2001 has proved a positive year for real estate with increasing confidence in the property market, a large improvement in the volume of sales and some small increases in price in selected area. Recent sales volumes have been around 2,000 to 2,200 sales per month which is an improvement of around 25% over last year's levels. The median price is also up to $258,000, an increase of around 10% on last year's average median of $233,000.

The property market over the previous two years had remained in the doldrums. However, the current historically low interest rates, positive economic activity and rising migration to Auckland has seen a turn around in the fortunes for real estate.

Blue Chip Commercial Shines

Interest in blue chip commercial/industrial property remains very strong, as noted by recent portfolio sales of KFC properties and ANZ bank premises where yields being achieved range around 7% to 8.5%. These yield levels exceeded most market commentator's expectations and are indicative of the high demand for prime investment criteria. Low interest rates are on of the prime motivators behind this investment demand.

Net Migration Increase

There has been a major shift in migration gain over the past six months with a dramatic increase in net long term migration into New Zealand from a net migration loss over the past year. Population growth in Auckland has a major impact on the demand for property, from both a rental and ownership perspective and the recent migration increases will boost demand and ultimately prices. One of the major catalysts for the last property boom in the mid 1990's was a major surge in net migration flows into the country.

Interest Rates Drive Demand

Mortgage interest rates are now at 30 year lows and are also having a strong positive effect on the property market. With the very cheap finance costs, property has become far more affordable, resulting in a stimulation in new building activity and sales.

Historically, there has always been a close relationship between mortgage interest rates and dwelling sales with increasing activity being the obvious result of lowered interest rates. It is of interest to note rates generally need to fall to very low levels, as is the situation now, before any major effect is seen. Again, the market conditions appear in a very similar position to that of the commencement of the 1993/1994 boom.

Outcome from September 11 Terrorism

Probably the only negative cloud over the market currently is the effects of the September 11th terrorist attacks in the United States and the broader implications of a worldwide slowdown or recessions. The effects to date on New Zealand have been muted although there has been a decline in consumer and business confidence. The outcome on the property market is a more cautious, 'wait and see' approach, before buyers and sellers commit. Should worldwide events prove relatively benign, the current stimulus from migration, interest rates and low unemployment could result in a much stronger upturn in the market.

Building Consents Rising

Numbers of building consents issued for new dwellings have continued to rise which is consistent with the positive property market. Apartments are also up. This sector of the market will be watched with interest as there remains a general over supply of apartments. A definite two tiered market has emerged with prices for new apartments achieving a premium over the resales of second hand stock. Declines in values of up to 30% on resale in some of the recently completed luxury developments in Auckland are being seen. There still remains, through, demand from investors with the recent sell down of a number of developments being achieved.

With the slow down in world tourism due to the September 11th terrorist attacks, the hotel and serviced apartment market is likely to suffer. On the positive side, this sector of the market will show strong returns through the America's Cup period.

Investment Property Back in Favour

The rental market has shown some improvement in recent months with improving demand for rental housing and business space and a slight improvement in rentals in some sectors. There are now good returns available from investment in commercial and residential investment property due to the low cost of borrowing and wide margin evident between the cost of money and return on the property.

Property Cycle Trends Up

Our property cycle index indicates the market is now in the early stages of an upswing which we have been predicting. The market tends to follow a seven to eight year cycle with the last peak being around 1996. Mild growth is predicted over 2002, assuming there are no other major catastrophic world events. Potentially, the upswing could be quite strong if low interest rates and increasing migration remain.