First home buyers can have some early advantage in the current housing market as investors and sellers, both remain cautious of varied factors.
However, any advantage that first home buyers could potentially have in the New Year because of seeming investor-caution is neutralized with the reticence of banks and financial institutions to hand-out easy credit.
If there was one most significant factor that would rule the roost in early 2019, then it would be bank’s insistence for responsible lending, which can potentially raise barriers for securing easy credit and thus affecting the market.
Thereby, the market at best can be expected to remain mixed, rather than bullish anytime soon.
Ideally early January is not the time when someone would make a move or expect the market to support their desire of making a move, within Auckland’s housing market because of holiday period – however that does not stops us from anticipating how it would behave in 2019.
First home buyers or investors: Who will make merry in 2019?
The Auckland market was a buying market in the last quarter of 2018 (for the first time since 2011), with about 9906 new listings on the www.realestate.co.nz website, for sale in the month of October, which was 17% higher than the same month in the previous year.
Currently, there are 12173 residential listings for sale on realestate.co.nz, which is significantly higher than 8679, registered in the month of January last year.
Clearly, the market is still looking a buyer’s market, with more number of listings up for sale and giving buyers, kind of options in selecting properties, not seen before for almost a decade.
Prospective first home buyers, who are ready (have secured access to credit or got pre-approval from banks) are better placed in shopping around and exploring better options (new build houses).
Mortgage Adviser Manoj Singhal of Finance Matters told The Indian Weekender, “Current Auckland housing market is good for first homebuyers provided they are ready to climb up the property ladder.”
“Of all the interests we are receiving for new properties in the market almost 45-50% are from the first home buyers.
“The investors, on the other hand, are appearing to be a bit cautious right now,” Mr Singhal said.
Clearly, first home buyers are better enjoying the freedom made available to them in almost a decade by thinking of altering their choices and going for new builds in the market.
However, it does not mean that the journey from renting to first home ownership is going to be anyway easy in 2019.
In fact, banks increasing insistence for responsible lending is going to put additional demands on prospective first home buyers, especially in terms of the way they manage their finances and do savings.
Mortgage brokers say banks are taking a closer look at whether borrowers can afford to meet home loan repayments, with one bank now asking for a written declaration that the lending is responsible.
Although such a requirement was in place since June 2015, with banks and lenders required to adhere to the responsible lending code, things had changed dramatically since late last year when Australian banks were found wanting by the Australian Royal Commission in abiding those rules.
The Australian banks’ lending decisions were driven by average household spending data, instead of spending data from the individuals applying for the loan.
Increasingly, first home buyers could expect in the New Year to reveal more information on their spending habits to convince banks for securing loans.
Investors, although unaffected by bank’s newfound insistence for responsible lending, are holding back because of incoming changes in tax, regulation and ring-fencing laws.
Clearly, the legislative aim of the current coalition government of dis-incentivising investors from housing market is making an impact, at least for new prospective investors.
However, it’s too early to predict if the changes announced so far in the policies around housing, would result in any large scale exodus of investors from the housing market thus possibly creating a better supply of houses in the market (preferably for first home buyers).
A reputed real estate player in the community with interests in building projects told the Indian Weekender on the condition of anonymity, “The fundamentals of Auckland housing market remains the same, despite political noise around the issue.”
“Currently there is a gap in the supply of housing against the demand.
“Most of the political tweaking in the market has been around the demand side or availability of easy credit.”
“Therefore housing prices will start rising again in 2020 in the absence of tangible increase in supply,” he said.
It is important to note that despite much euphoria around KiwiBuild – the government’s flagship policy on housing with stated objective of delivering “affordable” homes - have yet to make any substantive impact on the supply of new homes.
From the perspective of housing market, despite current political-capital around first home buyers, investors hold the balance and will be significantly important in the latter half of the year.
What’s in it for renters?
Tenants might see a bump in their rents around April when the changes in ring-fencing laws are most likely to be implemented, and landlords might opt for passing the expenses of operational and compliance costs.
Venu Chawdrpu, Mortgage Adviser at Squirrel Mortgages told The Indian Weekender, “The biggest tax change on the horizon is the ring-fencing of losses which is intended to come into play from April.
“The way the rules are at the moment, if you’re a property investor and you make a loss (like most Auckland investors) then you can offset that loss against your other incomes and get tax relief.
“The new changes basically mean that those losses can only be offset to income in the same asset class – so in other words, only your other property and not your salary.
“This same change was brought into Australia, and the result was that landlords simply increased rents to ensure they were still getting the benefit of being an investor.
“This lead to the government reneging on that policy change, however, didn’t then drop back surprisingly,” Mr Chawdrpu said.