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House Values Show 22% Growth

House Values Show 22% Growth

New Zealand has experienced its highest annual growth in the 13 years since the House Price Index was introduced, Quotable Value (QV) announced today. New Zealand’s overall QV House Price Index shows a growth of 21.9 percent in property values for the year ending December 2003.

The House Price Index for the December quarter showed continuing growth in house values, in contrast to the slowdown indicated by the median sales prices. “The House Price Index is a better indicator of change in property values, as median sales prices can be impacted by sales activity in specific property types,” said Blue Hancock of QV Valuations. “A high volume of sales in apartments or investment properties may drive the median price down, when in fact, these properties values may be increasing”.

Areas to achieve annual growth rates in excess of 20% per annum for the year ended December 2003 included Nelson City 41%, Dunedin City 34%, Invercargill 33%, Napier City 32%, Christchurch City 27%, Waitakere City 24%, Tauranga 23%, and North Shore City 21%. Very few areas in New Zealand experienced growth levels of less than 10% in 2003, Mr. Hancock said.

Although Auckland City shows an annual growth of 22%, this figure remains provisional, as unfortunately not all sales have been received for Auckland City for the December 2003 quarter.

The QV House Price Index has now increased for 10 consecutive quarters. However, Mr. Hancock does not see the current growth being continued throughout 2004.

“Reduced net migration, house prices outstripping income growth, interest rate increases and increasing construction costs are all likely to impact on house sales in the coming year” said Mr. Hancock.

“The next quarter should see a leveling of the upward trends on values as house buyer demand reduces,” Mr. Hancock said.

Notes to the Editor:

Quotable Value believes the following information may be useful to your business and property journalists. It contains commonly asked questions about the Quarterly House Price Index and their answers:

What is the Quarterly House Price Index (QHPI)?

The Quarterly House Price Index (QHPI) is an index used to measure the movement in house prices over time. The index takes into account the ‘Average Sale Price’ in relation to the ‘Average Capital Value’ of properties sold, as well as the volume of sales within that area. This index is only aggregated and published for areas where there are sufficient sales to provide confidence in the output.

Why does Quotable Value recommend using the QHPI?

Quotable Value (QV) recommends using this index when commenting on sales trends, because it reduces the impact of extra-ordinary circumstances and low volume of sales, thereby providing a more robust indication of market house price trends.

There is a weakness in using average sales prices as a measure of value in the property market. Average Sales Price can be a poor indicator when the sales volumes are low and particularly when the sales prices vary significantly. With a low sales volume, a few sales of very high price properties can significantly impact the “average” price.

QV recommends the reporting of index movement rather than average sales prices.

How is the QHPI calculated?

Freehold open market sales are included.

• The price to value ratio for each sale using net sale price and the rating valuation are calculated.

• The price to value (p/v) ratios for the Territorial Authority are summed and divided by the number of sales to calculate the average p/v ratio.

• The percentage change between the current average p/v ratio and the previous period’s average p/v ratio are calculated.

• This percentage change is used to calculate the current period’s index for the Territorial Authority.

When did the QHPI begin?

The QHPI was re-based in September 1989, effectively meaning the index begins in that period. However, QV are able to produce statistics using its database going back in some areas to 1985.

We were expecting more sales in the area for the quarter because of the perception of a buoyant market – why would there be less sales than anticipated?

Some sales may not have been notified to the Territorial Authority in time for inclusion in the QHPI. Notification of the sale to the Territorial Authority does not occur until after the sale has been settled and documents forwarded by the solicitor. This, generally, introduces a lag of 4 to 6 weeks before the Territorial Authority records the sale.

Why is the latest quarter always shown as “Provisional Data”?

QV provides the QHPI 6 weeks after the end of the quarter. However, due to the lag between the Sales and Purchase Agreement being signed, the sale being settled and the Territorial Authority being advised, there will still be sales for the past quarter that are not yet included in the statistics. The current quarter’s statistics are considered ‘provisional’ as they provide a good indication of market activity but do not provide full sales details.

The finalised index figures are provided in the following quarter’s report.

How is a Territorial Authority’s Suburbs defined and named?

Each Territorial Authority concerned defines its boundaries. The suburb boundaries are, however, based on Sales groups, which are internally defined by QV.

Why are some Territorial Authorities missing in the QHPI?

Statistics for some Territorial Authorities will be missing from the published QHPI because QV has decided not to publish them because it believes there are not enough sales occurring within the quarter to produce a statistically reliable sales trend for the Territorial Authority area.

Where does QV get its data?

QV maintains a national database on Property Information that it creates by sourcing updates of the District Valuation Roll from Territorial Authorities.

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