- The exponential surge in property prices over the last few months has triggered concerns of a potential real estate bubble in Kiwi Land.
- March 2021 saw strong growth in auction activity, home sales volumes and property prices.
- The policymakers are leaving no stone unturned to cool off the property market to ensure the broader economic growth stays on track.
Ultra-low interest rates, FOMO-driven mindset, and pandemic-related stimulus are seen to be turbocharging property markets across the globe, including New Zealand. The spectacular surge in property prices for even the most dilapidated homes in Kiwi Land has sparked fears of a potential entry of the housing market into the bubble territory.
With New Zealand becoming one of the most unaffordable property markets in the world, the government is pulling out all the stops to prevent the housing market from overheating. The introduction of a significant suite of policy changes in March 2021 to make the housing market fairer for first-home buyers testifies the same.
Although housing prices are on the rise across most part of the world, Kiwi Land, which defeated Covid-19 sooner than most and is recovering strongly, has become a poster child for the property boom. Having said that, let us gaze through some parameters that are presenting strong evidence of a property market boom in the country:
Home Sales: Setting New Records
The latest data from the Real Estate Institute of New Zealand (REINZ) reveals that the property market was on fire in March 2021, with home sales volumes surging to new highs.
As per REINZ, the number of residential properties sold across the nation soared by 31.2% in March than the same time last year. It represents the highest increase in home sales volumes for the month of March in the last 14 years and reflects the highest annual percentage change in the last three months.
Additionally, Trade Me’s latest data also revealed that homes are selling very quickly in New Zealand amid the housing crisis, with the average home taking just 27 days to sell. The data demonstrated that every region in the country except Gisborne witnessed faster house sales in March 2021 when compared to the same time last year.
The recent spike in home sales volumes has come as a surprise, with several analysts anticipating house sales to slow a little in March amid the reinstatement of LVR (loan-to-value ratio) restrictions from 1st March 2021. It seems that potential buyers are trying to secure a property before any further increase in housing prices or change in government policies.
Property Prices: Running Wild
Despite the arrival of new LVR rules, the property prices continued to break records in March 2021, fuelling concerns of a housing bubble. The latest data from REINZ demonstrated a year-on-year uptick of 24.3% in house prices to NZD 826,300 in March 2021, marking a new record high for the nation. About 12 out of 16 regions and 32 districts across the country saw median prices touching record highs last month.
The REINZ House Price Index (HPI), which measures the changing value of property in the housing market, also reached a new high for the tenth consecutive month in March. The HPI marked a year-on-year rise of 24% to 3,756, setting a new record.
The price explosion in the property market seems to reflect the combined effect of the government’s quantitative easing programme, looming housing shortage, growing demand for property and the influx of returning ex-pats. While the recent introduction of the government’s new housing policies is expected to slow down the rate of growth in property prices over the coming months, the housing prices are unlikely to fall over the near term.
Auction Activity: Taking a Breather?
The latest figures from NZ’s most popular independent site revealed that the number of properties being sold in the nation at auction barely exceeded the number of properties being passed in the week during April 10-16.
During the week, a total of 369 properties were offered for sale at the residential auctions monitored by interest.co.nz, with sales achieved on 189 properties. The overall sales rate stood at approximately 51%, indicating almost as many properties were passed in as were sold during the auction.
While the auction activity took some breather in early April, March 2021 recorded the highest level of auctions ever in the country. The latest statistics from REINZ show that over one-third of homes were sold by auction last month, reflecting the continued popularity of auctions as a successful sales method.
It seems that the property market cooled off a bit over the last few weeks, possibly due to changes announced by the government to the tax treatment of residential investment property.
No doubt, the astonishing rise in property prices has prompted widespread concerns about housing affordability. However, the government’s new housing policies and re-introduction of LVR rules may unwind the property prices in an orderly manner, preventing a sharp change in house price dynamics.