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Two-Pronged Growth

First home buyers and investors are market kickstarters every time, says Campbell Venning.

By: Campbell Venning

1 April 2016

Often a real estate market will follow a similar pattern. It will stall for no good reason at the start of the recovery and then move with a bang - Campbell Venning

I remember getting some good insight during the Global Financial Crisis (GFC) about what signs to look for in a market recovery. The bulk of a market wants to jump in when we are at the bottom of the cycle but they invariably don’t because they are too conservative to do it. It’s only the early adopters or first movers that will take this leap of faith.

Like a river with a new rock pool that your kids have just found. No one wants to go first but as soon as the kid with the least fear, biggest attitude or with the most confidence jumps, they all follow suit.

Often a real estate market will follow a similar pattern. It will stall for no good reason at the start of the recovery and then move with a bang. Wellington was a good example of this in 2014, early 2015.

The Kick-Start

The yields were above anywhere else in the country, the population was growing, the economic story was good and the forecast government infrastructure spend the highest in years. All strong arguments for growth on their own, yet prices and sale numbers were weak.

What kicked it off? Exactly what my wise friend told me during 2012 when the Auckland market recovery from the GFC did exactly the same thing: first home buyers and investors. He told me after every flat period these are the first two sectors who will kick-start a market and when I look back to the doldrums of 2008-2012, he was right on the money.

Auckland prices and sales from 2012 went through the roof and it started with new home buyers and investors, only slowing when the Government changed the loan-to-value ratio (LVR) rules in 2015. The new LVR rules forced buyers in Auckland to put 30% deposit into buying a property (off-the-plan exempted) and prices flattened. Auckland investors could no longer spend their money the same as they could in other locations, so they went south to Hamilton, Tauranga, the South Island and more recently, Wellington.

Double Digit Quarter

Money traditionally flows into main centres before the regions and this is why we are more recently seeing secondary locations starting their predicted growth cycles. These locations can change at a different rate – like Queenstown showing double digit quarter growth in 2015, once the new Auckland LVR rules were fully understood. Feedback from local agents showed most of the growth was from out-of-town investors moving money originally destined for Auckland to the southern lakes.

After looking at the February statistics from our friends at CoreLogic, the short term numbers tell the story that growth is happening in the regions quickly so don’t hesitate if you are thinking of taking the plunge. Locations like Waikato and Tauranga have grown by nearly 10% in three months, where Auckland has flat-lined over the same period. Wellington and Queenstown grew by 5% and the commentary from Corelogic is first home buyers and investors are driving the growth, with no signs of it slowing.

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