Sustainable Growth Dependent on a National Win – September 2014

by Murray Ireland

I’ve been watching the New Zealand political scene closely over the last 2 months. Today’s blog post explores my thoughts on how a Labour or National party win could impact the Christchurch Real Estate market.

I have been watching the New Zealand political scene closely over the last 2 months with a keen ear to the effect of what a Labour or National win would have on our Christchurch Real Estate market.
It is evident that the business community has clearly voted for a continuing National government on the basis that a no surprises, steady as she goes approach to our economy is preferred.
National is focused on continuing a low interest rates economy and stable growth of 2-4%. This morning, the Reserve Bank governor Graeme Wheeler kept the official cash rate at 3.5% and signalled he won’t be as aggressive with future rate hikes as previously thought as inflation remains tamer than expected. This is a positive for all property owners as the new governor endeavours to avoid a boom – bust cycle, preferring to maintain steady inflation and growth rate targets.
National backs this up with their plan to not over spend and heat up the economy as opposed to any Labour government with a Green tinge with spending promises of over $18 billion in the pipe works. This would certainly increase inflation and hence bank lending interest rates.
Regarding real estate in Canterbury, the new average asking price of $461,032 is about 2.6% above the record from January 2014. Meanwhile Christchurch rents continue to climb, albeit at a slower pace. A 3 bedroom home in Christchurch is stabilising around $450 per week with a slight increasing trend. The rent for a 2 bedroom flat has decreased slightly from an average of $340 per week to $320 per week.
It is also fair to say that there are now more Christchurch rental listings on TradeMe now than at any time in the last 18 months. This is backed up by the fact that our 5 property managers all agree that it is now harder to find quality tenants at current market rates. When there is a high supply of rental properties, there is pressure to decrease the weekly rental amount to meet the market. For a property owner, it is better to rent a property in 1-2 week at $10 less per week than hold out for 3-4 weeks to attain a maximum market rent.
Some Investment Property Owners are choosing to drop the rental amount to secure long term quality tenants. We have always advised our owners that 95% of the market rent is the optimal rent. This is because at just under the market rent you will have more quality tenants applying for a tenancy giving the owner more choices in a shorter time period than if the rent was set at or above the market rate.
Because the Reserve Bank governor has used a more dovish tone, we can see that high street bank interest rates are stabilising at mid to high 6%’s for a variable mortgage and mid to high 5%’s for 1-2 year fixed rate mortgages.
Therefore, investment property rent yields in the 6-8% range are still achievable if you shop around. If your focus is more capital growth, then we see a bright future in new 3 bedroom homes in good suburbs like Linden Grove and Longhurst in Halswell. We also highly recommend our long standing business partner Strategic Property Concepts for high income families looking for a long term investment.
If you wish to discuss the Christchurch investment property market further I am always available for our clients and any prospective new clients by my mobile 021 425 766.

Murray Ireland B.Tech (Manuf), AREINZ, ANZIM
General Manager / Licensed Agent REAA 2008

 

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Sustainable Growth Dependent on a National Win – September 2014