The cooling witnessed in the Auckland housing market as a whole is being felt within the Eastern suburbs residential market. The local market recorded a median price of $1,571,000 over the June 2017 period, an increase of 6.5% or $96,000 when compared with the same quarter a year prior. While the quarter on quarter figure was down 1.8%, showing that, in line with the wider region value gains have flattened, as illustrated in the adjacent graph, which smooths out quarterly volatility through the use of 12 month moving averages of monthly medians, values are now plateauing.
The number of sales completed in the Eastern suburbs residential market also reflected the reduction in sales activity in the Auckland region. There were 339 sales completed in the local market over the June 2017 quarter, a 30.1% fall compared with the same quarter in 2016 which saw 485 sales. However, when the number of sales over the 12 months to June are compared, the fall was limited to 18.5%. This compares to a 21.8% fall in the wider Auckland region over the same period.
The slowdown in sales activity can be largely attributed to the loan-to-value (LVR) restrictions imposed upon investors in the third quarter of 2016 and the tightening in the credit assessment policies of banks over recent months which has made financing harder to access for many purchasers. More recently, an additional constraint on sales numbers has been the uncertainty brought by the election. Investors, in particular, would have found reasons to await the results of the election given the wide variance in the housing policies of the two main parties.
The fall in sales numbers has resulted with increased inventory levels in the Auckland region. As illustrated in the adjacent graph, the inventory for sale in Auckland and the weeks to sell inventory figure (based on current sales activity, assuming no further listings are taken on) have started to rise from their bottom levels and now sit just below their historical levels.
While demand is currently supressed by the tightening of credit criteria, the underlying drivers of the market which have been responsible for the strong performance of the market over recent years, remain in play. Given the current levels of net migration, and residential construction activity, Auckland’s housing shortage is widening, a situation which is unlikely to change in the near future, particularly given the fact that development finance is getting harder to source and this is further limiting the ability of the development sector, which has already been struggling with capacity constraints, to meet the strong housing demand. Interest rates remain at historically low levels with any upward movement likely to be incremental over future months. In addition, investors are likely to be more confident about returning to the market now that major tax changes, such as the introduction of a Capital Gains Tax have been delayed for at least the term of this parliament.
Rapid price increases witnessed over the recent years, have resulted in properties selling within higher price brackets forming a larger proportion of total sales. A comparison of sales completed over the last 3 years indicate a continuous increase in the share of value bands above $1.5M, the most sizeable increase being within the $2M+ sector. These properties now form one third of all sales in the Eastern suburbs residential market and comprise the largest value band by number of sales. The sub $1M value band, which only two years ago provided the largest share of sales at 36%, is now the smallest with its share almost halved over this period. This value band now represents only one fifth of all sales.
A significant factor in the reduction in the proportion of sales within the lower value brackets has been the fact that the fall in multi-unit property sales over recent months has been greater than that experienced in other sectors of the market. This may reflect the fact that the multi unit sector attracts high levels of investor activity which, as mentioned earlier, has been impacted by the tightening of credit criteria and caution surrounding the general election. The influence of new regulations imposed upon investors has been apparent across all multi-unit property sales in the Eastern suburbs market with a more profound impact in respect of apartment sales. The share of apartment sales over the 12 months to June 2017 fell to 8.8% from the 11.6% recorded a year prior. The reduction in the apartment sector’s share of activity which has also been evident within the townhouse sector has seen the standalone house sector increasing its share of the market from 66.6% to 71.8% over the year.
On the supply side, there is a lack of growth observed in the Auckland region as a result of capacity constraints which have been further restricted with tighter development finance policies. The change in the development activity trends has been more profound in the Orakei ward, which encompasses the Eastern suburbs market. The number of new residential building consents issued over the 12 months to June 2017 was 248 a reduction of just over 33% compared with the same period a year earlier. This was largely due to the fall in the number of apartment consents which was down 51%. While the unavailability of development finance certainly plays an important role in the decline of supply, the extent of the fall in the consent numbers also suggests a shortage of available development sites in the Orakei ward.
Spotlight on Glendowie
Glendowie attracts strong purchaser inquiry due to the fact that it is a waterfront neighbourhood encompassing large parks and estuary reserves such as Churchill Park and Tahuna Torea Nature Reserve while also providing the benefit of proximity to the CBD.
Following sharp price increases over the recent years, the Glendowie market has seen a moderation in value gains, mirroring trends evident across the region. The local market recorded a median of $1,540,000 over the June 2017 quarter. This equates to a 4.4% or $65,000 increase when compared to the same quarter of the previous year. Also mirroring the regional trends, sales activity was down. The area saw 28 sales completed in the June 2017 quarter, down from 39 sales recorded over the same quarter a year prior.
Spotlight on Newmarket
Newmarket is the gateway to the Eastern Suburbs from Central Auckland and has evolved into one of the region’s ultimate live-work-play precincts. Newmarket is long established as a residential suburb, however over the last 15 years, has witnessed considerable commercial office, retail and hospitality development.
Over the last decade in Newmarket, the apartments market has flourished, this has resulted in the suburb’s population expanding rapidly. Consequently, apartments form the majority of transactions, accounting for 85% of all sales over the twelve months to June 2017. While still being the largest sector of the market the most recent figure marks a reduction from the figure of 93% recorded over the same period a year earlier. This mirrors the trend seen elsewhere in the area, as mentioned earlier. The Newmarket residential market had a median sales price of $760,000 over the June quarter of 2017, up 2.4% from the June 2016 quarter. In terms of sales activity, the June quarter saw 20 sales which was slightly up when compared with the same quarter of the previous year which recorded 18 sales.
SALES HOT SPOTS – Eastern Suburbs Residential Sale Prices (2017 HY1)