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Auckland real estate – navigating turbulent waters

By Ali Frederickson

What we’ve seen in the real estate market over the first quarter has been a turbulence. Motivated sellers and pre-approved buyers have been navigating uncertainty.

There’s been a distinct softening of values and a general cooling of the market, as well as an increase in the numbers of properties being listed. Buyers now have more options.

The market has changed from a sellers’ market with limited listings in some price ranges to a buyers’ market with an abundance of listings to choose from. This has levelled the playing field. And, some might say, it’s about time.

Lochore’s Real Estate is very experienced at dealing with the ups and downs of real estate cycles. The past two cycles appear to have had gestation periods each of around nine to ten years. Everyone can no doubt remember the GFC in 2008 being part of the last down-cycle. At the time some property experts predicted that property values would ease by around 20-30 per cent. The pundits were wrong. In reality the property market corrected to an average of 10 per cent in the last cycle. Values bounced back quickly when the cycle turned upwards again.

We’re currently experiencing another down cycle. There is evidence that values across the North Shore generally have retrenched around eight to ten per cent since Christmas (although this is dependent on the price bracket and type of property being marketed).

This is backed up by a well respected North Shore registered valuer who recently stated that residential property values have corrected by around eight per cent. In addition, an industry-leading auctioneer who actively calls between 10-20 auctions per week across wider Auckland thinks that the value loss is a bit higher, closer to 10 per cent. If this is the case, it would mean that the true loss of value for a $1 million property in the current market would equate to a sum closer to $100,000.

The latest stats for sales in the North Shore region show a total of 317 sales transacted in March 2019. This equates to 100 sales less than in the same period in 2018 and represents a drop in sales volume of nearly 25 per cent. There was an even more marked reduction in February this year.

Apart from a general cooling in the market, the major cause of the market slowdown and softness over the last quarter was due to the final report issued on 21 February 2019 by the Government-initiated Tax Working Group.

The Group recommended taxing capital gains made on investment housing, shares and business assets, as well as on some intangible assets. The family home and some personal assets would remain exempt.

In addition, the tragic events in Christchurch on 15 March were a huge shock and a wake-up call to New Zealanders. As we all reacted with horror to what had happened and empathised with the families of the innocent victims of the shootings, another layer of anxiety, fear and uncertainty was added for most of us.

Although there is of course no comparison between the gravity of the two influencing factors on the market, for a time people were grieving, shocked, distracted and understandably reluctant to make any big decisions. This included whether to buy or sell.

In our view the looming prospect of a CGT had a widespread negative impact and created huge consumer uncertainty across not only the property market but also in retail and most business sectors.

The extent of the fallout seemed to come as a surprise to the Government, which then made an abrupt about turn. On 22 April Prime Minister Jacinda Ardern announced that the proposed CGT would be scrapped.

The market could breathe again.

Whatever your political persuasion, the decision not to implement a capital gains tax will have a positive effect for the remainder of 2019. This will restore both buyer and seller confidence. It will also provide a more stable platform for parents helping their adult children to enter the market, as well as for first-home buyers wanting to act now while interest rates are at record lows.

The knock-on effect of this market correction has meant that sellers have had an injection of reality into their price expectations. Experienced sales agents have advised them to listen to the market closely and where necessary, make adjustments to the asking price. Vendors who have resisted such advice have discovered that their properties remained on the market for a longer period.

It’s my view that the media doesn’t help the situation. Journalists simply don’t have in-depth knowledge of the property market and so often don’t provide accurate information to sellers and buyers.

Our hope is that the scrapping of the proposed Capital Gains Tax will stabilise the property market as we head into winter and the latest reduction in the OCR (Official Cash Rate) will also help. Initial signals post Easter and the school holidays look a little brighter. As they say, tomorrow is another day.

By Lochore’s guest blogger Chris Gemmell

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