New Zealand's amazing house price boom
Lalaine C. Delmendo | February 11, 2020
When adjusted for inflation, house prices rose by 10.8% in 2019. And during the latest quarter (Q4 2019), house prices increased by 5.4%.
However Auckland, which accounts for about 30% of total property sales in New Zealand, saw a modest house price growth of 3.5% during 2019.
The highest price increase was in the Southland, where prices surged by 32% during 2019. There were also double-digit house price hikes in Manawatu/Wanganui (27.8%), Gisborne (21.3%), Otago (21.2%), Hawke's Bay (14.5%), Taranaki (14.1%), Tasman (12.5%), Northland (12.3%), Wellington (11.4%), and Marlborough (10.5%).
Strong to modest house price rises were seen in Nelson (9.4%), Waikato (9%), Bay of Plenty (4.1%), and Canterbury (1.1%). Only West Coast recorded a house price decline of 13.6% during 2019.
Auckland has average prices of NZ$ 890,000 (US$ 586,635) - the country's most expensive - followed by Wellington, with an average price of NZ$ 685,000 (US$ 451,511), and Tasman, with an average price of NZ$ 655,000 (US$ 431,737).
The cheapest housing can be found in the West Coast, with an average price of NZ$ 190,000 (US$ 125,237), followed by Southland (NZ$ 330,000 or US$ 217,516), Manawatu/Wanganui (NZ$ 402,500 or US$ 265,304), and Gisborne (NZ$ 410,000 or US$ 270,247).
New Zealand saw spectacular house price rises of about 114% (82.5% inflation-adjusted) from 2001 to 2007. Then after a pause, there were six further years of substantial price rises 2012-2017, supported by strong economic growth. Because of this, housing in New Zealand has become really expensive, for a country with such a small population relative to its landmass.
New Zealand's economy expanded by 2.5% in 2019, according to the International Monetary Fund (IMF). For the last six years the economy's performance has been robust, with growth of 2.8% in 2018, 2.6% in 2017, 4.2% in 2016, 4% in 2015 and 3.1% in 2014.
The economy is projected to grow further by 2.7% this year and by another 2.6% in 2021, according to IMF estimates.
Good rental returns in Wellington and Auckland
Last year, we found that the best rental returns available on apartments in Wellington had moved slightly ahead of Auckland. This may reflect a jump in prices of larger properties in Auckland, which would tend to reduce the rental returns. “Foreign buyers are mostly drawn to the Auckland area”, explains Bill Sandston, a real estate lawyer.
In Wellington, the capital of New Zealand, rental yields on 1 and 2 bedroom houses are now around 5.5%. Apartments, and particularly smaller apartments, tend to earn more - last year we found returns of from 6.88% to 8.43%
In Auckland, last year we found that rental yields on apartments ranged from 6.09% to 7.18%.
Property transaction costs analysis in New Zealand are rather low, and in regional terms, the total costs of buying and then selling a property are very attractive.
Rental income tax is high in New Zealand
Rental Income: Rental income is taxed in New Zealand at progressive rates, from 10.5% to 33%.
Capital Gains: Capital gains are not normally taxed in New Zealand.
Inheritance: There is no estate duty payable in New Zealand.
Residents: Residents are taxed on their worldwide income at progressive rates, from 10.5% to 33%.
Buying costs are relatively low in New Zealand
Total transaction costs are relatively low at 4.23% to 4.80%, of which 3.5% to 4% (plus 15% GST) goes to the real estate agent as commission. The buyer pays the registration fees while the seller pays the agent's commission. Each party pays for their lawyers. There are no stamp duties. There are only two procedures needed to register a property and each procedure takes a day to complete.
Tenant protection laws are neutral in New Zealand
New Zealand law is neutral between landlord and tenant.
Tenancy Laws: The Residential Tenancies Act 1986 guarantees the rights of both parties and sets the parameters of their relationship.
Rent: Landlord and tenant can freely agree on the rent, and any increases are allowed provided that the landlord gives sufficient notice or there has been no rent increase over the last six months. A tenant can call upon a Tenancy Tribunal for rental assessment if he thinks the increase is excessive.
Robust economic growth; healthy government financesNew Zealand’s economy was estimated to have expanded by 2.5% in 2019, according to the IMF. For the last six years, the economy’s performance has been robust, with growth of 2.8% in 2018, 2.6% in 2017, 4.2% in 2016, 4% in 2015 and 3.1% in 2014.
After the Asian financial crisis New Zealand experienced years of unbroken economic growth. The economy grew by an average of 3.8% per year from 1999 to 2007.
During the recent global crisis the economy contracted only briefly and mildly - by 0.4% in 2008. The economy grew slightly by 0.3% in 2009. New Zealand emerged swiftly from recession, after only five quarters of negative GDP.
The economy is projected to grow further by 2.7% this year and by another 2.6% in 2021, based on the IMF estimates.
The government recorded an operating surplus of NZ$7.5 billion (US$ 4.94 billion) during the 2019 fiscal year – more than double the forecast of NZ$3.47 billion and the biggest surplus since 2008, according to the Treasury. This was largely due to a surge in tax revenue, which increased by 7.8% to NZ$86.5 billion (US$ 57 billion).
New Zealand’s net external debt continues to fall, at around 19.2% of GDP in the 2018-19 fiscal year, a decline from 19.9% in 2017-18, 22.2% in 2016-17 and 24.4% in 2015-16.
Unemployment stood at 4.2% in Q3 2019, up from 3.9% in the previous quarter and 4% a year earlier, according to the Statistics New Zealand. There were about 115,000 unemployed people in Q3 2019.
Inflation was 1.5% during the year to Q3 2019, down from 1.7% in the previous quarter and 1.9% a year ago. The current inflation is within the RBNZ’s target range of 1% to 3% for 2019.
The next general election is tentatively scheduled for September this year.