds (meaning what money there is available for borrowing is more expensive to borrow and this was being passed onto businesses and households borrowing from NZ banks). To assist the banks the Reserve Bank has released a series of measures to improve their liquidity.
 

Figures from the REINZ for the month of April:

	April 2007	March 2008	April 2008
National median house price	$349,000	$349,000	$345,000
National number of sales	8,194	5,129	4,464
Dwellings median days to sell	28	40	44

The sales figures from a nationwide valuation firm have an average sale price of $388,456. This is an increase of 4.9% for the 12 months ended April but is lower than the March annual figure of 6.5%.

While the national median house price has remained fairly constant a number of commentators have expressed their opinion that this will slide due to a lack of sales and a glut of properties on the market.

The decrease in sale volumes is resulting in a number of real estate agents leaving the industry.

Research from PMI Mortgage Insurance ("PMI") shows that sales for the quarter ended March 2008 are down by 40% on the same period in 2007. House prices were up by 2.1% for the quarter (compared to 13.8% at the same time last year), and price growth has not been lower since 2001. PMI's expectation on average is that prices will fall by 3-4% over the next year. However the substantial drop in sales activity indicates that the market may face a reduction of house prices of up to 10% from their peak. In Auckland, PMI expects prices to fall for the rest of 2008 with stability returning to the market towards the end of 2009.
 

The latest ANZ property investor survey has indicated that:
- Rental yields have fallen as property values have increased
- 68% of landlords expect rents to increase by 2.5-10% in the next year
- 75% of landlords are expecting to increase rents within the next 2 years by up to 10%.

Tony Alexander of the BNZ has commented that owners having difficulty selling houses are realising that they can get a good rental return on unsold houses due to the shortage of rental properties. He also notes that landlords with existing tenants are getting 5-10% increases in rent and this can increase 15-25% when tenants change.

The research from PMI (see in the article above) shows that for the year ended March 2008 rents were up by 7.1%. This is a 4 year high. PMI believes over the next year rents will continue to increase strongly.
 

Other findings from the survey include:
- 70% of investors expect house prices to fall or remain under 2.5% growth over the next 12 months.
- 69% of investors expect house prices to increase between 2.5% and 10% over the next 5 years.
 

The IRD has issued another warning that it is clamping down on property speculators that fail to pay tax on a house that they buy with the intention of selling it for a profit. The warning comes as the IRD starts an advertising campaign to educate investors.
 

The Government has announced details of its first home buyer scheme. The pilot is to gauge what the likely interest will be and will be in Auckland, Wellington, Nelson, Christchurch and Queenstown.
Details include:
- an interest free loan of between 5-30% of the house value, depending on the region
- will assist up to 700 households
- the pilot will run for 2 years, starting on 1 July 2008
- the pilot will be reviewed quarterly by the government
- $35m is available
- is available to those with a maximum household income of $85,000
- there will be a maximum house price cap that will vary by region
- households need to have a 5% deposit
- no interest is payable on the amount borrowed from the government.
 

On 29 May the above was introduced into Parliament. The proposed changes to the Act are to reflect changes in the residential tenancy market since the Act came into force some 20 years ago. Proposed changes include:
- clarification of responsibilities on outgoings (e.g. rates, insurance and water usage)
- limits tenant liability to 4 weeks rent for damage to the rental property if the Tenancy Tribunal is satisfied the damage was not intentional or reckless
- allows for tenant breaches to be subject to exemplary damages as opposed to evicting the tenant. E.g. sub-letting without permission, over-populating the tenancy
- prohibits tenants being charged letting fees
- increases the monetary jurisdiction of the Tenancy Tribunal
- increase the enforceability of the Tenancy Tribunal orders
- the Act is broadened to include boarding houses and some rented accommodation where additional services are provided (meals and cleaning)
- clarifies the status of body corporate rules and what happens if rules change during a tenancy.