BY ROSS FORSYTH, REGISTERED VALUER
There has been a lot of talk about the “Auckland effect”. This is in reference to how the residential market activity of Auckland is causing the Tauranga market (and other provincial centres such as Hamilton, Rotorua and Western Bays) to surge ahead.
The graph below clearly indicates that as Auckland has surged ahead, the Tauranga and Mount Maunganui/Papamoa locations have also gone forward. It is interesting to see that the upward trend of the Auckland market was on the move well before that of Tauranga City. Similarly the rate of increase has been excellent in Tauranga – but still significantly below that of Auckland – as indeed are the values.
In a nut shell, the Auckland “effect“ is manifested here in that Aucklanders are buying up this city. Real estate agents all report a good deal of their activity is selling to people from Auckland, looking to secure either a home or investment at values which, in comparison to Auckland, seem like a bargain!
The volume of sales is well up on the past few years as are prices. Quotable Value reports show that as at September the median price has risen by 8.6%, for the year-on-year result. The caution here is of course that such percentages at best give a global overview – which can vary markedly from individual property to property. Personally, we are aware of properties that have lifted in value in excess of 20% within a year. Similarly we have seen some properties that have yet to fully recover from the dire straights of the GFC.
The Reserve Bank’s attempts to curb the market – by way of introducing the loan-to-value ratio (LVR) restrictions – have had little impact upon market activity in the region. When first introduced they did have some negative bearing upon both activity and prices, certainly for first home buyers of existing homes. However, this has had a bearing upon the increase in the demand for new homes which were exempt from the restrictions and consequently upon land values. Both these market sectors have seen a considerable lift in activity and prices. Now, with the new LVR constraints in Auckland (requiring a 30% deposit), this has given further stimulus to the market here.
Along with the rapid purchase of new housing (and indeed almost any housing that comes to the market) land values have surged ahead, with a seemingly insatiable appetite from both development companies and private purchasers. The Bay of Plenty Times carried the headline on 9th August that within 48 hours 194 sections sold in “The Lakes” development of Pyes Pa. This activity has been echoed in other subdivisions in Papamoa. The values have risen markedly and a good number have been bought somewhat speculatively and subsequently on-sold or “purchased” on generous terms, with titles still some way off. Here again as each new tranche of sections is sold – the price goes up!
So, is it a case of pointing at Auckland as being the reason for all the activity? The answer is yes AND no.
YES in as much as Tauranga values are extremely tempting by comparison plus the general economy and current low interest rates are making such acquisitions affordable.
NO in as much as the nature of Tauranga is also very attractive – a thriving and growing city with a lot of it’s own ‘pluses’ that make it an attractive and desirable place to invest and live.
PRIORITY 1 (a local authority based and funded organisation to monitor and actively promote the Bay of Plenty Region) notes that there are good strong fundamentals that support the region, including:
> the largest port in New Zealand in terms of cargo volumes and values
> the kiwi fruit industry has more than recovered from the infections with record exports this year and continued growth projected
> the “city fathers” have come in behind the city and are investing in the creation of a new central city based university campus
> the new Eastern Arterial (toll road, opened by the Prime Minister 31st July) has greatly enhanced the flow of traffic and goods to and from Tauranga, the Western Bay of Plenty (Whakatane and Rotorua etc.) and the Southern regions, which will in turn further build on the port activity
> the region is ahead of the country generally with respect to some key economic indicators noted below:
So the growth of Tauranga (property/activity and values) is also on the back of being a great little city in its own right. Certainly the Auckland effect is real – and largely appreciated, but underneath it is a city growing on its own merits.
The fundamentals are good. We are mindful however, that New Zealand is a relatively “small economy” (Tauranga’s smaller again) and can be quickly impacted by market forces both in New Zealand and overseas. The reaction to the fall in returns from the dairy commodity market (which saw a recordable drop in business confidence) is something of a reminder of the inherent fragility we face as a small economy; it does not take too much to upset the apple cart. Local factors such as these, in conjunction with a wider view (the “clouds”) by way of the Chinese economy, stock market reactions and other international factors at play, have many economic commentators cautiously pointing to the potential for some degree of correction to the real estate market – although no one is prepared to project a timeframe for such a reversal. The market will always correct itself, but when this will occur is anyone’s guess.
In the meantime the residential market is likely to continue to go steadily forward for some time on the back of the current positive economy and buyer demand. Indeed, should the traditional pre-Christmas/summer lift in market activity “kick in”, we may see the market take a further surge forward at that time.