The Unconditional Blog

The impartial voice of the industry


Archive for the ‘Real Estate Industry’ Category


Shared equity / shared risk / shared reward??

Posted on: February 13th, 2008 | Filed in Money Matters, Real Estate Industry

The announcement today of the government’s proposed initiatives to deal to the issue of housing affordability seems to be generating a unanimous negative reaction as judged by feedback mechanisms of various websites. Whilst I think there is a general consensus that addressing affordability is a laudable goal the proposed idea of shared equity is entirely flawed as a solution.

Far from achieving the stated aim of supporting low income families attain the home ownership dream as expressed in the prime ministers speech it would clearly create a further rampant speculation in the housing market sucking in further demand to an already restricted supply market (see the blog post on 2008 house prices) as the “subsidy by another name” would fuel the fire of the selected few deserving families who the government would choose to anoint with this shared equity, allowing them to speculate to accumulate!

The issue here is that the proposal seeks to provide a second mortgage secured by the government which is non interest bearing and repayable on sale of the property. So let’s examine this scenario.

Couple A on a joint income of $55,000 are interested in buying a 3 bedroom house in Auckland at $300,000 – thanks to previous government support and the kiwisaver home start incentive they have saved $20,000. Now on their income the deposit is less than the 10% and a bank would not lend due to credit history lets say anything more than 85% of the purchase price – also the mortgage on even the 85% ($255,000) would be $515 per week – far more than they could afford on a take home wage of $850. But here comes the shining white knight of our government to offer an interest free loan as a second mortgage of $130,000. Now the situation becomes very different.

Couple A now need only borrow $150,000 which of course is only 50% of the value and pay a mortgage of $300 per week. This all sounds wonderful – a perfect solution – Couple A can now start their property climbing aspirations, a shining example of a helping hand up rather than a hand out!

Now lets examine the situation 3 years down the track when one of 2 scenarios have occurred:

  • Firstly Scenario 1: Couple A have acted responsibly – maintained and even with a great bit of kiwi ingenuity and hard work enhanced their $300,000 home and have decided to sell. The property was bought in a good area and property prices have risen 7% per annum each year. They sell for $400,000 (7% inflation would means a growth to $367,000 plus the property improvements of $33,000 added by Couple A). Couple A now repay kindly their government second mortgage of $130,000 leaving them with $115,000 net of their mortgage repayment! – so in 3 years thanks to our government they have achieved an annual return over 200%.
    Now the key thing is this successful financial return has been achieved on the back of taxes paid by hard working New Zealanders. So where is the shared risk, shared reward of shared equity?
  • Now for scenario 2: Couple A are not as diligent and committed as in the first scenario, they become a little slack with mortgage repayments, unfortunately they also bought in a less well maintained area where property prices have not grown as the local factory and processing works closed. Mysteriously one day when the Baycorp people pay a visit they discover that nobody lives at the house, the copper wiring has been stripped out with anything else of value. The property would have been worth around $290,000 in good order but now looks like a tough buy at $230,000. The bank want their $148,000 mortgage back from the mortgagee sale as a first mortgage, leaving the government with the balance after fees of $76,000. Now that does not look to be such a smart investment by our government! Oh and by the way that was our collective $54,000 that was just lost, let alone the loss of interest opportunity on the original second mortgage over the 3 years.

This is an election year and the lolly scramble has started in earnest, just let’s hope that the majority of the population have the intelligence to see beyond the smart spin!


Web statistics clearly show a very slow property market

Posted on: February 10th, 2008 | Filed in Buying / Selling a home, Real Estate Industry, Website news

The fact is that as at the end of December 2007 there were just over 60,000 properties for sale on amongst the total of 99,000 listings in total. The balance being Commercial property, Farms and Agricultural land and Businesses for Sale as well as Property for rent.

The website is subscribed to by over 1,300 real estate companies across the country and represents close to 90% of all listings by licensed real estate agents, thereby anointing the website with the title of the most comprehensive website for property in NZ and also a very critical ‘bell weather’ to the ‘lead indicators’ of the property market.

By analysing the sales statistics from REINZ and cross matching it with the listing stock on the website you quickly build a picture of the current state of inventory in the NZ market for property.

In the space of 12 months through 2007 the level of inventory rose from around 4 ½ months at the start of the year to 8 months stock at the year end, this growth was most pronounced in the second half of the year, shooting up from 5 ½ months in July.

In absolute terms the number of houses seeking buyers has risen by over 10,000 (June 50,134 to December 60,427). The figure at the end of January was slightly down at 57,525 however we will have to wait until the January statistics are released by REINZ to see if this reduction in stock was reflective of sales or withdrawals.

So what can we glean from the data as a key indicator of the state of the real estate market?

Clearly with a stock level of around 8 month worth of sales – the supply far outweighs the demand with a consequential ability for buyers to be patient and selective – allowing them not to be panicked into a buying frenzy as was the case over the past couple of years. As for sellers, the competitive effect of this amount of stock of potentially alternative options for buyers means presenting a property in the best light to attract a buyer and then ensuring that price expectations are realistic. A reality is that properties are selling – just not in the amounts that they used to so if you plan to sell, you need to be realistic to the market.

However as with any statistics caution needs to be applied as these statistics are broad based across the whole country, and just as there is no median house, so there is no marketplace for all 57,000 properties. The fact is that real estate is a local market.

Looking on a regional level, not surprisingly the analysis shows up some interesting variances:


Immediately you are drawn to the regions of Northland and Central Otago Lakes with nearly 2 years and 1 year’s inventory respectively; both of which are areas with a active tourism impact and which have been subject to extensive development over the past few years.

At the other extreme Otago and especially Southland record the most modest growth in inventory and low actual stock levels, Southland the lowest inventory in the country at the end of the year with just 4 months. The two areas of Auckland and Waikato / BOP represent collectively 49% of all the inventory and therefore mirror naturally the national figures. Wellington which is normally considered to be a market immune to peaks and troughs certainly seems to indicate a real growth in inventory from around 3,700 in the first quarter of 2007 to end the year at just on 5,000 properties on the market.

Whilst the January sales figures due to be released this week will indicate the likely trend for 2008, it is pretty clear from all other indicators that the property market has slowed considerably, the Auckland sales reported by Barfoot & Thompson for January being some 40% down. January is traditionally one of the quietest months and an indicative figure or between 4,500 and 5,000 sales across the country for the month would seem likely. This would be a 40% decline and be the slowest January since the early 90’s.

It is proposed to update these inventory statistics on a regular basis on Unconditional – subscribe to an RSS feed to ensure you are kept informed on this and other subjects on the real estate industry.


Will 2008 see house prices rise or fall?

Posted on: February 2nd, 2008 | Filed in Money Matters, Real Estate Industry

This has got to be the key question being asked of real estate agents across the country this weekend as the country gets back into normal gear with the school year starting and families considering the pros and cons of finding their next home.

At this time we seem to be clearly in a buyers market, sales of property slowed significantly through the second half of 2007 and the feedback being whispered within the real estate industry is of a very quiet start to 2008. We will need to wait another 2 weeks probably until with see the REINZ statistics for January. Maybe the excuse of the prolonged summer period can rightly be blamed for slow sales – we will have to wait to see how people explain the situation.

However to look for the signs of what we should expect to see in terms of future house prices you need look no further than good factual statistics, because whilst the purchase of property is a very emotional act it is en-mass driven by the very clear principles of economics – supply and demand.

People are attracted to NZ for a better quality of lifeNew Zealand is a country that continues to attract immigrants, this is a country that people want to come to for a better quality of life. In the year to November 2007 a total of 82,600 people chose to make this country home. Now set against this is the fact that 76,000 people chose to leave the country. On the face of it this means that NZ needed to meet the housing needs of only just over 6,000 new residents. However deeper in the numbers is the fact that many of the departing kiwis are young people setting off on the great OE – this component of the outflow has little effect on the housings stock as these young people rent or live at home. However a larger proportion of the new kiwis are older with families and money looking to settle and buy property – this is the constant and growing demand side of the housing market.

If you look at the last 5 years and examine the population growth of NZ you see a very clear factor in property price increases. We are growing our population faster than we are building new homes. Today’s population is 4.256 million up over 68,000 people in a year, this growing population needs places to live (appreciated they don’t all buy). The fact is that despite the peak year of new builds in 2004 at over 32,000 the shortfall of house starts to population growth currently runs at around a shortfall of 1,500 homes per year. Now as reported this week the consents for building starts for 2007 have fallen to just 24,500 for the year – this will leave an even larger shortfall.

An ever growing demand for property fueled by immigration and a strong economy matched with a slowing new build programme supported by a very liquid credit market could potentially lead to a squeeze on prices which could well see the right property in the right area appreciate in 2008 – maybe not by 10% but certainly well ahead of the 3% inflation. Add to this the current sluggish real estate market and a glut of homes looking for buyers. All indicators that the median price of property may well continue it steady rise again this year, so it might well be a pretty attractive time to buy.

So this could yet turn out to be a very busy weekend for real estate agents. Not a story the Reserve Bank Governor wants to hear, bit unfortunately his remit does not stretch to such areas as immigration. We need to face the fact that we live; and choose to live in this global economy with all the ensuing benefits of consumerism and rising living standards, to participate is to lash ourselves to the other boats around us and rise on the incoming tide rather than anchor us to the bedrock of the past and suffer the ensuing flood-waters.


Real Estate Agents – understanding their role

Posted on: January 21st, 2008 | Filed in Real Estate Industry

What is a real estate agent? – How they differ from a real estate salesperson?


Whilst on the face of it this may seem a rather simplistic question it actually belies a deeper understanding of the structures of the real estate industry. It is important to bring clarity to this matter especially as this year it is likely that the government will seek to pass a revised law governing the practice of real estate agents – a law that in its current form dates back to 1976, and clearly in need of updating.

A real estate agent is a term widely banded around in the industry only legally applies to individuals who hold a license conferred on them by the Real Estate Licensing Board, itself an independent body separate from the Real Estate Institute. A real estate agent holding a license can operate a business to act on behalf of buyers and sellers to sell real estate for financial reward (earnings are related directly to a successful sale – no sale, no fee).

In NZ there are approximately 1,900 licensees who can legally call themselves real estate agents, this compares with around 17,000 individuals who the public call “agents” who transact the service of real estate, but are legally real estate salespeople. A real estate salesperson has to work for a licensee, acting under that license; they cannot hold a license themselves without first attaining the experience and qualifications of a licensee.

Simply put when you see a real estate office in the local high street it is likely to be owned by a licensee and have based there any number of salespeople who act under the license of the owner, as well as the guidance and ultimately the oversight of the licensee.

To become a real estate salesperson you need to be a person of good character (as adjudicated by the Licensing Board). They also need to demonstrate competency in the comprehensive understanding of the laws that apply to real estate transactions, as well as some of the practices of real estate marketing and contract preparation. This competency is generally undertaken during a 2 week salespersons course provided by a training provider.

By contrast a real estate agent has to be a qualified salesperson with a minimum of 3 years practical hands-on experience in real estate and has attained a branch manager or licensee qualification which can take many months of study.

Clearly the capabilities and experience of a licensee reflect the standards and professionalism to warrant the term real estate agent and the confidence of the public to ensure that their dealings with a real estate office are under the watchful eye of a professional well qualified to handle an investment of many hundreds of thousands or millions of dollars. It is also important to realise that our structures and approach in NZ are not that different to other countries. Just last month a similar clarification article was posted by R. Eric Bramlett in the American Chronicle detailing the role of a Realtor.

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