Manawatu Property Investors' Association

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04-04-2011

Cold water poured on overheating market claims

Landlords.co.nz

Despite media coverage of increased competition among Auckland renters – and corresponding reports of rising rents – average rental inflation across the Auckland region was just 3% in February, according to Crockers Market Research.

By Benn Bathgate

The latest Crockers research, conducted in conjunction with Infometrics, found Sandringham and City Bays saw the strongest yearly rental growth of 8-9%, "hardly an overheated market, in infometrics view."

The report cites erratic economic growth and the moribund labour market for doubts about an immediate pick-up in rental demand in Auckland.

"We suggest it could be another year before households start to spread out again after the recession and genuine upward pressure on rents starts to emerge," the report said.

The report claims that if rents rise this time next year, the main cause will be the undersupply of property.

"We believe that its effects [property undersupply] would be felt earliest and most keenly in Auckland. The reason: Auckland's combination of steady population growth and persistently low residential building activity over the last few years."

On the housing market in general, the report said the market remains weak, with February sales around 10% lower than a year ago.

The low sales volumes have not depressed prices however.

"The national median house price is unchanged from a year ago, while the median price in the Auckland region has risen 2.5% over the last year."

The report cites a number of factors for the price stability, including vendors feeling little compulsion to sell and refusing to reduce prices.

"Buyers, on the other hand, are still uncertain about the economic outlook and fear that house prices are still above fair value," the report said.

"The end result is that few properties are changing hands, and those that do tend to be at the higher end of the market."

Crockers believes this situation is leading to the emergence of a "two-speed market" with well presented and located properties attracting strong buyer interest and those that fall short of buyer standards, "either not selling or remaining on the market for a long time - often being eventually withdrawn by the vendors."

"As a result, they have less impact on average sale prices than you might expect - simply because they tend not to be selling at all."

"The net effect is that average prices and days-to-sell figures may be giving a skewed, unduly upbeat picture of the state of the overall property market."

Source: Landlords.co.nz