What’s happening in the market and how does this affect me?
Welcome to our Autumn Realty Perspective with the latest information about the Rotorua
Property Market. We help you navigate through the wave of “exciting” headlines that are claiming sales are up one month and down the next. It is important to put things in perspective and make it relevant to your individual situation, which is exactly what we do.
“What’s happening in the market and how does this affect me?” The question I get asked more than any other.
We have seen big increases in house prices in Rotorua. Reading the newspapers, we are told that the average or median price increase compared to the previous year is 7.8% one month, and 23% the next.
Pretty confusing, right? We hear about these differences because the number of sales are relatively low AND they use different statistical methods to calculate increases.
If you are comparing 100 sales in one month with 100 sales the same month of the year before, you can get huge fluctuations if one month included lots of expensive properties and the other month lots of low-value investment properties. Over a three month period we are still seeing these fluctuations, but not to the same extent. The price increase in the last 12 months on this basis is 18%, which is quite significant.
WHAT WILL LIKELY HAPPEN IN THE FUTURE:
The biggest driver of increasing house prices is low supply & high demand. With multiple purchasers being interested in most properties we bring to the market and the supply being at its lowest level in the last ten years, I believe that we will continue to see prices increase.
There are a few more subdivisions in the pipeline and a number of sections available at the moment, however, based on the cost to build and the increasing number of people seeing Rotorua as a destination, increasing property values in the coming 12 months is likely.
These price increases will be at a slower rate in comparison to previous years so depending on your situation, it may affect whether it is better to hang-on to your property or sell.
If you are waiting for the market to reach its peak then now might be as good as any other time to sell. The main factors that I believe contribute to this are:
- Rental prices have increased significantly in recent years and it looks like this has topped out. It is unlikely that rental prices will continue to rise much in the next few years.
- New regulations will affect the attractiveness of investment properties from a cash-flow perspective. Most property investors are investing to enjoy Capital Gain over a long term period, which will not be affected much by the new regulation. Property investment continues to be a great avenue to grow wealth and I don’t see it changing in the near future, however, the benefit of holding onto a property for just another year, is not likely going to see you benefit much financially.
- New Insulation requirements come into force in July 2019.
- Interest rates will likely increase in the next one to two years which will affect how much investors are prepared to pay for properties as this will negatively affect the cashflow and purchasing power.
Although the prices will continue to climb, I don’t believe these increases will outperform the holding costs of property in the short term.
Long term I believe property continues to be a great part of any investment mix and the only thing that you might want to consider is moving from a low-quality portfolio (i.e. neglected properties or old, poorly insulated properties with higher maintenance requirements) to a higher quality portfolio. This will minimise the affect new regulations will have on your portfolio and makes your portfolio more future-proof should you decide to sell something in a slow market (better quality properties can be marketed to investors and home buyers).
There has been a significant change in how properties are bought and sold in recent months due to the low number of properties on the market and (in my opinion) the market coming within 20% of its peak on the “Growth Curve”.
What I mean with that is that based on market movements being cyclical, we are approaching the peak but aren’t quite there yet. Even though the number of properties on the market is at its lowest point in 10 years, purchasers aren’t rushing into buying and are doing more due diligence than a year ago.
We also see more sellers accepting offers subject to a purchaser’s property selling, which would have been turned down a year ago as there would typically be a cash buyer willing to pay the same. These are all indications that price increases are leveling off somewhat.
Being able to purchase something subject to selling your own house is one of the biggest developments that will assist many home owners in moving forward without too much risk.
If you are in a home and are considering moving, you could get the marketing of your property organised today, start looking for a house tomorrow and have all your ducks lined up to start the selling process as soon as you have found the right house.