NZ residential rental market news, December 8

Making $500K profit in four months, pre-Christmas mortgage rates movement, and a $38M K.O. bailout.

Too long; didn't read? Here's this week's TLDRs...

The state of mortgage debt in NZ

The housing loan market has shown signs of a turnaround in lending activity, although it has been subdued through 2023. 
New lending flows over August-October were 4% higher than the same period a year ago, totalling $16.8 billion. 
Strict LVR rules persist, with only 0.3% of investors securing loans in October with less than a 35% deposit. 
Around one-third of FHBs who secured a loan in October did so with a high LVR, representing 75% of all owner-occupier lending at a low deposit. 
FHBs are taking out large loans ($562,000 was October’s average). However, only around 17% of lending in October was interest-only. 
Current interest rates are around 7.3% for a one-year fix. The average mortgage rate across the existing debt is 5.3%, up from a trough of 2.7%. 
Total mortgage debt stands at $354 billion, the estimated value of the property stock at $1,585 billion, resulting in an aggregate LVR of around 22%. 
Non-performing mortgages remain very low. 
A robust job market has contributed to low mortgage stress. 
Adjustments to higher mortgage rates may pose challenges, particularly if job losses occur. 
The post-COVID years underscore the pivotal role of credit availability and cost in short-term housing trends. 
Caution is advised regarding the speed of the emerging upturn in house prices, given the impact of higher mortgage rates. 
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Will the RBNZ raise the OCR again next year?  

There are doubts the RBNZ wants to raise the OCR again next year despite its posturing. 
Some believe the RBNZ prefers to keep the OCR at 5.5% as higher interest rates would put additional pressure on mortgage holders. 
The RBNZ had signalled a possible OCR increase if inflation does not drop, but financial markets remain skeptical, with bets on OCR cuts next year. 
Westpac, an outlier, aligns with the RBNZ's message, forecasting an OCR hike in February, while other banks have scrapped such predictions. 
There’s been an increase in defaults on insurance payments, particularly among the upper middle class, indicating financial strain for many. 
The cancellation of dwelling insurance is relatively rare, with income protection, life, health, and contents insurance being more commonly affected. 
While the mortgage market has been subdued for most of the year, it has picked up in the past three to four months, influenced by seasonal factors and confidence. 
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Mortgage arrears have increased by 25%

Mortgage arrears have increased by 25% year-on-year, reaching nearly 1.3% of home loans in October. 
ANZ, Westpac, and BNZ have reported $915 million in loans overdue by 90 days, contacting borrowers who may be facing financial stress to explore options. 
ANZ has $107 billion in housing loans, with households in arrears accounting for $1.65 billion, up from $1.09 billion a year before. 
Borrowers have resorted to withdrawing money from KiwiSaver on hardship grounds, with $21.5 million in hardship withdrawals in October, up from $10.3 million the previous year. 
The FMA's 2023 annual KiwiSaver report shows a 37% increase in hardship withdrawals in the year to March, reflecting financial challenges for some. 
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Tony Alexander on pre-Christmas mortgage rates

Recent global trends show lower-than-expected inflation, decreased oil prices, and downward trends in NZ's bank wholesale borrowing costs. 
Changes in one and three-year swap rates indicate shifts in bank funding costs without corresponding changes in NZ's monetary policy. 
Banks may face pressure to cut fixed mortgage rates as funding costs decrease, but the Reserve Bank may resist, as indicated in their recent Monetary Policy Statement. 
The Reserve Bank wants to see more evidence of the lagged effect of earlier policy tightening before signalling easier policy, especially considering inflation expectations and business pricing intentions. 
Rapid policy easing could be associated with economic downturns, and banks may not be in a hurry to cut lending rates, considering margin pressures and other factors. 
Despite potential margin relief, the lack of Spring mortgage campaigns and ongoing challenges in sectors like retail, hospitality, and construction may delay significant rate cuts. 
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Some FHBs stuck between a rock and a hard place

FHBs who purchased a house in 2021 have, on average, spent $41,000 on interest payments for home loans on properties that have declined in value by an average of $44,000, according to CoreLogic data. 
For those who bought a house in 2021 with a 20% deposit on a 30-year term and took a two-year special rate of 3.7%, the mortgage would have been around $554,000, resulting in total payments over two years of $61,155, with $41,000 allocated to interest. 
While mortgagee sales statistics are low, there are reports of people proactively selling their homes, even at a loss, due to difficulties in keeping up with mortgage payments. 
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Tony Alexander: Should first home buyers be worried about property investors?

Investors will regain 80% interest expense deductibility from April 1 next year, with 100% deductibility returning a year later. 
Despite these changes, a survey of real estate agents shows a net 22% reporting more investors in the market, a slight decrease from a month ago suggesting an increase in investors looking to sell, possibly taking advantage of demand from first home buyers. 
The broader market picture indicates a surge in FHBs, followed by increased activity levels, and a settling down as delayed buyers entered the market. 
Credit remains challenging, especially for investors, with high-interest rates acting as a restraint until they potentially decrease in 2023.
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Quick report from Barfoot and Thompson

According to Barfoot, residential property sales increased 13% from October and 37% from November of the previous year. 
Average selling prices rose to $1,185,820 in November, a 9% increase from October, driven by more sales in the top-end market. 
The median selling price reached $1,018,000, up 0.7% from October. 
The total available stock increased by 6% to 4841 compared to October.
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The figures suggest a subdued recovery

Property values increased by 0.7% in November. 
Average values are now up 1.1% over the past three months. 
Main centres, including Auckland, Hamilton, Tauranga, Wellington, and Christchurch, witnessed monthly rises in the range of 0.7%-0.9%, while Dunedin rose by 1.9%. 
Despite an emerging upturn, property market growth is not uniform. 
A subdued recovery is anticipated due to persistent challenges in 2024. 
While property values are expected to rise, increases may not occur uniformly across every month or location and the recovery could be subdued in 2024. 
The mortgage repricing process for existing borrowers remains a lingering risk to watch.
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Auckland’s apartment market takes a dive

The Auckland apartment market is experiencing a significant slowdown, with consents dropping by 36% in the year to October, the lowest since July 2017. 
Several proposed Auckland apartment projects are being delayed or abandoned, and some major projects are being sold without completion. 
While apartment completions this year will exceed the eight-year average, a slowdown is expected over the next two years. 
Building consent numbers for apartments have declined by 36%, outpacing the 22% decline in dwelling unit consents for the residential sector. 
The most popular apartments are one- and two-bedrooms, making up 76% of tracked units. 
Build-to-rent (BTR) housing is gaining traction in Auckland, with projections showing almost a doubling of existing BTR stock in the next few years, which is anticipated to play a more substantial role in addressing diverse housing needs in New Zealand.
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$500,000 profit via a 4-month flip

A Wellington property trader bought a Miramar bungalow for $620,000 and sold it four months later for $1.408 million, making an estimated $500,000 profit. 
The four-bedroom, two-bathroom home underwent extensive renovations, including a new kitchen, two bathrooms, paint, tiles, structural work, and a new roof. 
The successful auction attracted 11 registered bidders, with a first-home buyer securing the property for $1.408 million. 
Another property trader in Berhampore sold a Lockwood home six months after purchase for $734,000, indicating a market preference for well-maintained properties.
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Homeowners double their 2014 purchase price

An Auckland couple sold their Meadowbank townhouse for $1.315 million, more than doubling the $630,000 they paid for it in 2014. 
The three-bedroom concrete block house underwent an impressive renovation, attracting a bidding war among eight registered buyers. 
Bidding opened at $1 million and a "dark horse" buyer entered late in the auction and secured the winning bid of $1.315 million, $75,000 above the property's CV.
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The infrastructure dilemma, Part 1

New Zealand faces a massive infrastructure shortfall across various categories. 
Taxpayers, ratepayers, and utilities customers will bear the cost of delivering necessary infrastructure. 
Third-party funding (PPPs, incentives, developer agreements where money is recycled back into infrastructure) offer access to funds and skills, allowing the government to focus on service delivery. 
Challenges exist across the board, including water improvements, healthcare infrastructure, land transport, electricity capacity, housing, and tourism infrastructure. 
A housing shortfall, increased migration, and inadequacies in healthcare facilities contribute to the infrastructure crisis. 
The National Land Transport Fund struggles to keep up with roading and transport projects, and an electricity capacity increase of 170% is estimated over 30 years. 
It is imperative that NZ address the infrastructure deficit and the potential benefits of involving third parties in funding.
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The value of new building work is on the decline

Building work commenced during Q3 2023 totaled $9.293 billion, marking a minimal 0.1% increase from the same quarter in 2022. 
The figures, which don't account for inflation, reveal a contrast to seven consecutive quarters of double-digit percentage growth compared to the previous year. 
The value of new dwelling starts declined by 4.5%. 
Regional variations included a 5.6% increase in the value of new buildings commenced in Auckland, a 1.2% rise in Waikato, a 17.2% decrease in Wellington, and a 0.6% increase in Canterbury.
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Documents reveal $37.8M bailout from KO

The New Zealand Government paid $37.8 million in a land deal with developer The Neighbourhood Ormiston after the developer allegedly threatened to violate legal obligations and sell KiwiBuild homes to achieve additional revenue. 
Ormiston informed KO of its financial difficulties and KO, concerned about reputational damages to the KiwiBuild program, decided to pay the developer to prevent cancellations or a move into receivership, despite Treasury's opposition. 
KO considered alternatives but believed enforcing contracts could lead to receivership and a potential loss for KiwiBuild buyers. 
The deal averted a potential crisis for 56 KiwiBuild buyers facing uncertainty about their homes. 
KO plans to seek approval for a "scheme of development" for at least 171 dwellings on the purchased land.
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Tenant left with damages bill despite not being responsible

A woman who left a rented property in Manurewa, Auckland, after discovering her partner was using methamphetamine is still liable for a half share of Tenancy Tribunal awarded exemplary damages and other debts owed to the landlord. 
The property required extensive restoration after decontamination, costing $40,284.25. 
The woman, despite not using meth in the property and leaving after discovering her partner's drug use, is jointly and severally liable for the debts incurred during the tenancy. 
The landlord was awarded exemplary damages for the partner's failure to vacate the property on the given date and for using meth at the rental.
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