Auckland has finished ahead of New York, London and LA to remain one of the most unaffordable cities in the world if you want to own your own home according to the recent Annual Demographia International Housing Affordability Survey. For those looking to buy step onto the property latter, it spells more leg work, thorough research and adopting a flexible approach.
While buying and selling property remains a simple profit making venture for investors, financing a home remains a number one concern for buyers. Rents are high, houses are over-valued and saving for the down payment can take its toll.
“I lived no frills for two years before I could manage to save enough to afford a loan,” says Vinay Bhattacharya, an Aucklander and first home buyer. “No treats or holidays, I shared a flat and minimized my living costs, but it’s paid off.” He wants to remain upwardly mobile and plans to move to a better locality over time.
Housing analysts say that the first home buyer or indeed any home buyer; must have realistic expectations and be flexible in their choice of suburbs. Homes are long term investments.
Financial analysts advise buyers to research banks, loan options and make smart choices. “Each individual case is different and we advise clients to work out the number of years they think they will need to repay loans. This is the most important aspect of financing a home ownership project,” says Ajay Kumar of Global Financial Service, an Auckland based financial consulting firm.
Banks too are increasingly sensitive to buyer perceptions and needs; and are willing to match a rival bank’s offer. Bhattacharya was surprised at the number of products available and that he could negotiate a good deal.
Recently for instance, ASB is cut its three, four and five year fixed home loan rates particularly aimed at those looking for more certainty in their repayment. “ASB has reduced its three, four and five year fixed interest rates to assist our customers who want more certainty in their home loan repayments over the longer term. Our special two-year fixed home loan interest rate of 5.25% has come to an end, and the two-year term is now aligned this with the 12 and 18 month fixed home loan interest rate of 5.45%,” said Shaun Drylie, General Manager Retail Products and Strategy.
Kumar advises caution and thorough research before taking the leap. And rightly so, according to a recent report, if demand for home loans was to rise significantly, and banks were willing to lend, household debt could start moving back up. This could erode households’ resilience to shocks.
Why are homes so expensive?
Home ownership, historically very high in New Zealand, has declined over the last few years. Houses are now 80 percent more expensive than the historic affordability housing norm of 3 times the median income.
It takes too long and costs too much to build a house in New Zealand, contributing to the high prices. Land supply is the costliest of ingredients that goes into building houses, more than even the actual cost of building the house.
The population of Auckland is set to grow and though the government is working towards making the City the most livable one globally, there is obviously an urgent need for low-cost housing.
The optimism of the Christchurch based author of Annual Demographia International Housing Affordability Survey Hugh that this trend is set to change; is tempered by newly appointed Housing Minister’s view. Minister Nick Smith believes that there are no quick fix solutions. Just assigned to the portfolio, he is expected to work with local governments to bring home ownership back within the reach of all New Zealanders.