Aotearoa’s red hot property market closed out 2021 at peak levels. Although there were prospects of the market cooling following plans to increase interest rates, tighten bank lending criteria, and new tax policy restrictions, the market appears to still be on the rise.
CoreLogic’s House Price Index (HPI) found that property values across the country rose by 1.9% for the month, with 27.6% growth registered over the full calendar year. In addition, the average value of a New Zealand house has now exceeded $1 million to close at $1,006,632 in December 2021. This is the highest average value ever recorded in NZ.
The rising property values have been attributed to low-interest rates and easy access to credit for borrowers. This has driven up demand for residential properties. Even with tightening of conditions meant to cool the market, buyer interest continued to be high right up to Christmas Eve, according to Peter Thompson of real estate company Barfoot & Thompson.
Thompson confirmed that the median house price in Auckland had risen to $1.235 million in December 2021. This represents a $230,000 increase on the median price a year ago of $1.005 million. His agency sold an average of 1,119 properties each month for 2021. They also had more properties for sale on their books compared to the end of the previous year.
Thompson however noted that the performance of the property market at the start of the year could be unpredictable. He added that it was too early to tell how the market would fare in 2022. He said that new trends could only be more firmly established once reports on February data comes out in early March.
With popular markets like Auckland recording such high values, property investors with less deep pockets are likely to turn to less expensive locales like Christchurch and Ōpōtiki. Property developers like David Whitburn are also recommending new builds that come with the 20-year tax exemption to income tax deductibility of loan interest.
Property investors are being advised to brace themselves for possible consequences of the removal of the interest tax deductibility in coming months. NZ Property Investors Federation president, Sharon Cullwick, has warned of a possible reduction in cash flow for investors that may lead to bad news for tenants who may be faced with increased rents. She also noted that the changes in borrowing rules could give cash buyers a greater advantage over investors that need to be financed. Economist Brad Olsen echoed a similar sentiment, confirming that access to credit would be a key challenge in the coming year.
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