Stable and Low Interest Rates here for Longer - June 2016
by Murray Ireland
In our last Market Update of April this year, I mentioned a “Stable Rental Market”. Since then recent world events and conflicts including; The Syrian war, the Ukraine Rebels conflict, the mass migration to Europe, Islamic State, China’s Debt Mountain, Venezuela’s Oil and Power problems, and Australia’s slow down has meant that the world economy growth rate was revised downward from 3.4% to 3.2%. The world situation has not changed markedly for the better now we have a Clinton vs Trump US election coming up, US and China talks made some progress but issues still remain over North Korea Sanctions and the South China Sea.
Brent Crude Oil is up slightly to USD$50 a barrel as at 13 June 2016. Oil is a great indication of the supply demand curve for world growth as Oil underpins almost every industry. When Oil got to USD$147 per barrel a few years ago, there were subsequent food shortages worldwide as the cost of food rose as a result of increased petrol costs. So we can see today that oil at USD$50 means demand has now dropped as there remains an excess of Oil capacity around the globe, especially in the US where many US Oil companies using the fracking process have either gone out of business or stopped producing as their profit depends on Oils prices being around USD$100 per barrel.
New Zealand’s two biggest trading partners, China and Australia are buying less of our exports which has hit New Zealand especially hard and continues to do so in the Milk Powder export prices. It is, of course, hoped that Milk Export prices have bottomed but only in retrospect will we know for sure.
The Christchurch Property Market (source REINZ) prices continue to be flat with less than 2% increase in Canterbury from last year.
With the increase in the number of residential sales, we have seen further investment property purchasing resulting in more listings for rent. This has tapered off a little with the number of available rental properties listed on TradeMe today (13 June 2016) at 1,793, compared with on 14 April at 1,842 for Christchurch City. This is in comparison to a year ago where this figure hovered around the 1,400 properties available mark.
Consequently, weekly rentals for all properties continue to drop in Christchurch City. There is an oversupply of fully furnished properties highlight by 488 fully furnished properties currently available today on TradeMe, slightly down from 495 in April 2016. The demand for fully furnished property has dropped considerably and we believe this will continue. We do not envisage rents rising again for some time. In fact, they have yet to stabilise down from last summer’s rental prices. We predict that rents will not rise again this year and may stay low, well into next year with this over supplied rental market. We are hoping however that rental demand will grow as major government rebuild projects, which are not yet at full capacity, and will require more workers to fill positions later this year and next.
We still believe it is a good time for Property Investors to purchase while interest rates remain low and residential property yields across Christchurch range in the 5-8% return, depending mainly on location. We see that NZ interest rates will continue to remain low with Christchurch rents stabilising at a new low later this year and starting to rise again in 2017. However, Auckland and Christchurch conditions are not the same. Auckland has rising rents and house prices while Canterbury has stable House prices and lowering rents. The RBNZ will continue to have a low or stable OCR while inflation is low at between 1-2%. World growth forecast will continue to hover around the 3.2% mark which means lowish interest rates will continue to be offered in New Zealand. The Reserve Bank of New Zealand announced recently no change to the OCR and no further drops for now.
Irelands see this as an excellent time for investing in Residential Property as a passive solid investment at better rates for Capital than the banks are offering. It is still a great time to buy an investment property.
Do you agree? Disagree? Leave a comment below or call Irelands today on 03-3772090. We are happy to discuss this with you further and assist with any of your investment property requirements.
Murray Ireland B.Tech (Manuf), AREINZ, ANZIM Director and Owner – Licensed Agent REAA
irelands Real Estate Agents and Property Managers
MREINZ | Licensed Agent REAA 2008