Does Auckland Property Market Still Have Room To Boom?
23 May 2003 

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By Kieran Trass of Hybrid Property Consulting

Auckland is experiencing a strong market with continued expectations of increases in values. Property listing numbers are continuing to reduce as pressure from buyers soaks up new listings quickly and the number of days for properties to sell continues to reduce.

Interestingly figures released by QV on-line reveal that in the first quarter of this year (to the end of March 2003) values across Auckland continued to rise but at a slower pace than the pace evidenced at the end of last year. This “softening” trend may be interpreted by some to mean that the property market boom is over...or at least has peaked... but it hasn’t! This “softening” appears to be just another classic signal of our typical progression through the boom phase. They say history never repeats... but clearly it sometimes does.

Consider that the last Auckland property market boom commenced around 1994 (largely driven by increased immigration) and we saw significant value increases in that year. This was then followed by slightly “softer” value increases in 1995. And then we saw a strong resurgence of value increases in 1996. We have seen a similar pattern in this boom with a strong value lift in 2002 (largely driven by immigration but also fuelled by lower interest rates and higher numbers of new household formations than we had in the last boom) and it appears we are now evidencing slower growth in values this year (like we did in 1995).

Buyer interest appears to still be strong for several reasons: 1) We seem to have now come to terms with the huge lift in values over the last 12 months. 2) A realisation that the loss of the America’s cup has had no impact on property prices. 3) The Iraq war is over without any consequence on the Auckland property market. 4) The realization that Auckland’s property market fundamentals are still sound. 5) We expect further interest rate cuts soon.

There are still plenty of positive signals indicating we will continue to enjoy rising property values in the medium term (providing the fundamental drivers of the market remain positive).

These drivers include (but are not limited to): # The fundamentals of adequate return on investment still being evidenced (although properties that are “self funding” are becoming much harder to find!) # Solid net migration looks stable at current levels. # Low unemployment levels (14 year low) although these levels have now peaked. # Relatively low interest rates (Average rate is now under 7.0%p.a.). # The potential for floating interest rates to fall further is looking extremely likely. # Strong and stable rental levels evidenced. # Confidence in the real estate market is strong. # Low home ownership level.

There appears to have emerged two potential negative signals in the market at the moment.

1) The SARS virus has the potential to reduce immigration levels in the short term. However any impact would probably be felt most by those hosting asian students or providing specialised student accommodation rather than those providing standard rental accommodation.

2) Some property managers have recently reported an increase in vacant properties on their books. Out of a total of 2769 managed properties surveyed this week I note that 80 properties (or 2.2%) were reported to be vacant.However vacancy rates have been almost non-existent for over a year and this increase in vacancies is only a very recent phenomena. It may be evidence of reducing affordability of current rental levels (i.e. people will tolerate "flatting" with others, rather than live alone, so they can reduce their living expenses)as the number of people per household tends to increase when rent affordability decreases and this can result in vacancy rates increasing in the short term.

In summary the Auckland property market remains in sound shape with good prospects for further growth