by Cooper Gyles
Business Development Manager
Double dip recession anybody?
Did the Reserve Bank not foresee the negative flow on effects at the time of LVR restrictions been implemented? And now the savage increases in the OCR?
When the property market dynamic changes, the effects are immediate. So why is the rental market prospering?
The Real Estate Sales market was spooked by three significant events:
- The Reserve Bank intervention with the hammer blow of LVR regulations.
- The constant increases in the OCR under the misguided perception by the Reserve Bank that interest rates are directly related to house prices
- The perceived reduction in net equity, and increased mortgage rates that this OCR change has created for current mortgage holders
The property market is basically in three tiers. The lower tier, being entry level housing, the mid tier, being mid-priced housing, and the upper tier being everything above. Not too complicated, Agreed?
They do feed off each other though. When one tier feels constricted, either in supply or demand, if affects the other two. The flow on effects become startling and obvious.
Firstly, 1st home buyers are the minnows on which the larger fish feast. Because the minnows have been fished out by the LVR changes, the mid tier market, has been hit. Why? Because they are dependent upon vendors of lower valued property, selling their lower priced properties, and buying mid-priced properties.
But the lower level vendors are having real problems selling these entry level houses due to the restriction imposed by the Reserve Bank stopping most people with less than 20% deposit from buying.
The flow of effects very soon catch all levels of the property market. All homes owners are now caught in the spiral and vendors are becoming more anxious that their agents cannot find buyers. As a consequence owners have two options open to them.
They can sit tight and take their properties off the market and wait for better times,
they can rent their investment properties and earn an income.
That’s why RentWellington is experiencing a remarkable change in the market dynamic. Economics 101 states that for every action in a free market, a counter action in opposition will occur. Did the Reserve Bank not foresee this flow on effect at the time of LVR restrictions been implemented?
At the moment there is more executive type, top tier properties available on the market to rent.
Because they can’t be sold.
Because the vendors in the mid-tier sector cannot sell their properties to upgrade.
Because the vendors in the lower tier sector cannot sell their properties to upgrade.
Because the majority of new lending needs at least a 20% deposit to buy a property. Do you have $80,000 lying around to put down a deposit on a house in Wellington? No, so you rent instead.
Now the hammer blows of OCR increases are also biting at all market tiers. It could then be an accurate assumption then that the reduction in home ownership will continue to decline as young upwardly mobile X and Y generation people will opt for renting.
This upwardly mobile generation demand better quality properties, as they can afford to pay more, creating a market for higher quality homes being placed for rent. We recommend owners of properties in each tier, call us for a chat if they are considering the renting option. Achievable rental can be considerably higher that owners might imagine due to the paradigm change that is being experienced in the residential property market.
Call us anytime 24/7 on 0800 567 563.