So, how’s the market?
By: Matt Morton
December 14, 2023

It’s the most common question we are asked as agents. “So, what’s the market up to?” It’s a simple way to start a conversation with an agent and we love to talk about what we do, but it’s actually a loaded question, or at least it has loaded answers.

There are different aspects to the market, and then multiple styles of property that act in different ways. There are buyers’ perspectives, sellers’ perspectives and then renters’ perspectives. And investors vs homeowners might have quite different markets, so the answer to the question is not necessarily straight forward.

This question has been asked with a lot more intent lately. Clients seem keen to know exactly what is going on now that the election has passed. The property market all across New Zealand has been through some of the most traumatic rises and falls lately that most people can remember. But now the market appears to have bellied out and sentiment is on the rise.

However, we need to look more in depth at every facet of the market to get a better picture. 

Overall New Zealand Market 

The last few months the property market appears to have turned a corner. Auckland especially is reporting more sales and good activity in the auction rooms. The amount of first home buyers is strong and speculation is that the tidal wave to migrants coming to New Zealand is fuelling this. They naturally settle in the biggest cities where they perceive more opportunity and this of course squeezes the market.

Resident Aucklanders are still moving out of the big city and into the regions as the new working from home trend is allowing more people to keep their jobs, but live in a less congested town offering a more relaxing lifestyle. It will be interesting to see if this trend continues as more migrants come into the country and Auckland becomes more congested again.

The remainder of the country is starting to slowly increase in activity and price and in Dunedin we are typically about a six month lag behind Auckland, so we could expect some uplift on the other side of summer. 

The Election Influence 

There was an oddity this time around with the election and a consequential effect on the property market sentiment. This is my fifth election as an agent in investment real estate. There is always this pregnant pause for around eight weeks prior to an election where all buyers and sellers seem to stop, hold their breath, and wait for either a continuation of the government or a change. 

In past years the influence of either outcome was meagre on actual prices but activity always slowed prior regardless, and then generally continued as normal straight after.  

This election was different. There was so much turbulence from the Labour government that investors especially have had to deal with, we expected a complete hold until after the election. 

However, four weeks out from the election, the first poll came out showing Labour with a 29% share of the vote. That week we noticed a slight uptick in buyer enquiry. Some buyers stated they were confident of a change of government now and were looking around. This felt like a signal of things to come. 

This trend has continued on after the election, but interestingly the confirmation of a new government has not altered it further… yet. 

I suspect the market will step up in waves. Some more buyers are likely to start enquiring once we know the proper formation of the three parties in government (at the time of writing we are still waiting for this to happen), and then a step up again once they announce the decision around the removal of interest deductibility. National want to step this back slowly, Act want it reversed immediately. The next wave might come once the legislation around this is finally enacted. 

The Rental Market 

The rental market is alive and kicking. Tenants in Dunedin are still struggling to find accommodation, although nowhere near as dramatic as our neighbours in Central Otago. Rents in Dunedin have been rising steadily as a consequence of the market demand, but the student sector is where real movement in rents has occurred. 

In part due to the recently introduced laws allowing only tenants to end their fixed tenancies, there has been a mixed bag of supply and demand going on from month to month. Lots of students are looking each month, but only so many flats are available to rent in any given month as sitting tenants slowly sign them out and release them to the rental market for next year. This has skewed a perceived demand issue each month, and there are still students looking for flats for next year in November. 

Simultaneously, investors have been hit with increased costs in rates, insurance, mortgage rates and most importantly, interest deductibility. This has resulted in large rents increases over the past couple of years with the landlords needing more, and the tenants accepting the increases due to the perceived shortage of flats when they look.

Rents have been increasing around $10-$15 per room per week in the last few years, but with the potential reversal of these laws under National, it will be interesting to see what rents do in 2025.

Investor Yields 

Yields historically landed between 6.5% - 8.0% for most property around Dunedin. The student market used to average 7.0% as a median yield for years, with the surrounding suburbs closer to 7.5%. Since 2018 these began slipping down as the interest rates dropped and the frenzy took over. 

At the height of the market, yields were averaging around the low 5% range. Now the market appears to have corrected itself back to the 7% range, more in line with what we have historically experienced.

However, with these dramatic rent rises, this has not meant property values have fallen away substantially as the yields have risen. Remember, as yields go up, the price comes down, but the rent rises have levelled this out, so the drop in price is not as dramatic.

The true yield norms however won’t really be known until we see the interest deductibility coming off and the eventual sentiment of the investor market will be found.

In Summary 

The market has been one of the most tumultuous in recent memory for many. It appears to be levelling out now as buyer sentiment slowly increases. Prices will likely hold for a while now, however if the Covid era has taught as anything, its that it is very hard to predict what a market will do next.

The statements made within this article are in the opinion of the individual writer only and do not constitute legal or specialist financial advice. Please seek independent legal advice when dealing with all property transactions.

Matt Morton is a specialist residential investment broker (since 2011).

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Matt Morton
Matt Morton & Co is a local Real Estate company firmly focussed on transparency and upfront values. We believe the process of...