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NZ Property Market Under Scanner: Emerging Trends

Summary

· NZ Property Market recorded 191% sales uptick in May 2020 on M-o-M basis.

· National median house prices rose by 6.9% (9.4% ex Auckland) as compared to last year.

· Although volumes declined by 46% over a year with softened auction market, market still reflected some emerging recovery trends.

· Shortage of new listings may improve gradually, with the sales volume likely to grow on the back of expected improvement in consumer confidence.

While the Kiwi nation seems to be on right track towards ‘coronavirus-eradication’ objective, the activities in real-estate sector has been under the scanner. Latest statistics from the Real Estate Institute of New Zealand (REINZ) indicate strong upliftment in  sales activity from April to May 2020 as the number of properties sold increased by 191%.

Shrugging off COVID-19 induced risks, national median house prices rose by 6.9% (9.4% ex Auckland) as compared to last year.

Besides, Auckland witnessed third-highest median house prices on record in May 2020, which rose by 7.1% from May 2019. The growth trajectory in median housing prices was also recorded in Waikato (9.5%), Taranaki (16.7%), and Tasman (19.9%) compared to same time last year.

While property prices demonstrated an upbeat momentum, the worrisome housing sales figure as compared to May 2019 indicates the lingering impact of pandemic. The number of properties sold dropped by 46.6% in May 2020 from the same time last year.

Besides, auction scenario continued to be impacted by social distancing norms, with only 284 properties being reportedly auctioned in May, representing 10.2% dip on Y-o-Y basis.

Bindi Norwell, Chief Executive at REINZ, cites that the country was in Alert Level 3 for the first 12 days in May, when “only two property viewings per property per day” was permitted. Although the restrictions acted as one of the significant headwinds to real estate space, the market still reflected signs of normalcy.

Looking from equity market standpoint, S&P/NZX All Real Estate has generated QTD return of 5.95% as on 15 June 2020. Let us look at factors that are primarily driving the property scenario and real estate stocks:

Pre-COVID Buyers’ Interest

While interested buyers were quite active in the property market before pandemic hit the country, several NZX players witnessed growth in their net rental income.

The annual results of Kiwi Property Group Limited (NZX: KPG) reported a reliable operating performance for the year ended 31 March 2020, largely corresponding to the pre-Covid time. The net income of KPG increased by 3.4% to $186.8 million, while operating profit before tax rose by 4.2% to $129.7 million.

Goodman Property Trust (NZX: GMT) also recorded a significant increase in the demand for warehouse and distribution space across Auckland for the Financial Year ended 31 March 2020. Meanwhile, the net tangible increase in the assets was of 10% to 172.7 cents per unit.

Growing Business and Consumer Confidence

The market optimism has risen significantly with the kickstart in business activities. While the companies are getting back on their feet with robust business strategies and Government-backed initiatives, hopes are renewed for consumer confidence. And, the growing optimism is providing firm support to the confidence in property market.

Spurred by the trend, real estate stocks saw a significant rise in the market. As on 15 June 2020, Investore Property Limited (NZX: IPL) grew by ~6%, while Kiwi Property Group Limited (NZX: KPG) saw significant share price rise of ~13% in the past one month.

Low Housing Supply

Low demand during the lockdown was apparently countered by weak housing supply, which overall worked to keep the house prices from falling. The volatility catapulted by pandemic has substantially affected the property listings in New Zealand.

Bindi Norwell indicated that the real estate sector continues to see the shortage of listings, which is although expected to increase post strengthening in confidence. Welling city, which has been observing listings shortage for months, hit a new record median price of $830,000, that marked an increase of $31,000 from the previous month.

New Zealand’s early virus success has fetched the country gleaming recovery prospects as it continues to tread on the path of the economic rebuilding. While the nation seems to move across the turbulent phase that curbed the housing sales, the housing market scenario needs to be carefully monitored amidst emerging trends across job scenario, business growth and consumer confidence.

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