What Will 2018 Hold?

With a new year already more than a month gone, many home-owners and buyers will be wondering what lies ahead. The past few years have been full of change, nowhere more than in Otago.

While Auckland’s soaring property values have finally taken a breather over the past 12 months, Dunedin residential values, as in many other regional centres, have continued to be in catch-up mode after six or seven years of stagnation, with median sales values rising close to 15% a year. The median sales value for Dunedin in December was $380,000, compared with $330,000 for the same month in 2016 and $310,000 12 months earlier. Just a note here that value increases vary across the city’s suburbs. Areas with higher than average annual median sales increases include Wakari and nearby hill suburbs while the flat areas of South Dunedin and St Kilda are below this figure.

Some comments I’ve heard recently indicate that many in the property market locally are expecting a halt or slow-down in Dunedin property sale prices. Reasons for believing this are that we often mirror Auckland’s trends, just a year or two down the track. I’ve written previously about Dunedin’s property cycles over the past several decades, with periods of increase lasting generally 4-7 years, slowing and stagnating for a similar period.

Yet the evidence is that prices in Dunedin have not finished their rise yet, particularly in the “hot” price range of $250,000 to $400,000, where first-time buyers are active. We are just over two years into a rising trend. The Dunedin market is quite different to Auckland where much of the property “news” is generated. The rate of increase in Dunedin will almost certainly taper off but in popular price ranges, buyer interest and sales values are continuing to be healthy, if not dramatic.

In addition, the forecast for the next 12-24 months is for interest rates to stay low, at some of the lowest rates seen for several decades. Banks are also less restrictive in lending than they have been in the recent past, although the 40% loan-to-value ratio (LVR) restriction on investment property has had an impact on investor activity. There are indications this restriction could be eased, but impending tenancy regulations might also affect the investor market as part-time investors, especially those nearing retirement, divest themselves of property to avoid the cost of meeting the new regulations. An influx of this kind of property and a shortage of buyers will inevitably affect prices, especially if a ban on overseas buyers purchasing existing homes, a Government proposal now before a select committee, comes into force.

Historically, however, times of low interest rates are usually times when residential property values increase. Supply is still low, with Dunedin property listings on under 500 last month and TradeMe less than 400. This is around half the listing numbers in January of only a few years ago. (In December 2015, there were more than 900 Dunedin listings.) Expect listing numbers to increase in the next few months, but even so, if current conditions continue, and in the absence of any major international disruption, the market is likely to stay buoyant for this year and into 2019 as well.

for Market Intelligence