Market insight: how is the property market responding to a succession of new policies?

Last Friday, the highly anticipated public seminar on medium-density residential planning policy, organised by the New Zealand Chinese Building Industry Association (NZCBIA), went ahead as scheduled. The webinar examined, discussed and interpreted the Housing Supply Bill, a new housing construction bill jointly proposed by the Labour government and the National Party the previous week.

Within New Zealand, repeated restrictions caused by the increasingly serious coronavirus outbreak are further prolonging an already uneven economic recovery. Together with continued increases in the OCR and mortgage rates, this has prompted the Labour government to introduce a succession of economic stimulus policies to support healthy economic development while addressing the longstanding housing shortage.

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YIJU New Zealand provides a brief timeline:

At the end of September, property investors and landlords received good news. Although new tax rules remove landlords’ ability to deduct mortgage interest, new builds receiving a code compliance certificate (CCC) on or after 27 March 2020 will receive a 20-year exemption. The new rules also allow new builds to be bought and sold while retaining their 20-year exemption, regardless of who ultimately owns them. In other words, the government is encouraging greater investment in developing and building new homes to further support the property market’s continued development.

There was also good news for low-income home buyers. Following the less-than-successful KiwiBuild programme, the Labour government launched the First Home Partner shared ownership scheme in mid-October. This allows low-income households to own their own homes with government deposit support. Eligible buyers need a deposit of only 5% and can receive government assistance of up to 25% or NZ$200,000 towards jointly purchasing their first property. The government takes a corresponding ownership share in the home it helps the household purchase. Buyers must live in the home for 3 years and share the gains with the government when they later sell.

There is more. Just a week ago, New Zealand’s Labour government and the National Party made a rare bipartisan move, jointly proposing amendments to the Resource Management Act (RMA) to address the country’s worsening housing crisis. The bill passed on this occasion will require councils in tier-one cities—Auckland, Hamilton, Tauranga, Wellington and Christchurch—to implement higher-density housing planning requirements at least a year earlier than currently required under the National Policy Statement on Urban Development (NPS-UD). The bill’s Medium Density Residential Standards (MDRS) allow landowners to build homes up to three storeys high on most sites, with site coverage of up to 50%, without resource consent (RC). Once implemented, the rules will enable at least 48200 to 105500 additional new homes to be built in New Zealand over the next 5 to 8 years.

Although some of the government’s three major policies have yet to take effect—the MDRS bill, for example, has not even passed its first reading in Parliament—every new announcement sparks heated public debate. So how is the property market actually responding to these three policies? YIJU New Zealand promptly contacted two experienced Barfoot & Thompson real estate agents to discuss the latest market conditions with readers:

Real estate agent, Epsom branch

Queenie Feng

Real estate agent, West Harbour branch 

Eddie Zhao

 

Q1: Thank you both for speaking with YIJU. The government has recently announced wave after wave of incentives for new builds. What is the market’s actual response?

Queenie Feng：As agents working on the front line, the biggest change we have noticed is even greater enthusiasm among developers, while homeowners are now willing to list their properties. Properties on large sections currently have very high clearance rates, with prices repeatedly reaching new highs. Even 600-square-metre sections are fiercely contested.

Eddie Zhao：The new policies have reinvigorated the property market. Properties with development potential have recently been the most popular, with sale prices around 15–20% higher than before the “amnesty” announcement.

 

Q2: Which properties do you think will be in greater demand in future?

Queenie Feng：Buyers with the means will continue to favour properties on slightly larger sections. However, as land values rise, buying a property on a large section becomes harder, and townhouses will gain wider acceptance. Many townhouses are now sold off the plans with deposits of just 10%, or even 5%, making it easier to enter the market. This is particularly helpful for buyers who have a deposit but have not yet arranged their mortgage, as they have ample time before settlement to do so. In a rising market, it also means buyers can secure future capital gains with a relatively small deposit—in other words, get a bargain.

Eddie Zhao：Over the next 2–3 years, new townhouses will become more popular because new builds enjoy more favourable tax treatment and more flexible bank lending, while the public is increasingly accepting medium-density living. Properties with land and subdivision potential will also remain very popular because they offer the possibility of immediate development.

 

Q3: What advice would you give developers?

Queenie Feng：We have entered an era in which everyone is getting into development, and buyers will increasingly scrutinise developers’ credentials. With more townhouses and apartments emerging over the next few years, design and quality will become especially important. Location will also remain a key consideration, including school zones, transport links and the surrounding environment. A project we currently represent at 729 Great North Rd has an excellent location, within walking distance of MOTAT, the duck pond and the zoo. Transport is very convenient, with a bus stop right outside. Every home has a highly practical enclosed balcony, or winter garden. Imagine sitting there in the sunshine, looking out over a park full of spring growth while chatting over tea with friends—how relaxing! A deposit of just 10% secures your preferred layout. Completion is expected at the end of next year, making it very suitable for both first-home buyers and investors seeking capital growth.

Eddie Zhao：There is a shortage of developable land on the market, and building above two storeys is becoming a trend. Building material supplies and labour shortages will be an issue. The ongoing Covid-19 pandemic also means council consent processing is extremely slow. Developers should plan ahead to minimise the adverse effects.

 

Q4: What advice would you give the 160,000 new migrants and first-home buyers with a pressing need for housing?

Queenie Feng：First-home buyers generally weigh up many factors: they want a good location, a home in good condition and strong capital growth potential. Yet as they keep looking, they find homes becoming increasingly unaffordable. My advice is that getting onto the property ladder and making that first purchase matter most. Many people think they may buy only one home in their lifetime, so they must be cautious. In New Zealand, however, once you own your first home and its value rises, you can borrow against the increased equity, creating an opportunity to buy a second or third property later. I therefore suggest moderating your expectations when buying your first home. Securing that entry ticket brings you closer to your ideal.

Eddie Zhao：For first-home buyers, buying sooner is better than buying later. If you can afford an existing, completed home, buy now. If you cannot, you could buy off the plans, but the risk lies in how reliably the developer can complete the project. Affordability and location are also important considerations for first-home buyers.

 

Q5: How do you see prices changing for different types of homes?

Queenie Feng：Apartments, townhouses and standalone houses on large sections will all increase in value in future; there is no doubt about that. Personally, I believe standalone homes on large sections have greater capital growth potential, because land is a resource that cannot be replicated. Apartments and townhouses are better suited to busy young people or retirees who do not want to maintain a garden. The government’s recent permanent residency “amnesty” for 160,000 people, along with pandemic-related material shortages and the loss of workers, are all factors pushing up house prices. I therefore remain relatively optimistic about the property market’s future direction.

Eddie Zhao：Over the next few years, townhouses and standalone homes with backyards will remain the most popular choices, followed by apartments, which are more expensive and complex to build. As the MDRS legislation takes effect, I believe three-storey walk-up apartments will become increasingly common in ordinary residential neighbourhoods, while luxury, high-quality apartments will also be popular in expensive areas. Overall, rising urban housing density and generally increasing house prices will continue to lift the value of properties with development potential.

 

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