Coronavirus pandemic is certainly a black swan event! From its unexpected occurrence to its eventual damage on the equity markets, the virus has kept the world in limbo. However, is New Zealand’s property market sailing well through the sticky wicket?
New Zealand's economy thrives on its housing market which accounts for around half the assets of country’s households. Last month, the house prices continued an upward trajectory in New Zealand, evading the impact of the home buying clampdown by non-resident foreigners.
New Zealand’s real estate market appears buoyant with the significant increase in online property search during level-4 lockdown. Despite a significant drop in new listings in March compared to the previous corresponding year, the housing market showcased robust price movement with Real Estate Institute of New Zealand House Price Index indicating record high growth in March 2020.
Amidst the ongoing economic turmoil led by the coronavirus lockdown, market participants are keenly eyeing how the real estate responds to the crisis in the near to medium term.
Double-Digit Unemployment Rate Affecting Housing Sector
The projection for housing price deflation has been piqued in the real estate sector, despite the current scenario of surging housing prices. Treasury has hinted at the record-low unemployment, which is likely to have a spillover effect on the rental market. It could lead to either rent reduction or vacation of the rented space.
Due to the downturn brought by the medical emergency, the Government on 25 March 2020 passed the law to freeze rent increases and provide more protection to tenants. The law is implemented to ensure that tenants do not lose their home despite drop in income through the pandemic.
However, credit rating agency Fitch affirmed its rating for Bank of New Zealand’s Mortgage Covered Bonds at ‘AAA’/Stable, indicating upside potential for the housing industry.
Reserve Bank Of New Zealand Preparing To Relax Loan-To-Value Limits
In response to the Covid-19 economic implications faced by real estate investors, RBNZ has planned to ease the loan-to-value (LVR) restrictions, thereby facilitating the mortgage approval for borrowers. The move is considered to deal with the soft demand scenario which shows no threat of market overheating or ‘market bubble’.
RBNZ Deputy Governor Geoff Bascand believes the removal of these restrictions would help banks continue lending to its customers, including the homeowners who have been seeking mortgage holidays.
Amidst the spiralling demand and risk of the house price deflation, the Government’s policy measure is directed to limit the decrease in the housing stock value.
NZ Property Council Looking For Amelioration For Commercial Property Market
The uncertainty penetrating the commercial real estate sector has increased complexities for the commercial property owners. On 17 April 2020, Treasury highlighted sharp decline in business confidence as it further fell by 9 per cent to -73% in the preliminary April read of the ANZ Business Outlook Survey.
Grappling with the economic impact of Covid-19, NZ commercial property market witnessed increase in the rent default rate. The Government has introduced depreciation deduction measure for tax relief which would allow the owners to claim the relief of 2 per cent on the industrial and commercial building structure.
However, New Zealand Property Council has considered depreciation deduction as insufficient and expressed concerns for the real estate which demands immediate government action in the form of subsidy or support packages.
Equity Market Scenario
In the meantime, many commercial, retail, and industrial real estate companies have been faring well on the stock market front. Goodman Property Trust (NZX: GMT) since 31 March 2020 has moved up by 9.55% to $2.35 on 22 April 2020. In the same period, stocks of Investore Property Limited (NZX: IPL) and Argosy Property Limited (NZX: ARG) have surged by around 6% and 15.5% respectively, indicating current positive momentum in the commercial space.