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Life after lockdown

Life after lockdown

Will there be a downturn in the property market? There are many views and predictions on what life will look like in NZ after the lockdown. And there are as many opinions about the real estate market.

Most of these are written about the overall NZ property market, not specific to Rotorua. Here is my take on things based on all the reports I have read thus far and my experience within the Rotorua market.

The balance between the good and the bad

Tourist Town

There is no doubt that as a tourist town, the impact of COVID-19 will be huge on the Tourism, Accommodation and Food Sectors. Early statistics show 1/3 of jobs in this sector could be in jeopardy and for some organisations with big reliance on international tourists, this may even be more. The question is what impact this will have on the housing market.

Affordability

Compared to the main centres of NZ, Rotorua remains affordable AND a great place to live. Neither of these two will change the market negatively. If nothing else, this lockdown might have put a greater emphasis on “quality of life”, which could increase demand.
With changes to the Loan-to-Value Ratio requirements for investment properties, some investors who chose Rotorua due to the affordability might return to the main centres as their deposits might not be limiting them any longer at a higher price. Others will take this opportunity to increase their portfolio, although they might choose to wait to see if prices drop before purchasing.

Kiwisaver and first home buyers

Kiwisaver funds have been hit like all other investments, but due to the typical diversity in funds, most have seen a recovery minimising the actual losses. One leading economist expects first home buyers might find their savings after a month of no entertainment spending are quite big and continue this post-lockdown saving regime towards a bigger deposit.
I’m working with a number of first home buyers and their ability and willingness to purchase has not changed since the lockdown. Overall, lower Kiwisaver balances will affect some people, but this appears to be a relatively small number at this time.

Migration & the returning kiwi

Migration levels will change significantly. Many foreigners who were planning a move to NZ will likely no longer do so now, however, the last year has been the first in many with more Kiwis coming home than leaving. In the coming years this will likely be a continuing trend.

Temporary accommodation

Temporary accommodation has been a big money maker for many investors. Talking to Holiday Home property managers, it appears half the properties available for short term rent are owned by people who don’t need the extra income but the other half do need it due to their high level of lending. Many owners in this category are unable to pay for the outgoings if they switch to a long-term tenancy and will be looking to sell in the short term.

Low interest rates and “help” from the lenders

Lower interest rates ease the pressure. The banks are all happy to “help” as long as there is plenty of equity (and in comparison to the Global Financial Crisis in 2008, there is much more equity in homes now). All of this will ease the short term pain and reduce the chances that people find themselves in a position where they are forced to sell.

Balancing the good and the bad

It is hard to balance all the variables that determine supply and demand. My prediction is that house prices in the next six months will stabilise and remain at the same values as we saw at the end of 2019 and beginning of 2020. Prices may drop a little if many people end up suffering under the financial pressure, but I do not think this will be likely. If it does happen, it will be a small shift in value.
Moving into 2021 there will likely be a new surge as the economy recovers. Those purchasers who have been waiting for big drops in prices will ease back into the market once they find out that the elusive bargains were not there. The biggest change will be in the volume of sales (ie. the number of properties that sell). After the 2008 crisis only 65-70 properties sold in Rotorua each month compared to an average 96 per month in 2019.

What to do if you are considering selling:

The house you live in

I don’t think the changes in the market should drive your decision to sell or not (unless you are or will be under a lot of financial pressure), as long as you have a good plan for the future and don’t end up without a roof over your head.
The rental market is still tight, which might change a little but I don’t expect this to be a huge change due to the demand for rentals. If you are a speculator, you could sell now and hope prices might drop, but I don’t know how likely that will be. If you are moving within Rotorua, your situation probably doesn’t change and I would base your timing on what suits you best.

A rental property

The biggest factors here are two-fold:

  • Is it tenanted or vacant

With recent law changes introduced to protect tenants, it is now impossible to give notice to a tenant to vacate. It looks like the earliest you can do this will be at the end of June, but this may be extended. This means it will be quite a lengthy time-frame before you can sell with vacant possession, which many buyers want.

If you have good tenants who are paying market rent, this might be a great time to off-load your property as it will be attractive for an investor to take on a property with a sitting tenant.

  • Target market

Is the property best sold as an investment?
Many rental properties are bought by first home buyers. if your property falls in this category, you may want to wait until you know your are able to provide a timely vacant possession.

The recommendations above are based on people who will not HAVE to sell and can afford to keep their property to maximise the best time to sell. For those who need to sell in the next 12 months, the best opportunity might be now.

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