Finally, the Wanaka property prices may be about to stabilise. How have we got to the level that we have? Factors are a combination of local market supply, which is certainly starting its seasonal increase and both national political and financial influences.
The New Zealand housing market as a whole has experienced strong growth in the decade since the 2008 Global Financial Crisis, particularly across the five years from 2012 to 2016. Housing affordability became a key political issue in the 2017 general election with the new Labour-NZ First government introducing multiple initiatives to cool the housing market. The slow down in house price inflation that saw a stabilisation of prices nationally did not ease Wanaka property prices in 2017 and 2018. Supply and demand related to the population increase only saw slower gains.
The year ahead will see opposing forces at work in the New Zealand housing market as the Government’s array of housing and tax policies start to really take effect. The economy remains strong with low nationwide unemployment and high Government spending, via the Provincial Growth Fund, affecting the regions in particular. Interest rates remain at very low levels and there has been a recent loosening of some of the LVR restrictions that have been in place for five years.
The current Labour-NZ First Government campaigned on stricter immigration regulations and controlling off-shore property purchasers, both of which have impacted local property sales, particularly in the higher value end. The impact on the Auckland sales will have had a flow on affect here.
Other Government measures that have been designed to reduce property speculation by investors have definitely had an effect on some Wanaka property buyers. In particular the the bright-line test, used for determining if tax is paid on the sale of a residential property sale, was extended in March 2018 from two years to five years ownership. However the plan to implement a Capital Gains Tax was abandoned by the Government in April 2019, heralding good news for investors. Also the ring-fencing of tax losses from rental properties, legislation that became effective on the 26th of June 2019.
Restrictions on bank lending have eased from January 2019 with lenders able to issue a maximum of 20% – up from 15% – of new home loans to owner occupiers who have a deposit of less than 20%. It sounds like the low interest rate environment will continue for some time and this is giving more confidence to property purchasers.
The ‘Foreign Buyer Ban’ became law in October 2018. This legislation is an amendment to the Overseas Investment Act 2005, and its effect is to stop overseas buyers purchasing most types of homes in New Zealand, with the exception being apartments in large scale complexes. Buyers from Australia and Singapore are exempt from this ban due to existing free trade deals but all other non-residents are no longer be able to purchase non-apartment homes in New Zealand. The Government has introduced this legislation to avoid NZ home buyers being outbid by wealthy foreign buyers. The sale of land greater than 5 hectares has also been impacted by this land being classified as sensitive and no longer able to be sold to non New Zealanders. This has had a significant impact, particularly in Queenstown. Recently released data shows that property sales to non-New Zealanders fell by 84% in the June 2019 quarter compared with the same quarter a year ago (Statistics NZ). Purchases by overseas buyers in Queenstown have dropped from 9.7% a year ago, to 2.7%. We note that the segment of the market most affected by this legislation change appears to be the luxury property market, or properties for sale over $2.5 million. This part of the Queenstown market has been notably quiet since the changes to the Overseas Investment Act were introduced.
As always, great properties that are well designed and in desirable locations are being snapped up. Buyers are prepared to pay a premium to get what they are looking for, this will always keep Wanaka property prices ticking up as there is an emotional component to purchasing.