How will the New Zealand property market react to the current crisis?
New Zealand has a population of approximately 4.8 million people spread over the North and South Islands, with 1.62 million homes with a value of roughly $750 billion. Some 30% of these homes worth more than $230 billion are in the capital, Auckland.
During the 2008/2009 financial crisis, which resulted in the last recession, residential property prices in New Zealand fell by approximately 8% on average—a number much lower than many other countries, including North America. This was a financial crisis characterized by poor lending practices, but the current COVID-19 crisis is very different. The question is, how will the New Zealand property market react to the current crisis, and how will the recovery look?
In March 2020, Prime Minister Jacinda Ardern’s government introduced a four-tier alert system that was set at the highest level for 30 days ending in the third week of April 2020. This was a stay-at-home alert with all businesses closed, except essential services, and social distancing enforced. Like other countries, this meant real estate was severely impacted with no onsite or in-house auctions, no open houses—only virtual viewings and tours. This lockdown has, at the time of writing in late April, been effective with only approximately 500 active cases and less than ten deaths from the virus recorded in the country.
The Property Market
The New Zealand property market enjoyed a period of strong demand and price growth over the last five years, with house prices up on average by 30%. Trade Me, New Zealand’s sizeable real estate portal, reports a bottoming out and subsequent rebound in listing views and anticipates that investors and qualified buyers will return to the market post lockdown looking for well-priced properties.
The one sector of the market that they anticipate will be slow to return will be first-time buyers. The latter has been hit by plunging share prices, which has seen their Kiwisaver Funds diminish, thereby reducing the amount available for house deposits.
CoreLogic Property Economist Kelvin Davidson is optimistic that consumers and business will be bolstered by all-time low-interest rates and the fact that major banks and Government have moved quickly to offer mortgage payment deferrals. The Reserve Bank is offering quantitative easing and delayed bank capital requirements. He sees the market transitioning from a sellers’ market to a buyers’ market as the recovery strengthens.
The Prime Minister reduced the Alert status to Level three in the third week of April 2020, allowing real estate offices to open with social distancing, but no customers permitted. Real estate agents can now visit homes while observing social distancing. Other Level four restrictions remain. CoreLogic believes that the bigger cities, like Auckland and Wellington, will be driven by existing housing shortages, which will limit how much prices fall even though transaction numbers may diminish.