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Riding out the cycle

Fasten your seatbelts – the market is heading to the bottom of the cycle, but one property expert says that serious investors shouldn’t panic if prices fall.

Wednesday, May 29th 2019, 7:22AM 1 Comment

by Miriam Bell

Most people know that price growth in the Auckland market has been trending down for some time but that, at the same time, some other markets are still returning strong results.

This two-speed market has been at play for awhile now and that’s leading to much speculation, some of it verging on apocalyptic, about the future of the market.

But, in reality, it’s all just part of the latest property cycle, according to Gilligan Rowe & Associates managing director Matthew Gilligan.

Speaking at the GRA Property Leaders Event last weekend, he told the audience that this cycle peaked in 2017 and the market is now in the grips of a “growth hangover”.

“We are now heading to the bottom of the cycle. It will take a few years but expect to see reduced demand, declining asset values, and rents and yields on the rise.

“That’s because the property market always moves in cycles and much the same thing happens each time. The only question is how long will it all last?”

First up, it’s all about the ripple effect from Auckland, which always leads the way, booming and then declining first.

Gilligan says that last year the market reached the point where Auckland started to go down and the regions, even places like Tokoroa, started doing much better.

“That means you can make money in the regions right now but often the fundamentals are not that great.

“So you need to look at the timing of the cycle because it is not about when are prices going to grow, it is about what happens when the cycle turns down.”

While the distressed talk has already started, particularly in regards to Auckland where the market is down by about 4%, he says investors shouldn’t panic as prices fall.

“What you need to be is a long-term investor. Remember that prices fall but there are reasons for holding. Think about past cycles and what has happened and, long-term, it’s growth.”

There is one significant difference with this cycle and that is the much bigger than usual gap in growth between Auckland and the rest of New Zealand.

Gilligan says Auckland gone up by over 100% but the rest of New Zealand has only gone up by about 70-80% for the most part.

Credit tightening could be one reason for this but it begs the question of whether it is a long-term thing and also whether Auckland’s market could crash.

But analysing the fundamentals leads Gilligan to think that Auckland is highly unlikely to see the sort of price crash that Sydney and Melbourne are seeing.

The supply and demand equation at play in Auckland is very different to those cities where supply far exceeds demand, he says.

“In Auckland, we need to build 5,000 new houses a year to keep up with the organic population growth of the city – and that doesn’t even include migration which remains high.

“We are building more dwellings now but, overall, I think the conditions in Auckland mean a soft landing is likely.”


Tags: Auckland demand GRA house prices housing market housing shortage property investment rental returns rents supply yield

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Comments from our readers

On 30 May 2019 at 8:47 am Buy4Fun said:
IMO CHCH is out of sync with rest of NZ. It has been plateaued for last 3 years with flat or negative rental gains and flat property values. If you want to invest try CHCH the one major city with employment base that is bucking trends. Great time to invest or buy your first home.

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Lender Flt 1yr 2yr 3yr
AIA 4.55 2.55 2.69 2.79
ANZ 4.44 3.15 3.25 3.39
ANZ Special - 2.55 2.69 2.79
ASB Bank 4.45 2.55 2.69 2.79
Bluestone 3.49 3.49 3.49 3.49
BNZ - Classic - 2.55 2.69 2.79
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 3.15 3.29 3.39
BNZ - TotalMoney 4.55 - - -
CFML Loans 5.50 - - -
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China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.45 - - -
Credit Union Baywide 5.65 3.95 3.85 -
Credit Union South 5.65 3.95 3.85 -
First Credit Union Special 5.85 3.35 3.85 -
Heartland 3.95 2.89 2.97 3.39
Heartland Bank - Online - - - -
Heretaunga Building Society 4.99 ▼3.85 ▼3.95 -
HSBC Premier 4.49 2.45 2.60 2.65
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 3.69 2.55 2.65 2.79
Kainga Ora 4.43 ▼2.93 ▼3.07 ▼3.24
Kiwibank 3.40 3.30 3.54 3.54
Kiwibank - Offset 3.40 - - -
Kiwibank Special 3.40 2.55 2.79 2.79
Liberty 5.69 - - -
Nelson Building Society 4.95 3.45 3.49 -
Pepper Essential 4.79 - - -
Resimac 3.39 3.45 2.99 3.35
SBS Bank 4.54 ▼3.05 3.19 ▼3.25
Lender Flt 1yr 2yr 3yr
SBS Bank Special - ▼2.55 2.69 ▼2.75
The Co-operative Bank - Owner Occ 4.40 2.55 2.69 ▼2.79
The Co-operative Bank - Standard 4.40 3.05 3.19 ▼3.29
TSB Bank 5.34 3.35 3.49 3.79
TSB Special 4.54 2.55 2.69 2.99
Wairarapa Building Society 4.99 3.65 3.69 -
Westpac 4.59 4.15 4.09 4.49
Westpac - Offset 4.59 - - -
Westpac Special - 2.55 2.69 2.79
Median 4.55 3.05 3.13 3.12

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