These are unprecedented times that we are living through. In just a couple of months, Covid-19 has dramatically changed the world. With a recession on the cards and once-safe industries in free fall, the outlook for property markets around the country is now looking very different.
Most commentators are not willing to commit to concrete predictions going forward. Many do say the market is vulnerable in the current environment and predictions of a nationwide decline in price growth of about 10%, along with a drop-off in sales, are common.
However, it’s also acknowledged that some markets – especially markets that are heavily exposed to the tourism industry – are likely to feel more impact than others. So, in place of the regional review of a specific market that we usually run, in this issue we are taking a look at what the future might hold for a number of the markets around the country that fit into that category.
The adventure capital: Queenstown
Famed for its picture postcard beauty and long marketed as the “adventure capital of the world”, Queenstown is the region perhaps most strongly associated with tourism. As such, CoreLogic senior property economist Kelvin Davidson says its market is among the most vulnerable in New Zealand to the Covid-19 crisis.
That’s largely because of the city’s economic structure: “17% of its economy is accommodation/food services, another 15% comes from the property/construction sector, and 6% arts/recreation services. That’s a lot of GDP that comes from “vulnerable” sectors.”
But also, with some of the highest house prices and rents in New Zealand, Queenstown is clearly an expensive market for both buyers and renters – and that could be problematic going forward, he adds.
For Otago Property Investors’ Association president Kathryn Seque, the central issue for the region is New Zealand’s closed borders.
“Queenstown and the Lakes area survive on international workers for the tourism industry. Tourism will need workers, if there are no workers there will be no tourist operations. Central Otago won’t get back to normalcy until the borders are open again.”
Seque thinks that house prices might decrease, particularly in places like Cromwell and Alexandra, while the borders are closed, but that once that changes things will pick up again. “We also don’t know how many 20-somethings have come back home from working in ski-fields, having saved for a deposit on their first home, and who may want to buy in the area.”
The Covid-19 crisis has prompted lots of people who had properties rented out on Airbnb to convert them back to long-term rentals, she says. “But that has an upside for the rental market as there will be less crowding and more rentals available. We have had a long-term undersupply of housing stock, so I think that the rental prices will stay the same.”
Moving from lockdown into level three and then, hopefully, beyond that will lead to more optimism in the market, Seque adds. “There will be opportunities in low lying Central Otago, but maybe not so much in the key tourist areas. We will know more in three to six months… At this stage it’s hard to tell what might happen.”
The geothermal wonderland: Rotorua
Thanks to its wealth of geothermal parks, mountain biking and hiking opportunities and Maori culture, Rotorua is another of the country’s great tourism hubs. It’s also well-known as an “investor market”.
Davidson says that right up until lockdown, Rotorua’s market was growing strongly in terms of rents and prices and had a decent yield (4.0%) as compared to many other parts of the country.
While the Covid-19 tourism crunch will impact on the city, it is probably in a stronger position than Queenstown, he says. “Rotorua still relies on tourism and accommodation but it also has a broader base of economic activity in areas like healthcare, professional services, and education.”
IFindProperty founder Maree Tassell foresees a long flat period, rather than a big crash, for the Rotorua market.
“I don’t anticipate a sudden surplus of stock for sale. Due to bank restrictions and LVRs, there aren’t the number of investors who are over leveraged that we saw post GFC where people were forced to sell. So there’s not a big pile of houses to dump.”
She says it’s still a good time to buy, with interest rates so low. “Property is a tangible asset, unlike shares, and if people can get finance (which will be harder) they will have the opportunity to purchase homes which they can add value to.
“There is likely to be a move away from apartments, with people wanting houses with the classic Kiwi quarter acre section. There has also been a lot of Kiwis returning from overseas, and although they can’t make up the deficit from the change of tourist movement, this will dampen the loss in places like Rotorua and Queenstown.
“Also, whenever there is a big change, we tend to get a lot more queries from experienced investors.”
In terms of the rental market, Tassell says many landlords have been trying to help out their tenants throughout the uncertainty created by the Covid-19 crisis. But, going forward, there may be a slight increase in the amount of rental stock on the market.
“In Rotorua, a lot of the Airbnb stock is people’s holiday homes, so these won’t be coming into the long-term rental market. There is likely to be some impact though, and more well-presented properties are likely to be welcomed by the huge pool of tenants who live in Rotorua.”
The heart of the city of sails: Auckland CBD
Once a bit of a ghost town, in recent years the Auckland CBD has changed to become a lively residential suburb with an increasing number of owner-occupiers moving into the array of apartments on offer. But the area’s market has long been the province of investors and they still dominate.
That means there’s a lot of rental properties in the CBD and many of them are targeted at foreign students or the short-term rental market.
Prior to the lockdown, the area had been through a downturn in recent years and was just starting to re-emerge into an upswing in rents and prices, Davidson says. “Now though, the downturn in the short-term rental and foreign student markets could prompt a surge in the supply of traditional long-term rentals – making the area vulnerable to falling rents and/or investor sales.”
He adds that, at face value, the Auckland CBD might be less vulnerable to a downturn because although tourism is important, it also has a large base of other activities (eg: retail, business, finance, banking and so on).
There’s certainly a high degree of uncertainty about what will happen with Covid-19 hanging over the Auckland CBD market. But Auckland Property Investors’ Association president Andrew Bruce thinks CBD sales will take a hit.
“There are going to be lots of first home buyers whose Kiwisaver has taken a hit, other people will have lost jobs, and or their circumstances have changed. I think investors will be more likely to sell their apartments, and there is definitely going to be pressure on the apartment market, with overseas students not coming in and Airbnb affected by the travel ban.”
He currently has an ad on Trade Me for one of his CBD apartments and hasn’t had a single enquiry about it, where usually he would get at least one a day. Interest stopped immediately after lockdown, he says.
“It’s really going to be a struggle for some investors, and there will be very few people whose cashflow isn’t affected. Students who may have wanted to move out of home may decide to stay with their parents for longer.”
It’s unlikely property prices will keep moving forward, but Bruce isn’t sure if they will drop or flatten. “There may be buying opportunities out there, but there is a different vibe at the moment as people are concerned about helping others instead of looking for cheap stock to buy.”
The holiday peninsula: Thames & Coromandel
Traditionally, the Thames-Coromandel-Whitianga region is a hugely popular destination for both domestic and international holidaymakers. In recent years, it has also benefitted from its proximity to Auckland, with growing numbers of people moving from the big smoke to the peninsula.
The region has been a solid property market over the past year, with growth in both rents and prices, Davidson says. “But it does stand out for being a market where existing owner-occupiers tend to trade property with each other. Movers are 33% of purchases.”
REINZ Waikato regional director Neville Falconer agrees the region’s market is different to many others. “A significant part of the sales market is not as affordable because it is discretionary money for holiday homes. The type of places here are not necessarily traditional investor properties, they are more nest egg, special for-your-family type of properties.”
For that reason, the market is likely to see delayed purchases rather than sales not happening at all. , “I think they might go on hold a bit but I don’t think there will be a huge change. Because that’s the sort of market that it is.
“Likewise, prices have been pretty strong coming into this year. While the fundamentals are not as strong as they were, I don’t think there will be a big drop in prices. Rather there might be a bit of a plateau. Which might make it easier for people to buy a property here.”
The region has seen a noticeable economic impact from the lockdown, Falconer says. “Labour weekend to Easter weekend is the biggest time of year for the region, so no Easter weekend is felt. But, going forward, Winter’s coming up and that’s traditionally a quiet period anyway. We just have to wait and see what happens next summer.”
It’s worth noting that tourism in the area might not be affected as much as you might think, he adds. That’s because, according to the Hamilton & Waikato Tourism, tourism in the greater Waikato region, which includes Thames-Coromandel-Whitianga, is about 80% domestic.
“We shouldn’t be surprised if we see people who would have been going overseas instead travelling domestically to places like the Coromandel. With short-term rentals, it’s an evolving thing. I suspect lots of the Airbnb properties round here will go back to being family baches, rather than going into the traditional rental market.”
The central sanctuary: Taupo
Situated at the centre of the North Island, Taupo is both a scenic sanctuary and a handy base for the many nearby tourist attractions – think Huka Falls, Tongariro National Park and Whakapapa ski field. That means tourism is important to the town, but its economy also has some strong industries, including geothermal energy and forestry, at play.
Like the Coromandel region, Taupo’s property market has seen solid growth in both rents and prices over the past year. According to the latest REINZ data, going into lockdown, the area’s median price (of $580,000) was up by 11.5% on Feb 2020 and by 16.0% on March 2019.
Taupo-based REINZ board member Wendy Alexander is expecting decent sales activity post-lockdown. “After four weeks in lockdown, people will have been thinking about their future - real estate is likely to have been a big part of that. I think there’ll be a range of people who will want to sell their properties.”
She says Taupo prices should hold for a while. “I can’t predict what might happen with prices after that though. It is too hard to do crystal ball gazing at this point in time. But I’m pretty positive about the market going forward.”
When it comes to the rental market, Taupo – much like many markets – has a shortage of traditional rental stock. But, due to Covid-19, there has been a lot of short-term rental properties entering into the long-term rental market recently and that’s likely to go on for the foreseeable future, Will Alexander, from Property Brokers Taupo, says.
“It’s not a bad thing though. There is always demand for long-term rentals here. Our vacancy rate is usually about 1.2% and anything we put to market we rent. People are desperate for good rental properties that they can make into a home.”
He doesn’t believe this trend will saturate the market but does say that rents might come down a bit. “But not by much and, in the current climate, a reduction of rents is not a bad thing.”
Going forward, the demand for rental properties will continue to be strong, Alexander adds. “People will be looking for security and that means longer-term tenancies. Once the globe starts to sort itself out, I think the short-term market will bounce back.”