Is the Hawkes Bay Residential Property Market Turning?
The residential property market is starting to show signs of softening market conditions, with values in 2018 having peaked around March/April, and levelling off since. This follows a three year boom period, which saw value growth for residential houses in the range of 15% to 25% per annum, with some properties and locations exceeding this range.
The strong value growth experienced between July 2015 and April 2018 appears to be well founded, due to an extended period of stagnation in property values between 2008 and 2015, historically low interest rates (much lower than the prior boom in 2007), generally strong economic conditions in Hawkes Bay reflecting positively on income levels, increasing population and Kiwisaver withdrawals providing first home buyers with greater access to deposits.
Because the value growth we have experienced appears well justified, we expect to see only modest (if any) softening in property values generally across Hawkes Bay, however some locations, particularly those most influenced by investors (typically low value locations) could experience greater softening in values, if investors exit the market in volume.
Residential market rents have also shown significant growth over the past couple of years and are yet to show any sign of slowing. Further increases are expected, albeit and a slower pace, as the impact of legislative changes giving tenants greater security and quality of tenure are brought to fruition by the current government. While we have seen some investors selling out, primarily to first home buyers, increasing market rent rates will support this sector.
Section values have risen strongly in Napier and Hastings, with most sales in new subdivisions now exceeding $250,000. Sales volumes are too low to establish a trend of a levelling off in land values yet, and we see no anecdotal evidence suggesting that might be happening yet. Building costs are continuing to rise with all trades now operating at or beyond capacity, causing labour costs to rise. Additional cost pressure is coming from rising transport, materials costs. 2017 saw record numbers of sections being acquired from land developers, with the challenge now likely to be finding builders able to complete new build projects in a timely and costly manner. New home sales have commonly exceeded accumulated cost of building and the site purchase, indicating there remains strong demand in this sector of the market.
The top of a market boom is hard to pick, and boom periods can continue longer than expected. It is possible that the market may strengthen again in spring and summer and the boom may continue throughout 2018, however we advise caution and recommend that careful due diligence is necessary in the current market to avoid overpaying. Generally, sentiment now appears to be less optimistic with changed government policies being one contributing factor, and softening property values in Auckland also likely to influence sentiment here.
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