Podcast: Survey Results: How Property Valuers Are Feeling About the Market | Ep. 254

Posted by Ed McKnight on 25/05/20
How Property Valuers Are Feeling About the Market 001
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Show Notes

What's Covered in the Show?

In this episode, we discuss the recent survey results that Tony Alexander has published which shows how property values are currently feeling about the New Zealand property market.

We discuss why the opinions and outlook of values matter, and how they currently view of New Zealand's main centres – Auckland, Wellington, Christchurch and Queenstown.

We also mention our property investor quiz, which after just 7 questions will give you a 'yes', 'no', or 'maybe' answer about whether you are in the position to invest in property.

Transcript

Transcript of the Podcast


Ed McKnight:
Hello and welcome along to the property Academy podcast. I'm your host Ed McKnight and I'm Andrew Nicol, and today on the show we are back together. We've got the whole family back together. Andrew and I are in the same room and I tell you what, it is fantastic without that lag. Though I tried to get Andrew to put a big fat pause in there before he comes in, but he wasn't playing ball.

But look, today we are back in the studio together and we're happy to be so, and we're talking about a survey that has just been released by Tony Alexander, independent economist, and friend of the show, where he's done a survey of 25 valuers across the country with what they're seeing out in the market.

And I think this is fantastic because valuers, are so critical to the property market in terms of how it functions, but aren't surveyed as much as the likes of real estate agents.

And the reason valuers really support the property market is because they make an opinion about what a property is worth, which is then taken as gospel by the banks in terms of how much the bank is actually willing to lend on a property or their maximum amount that a bank is willing to lend on a property.

So it's very important. And if you talk to two different valuers, you're going to get two different opinions about what a property is actually worth. So it's very important to understand how are these guys feeling?

Because if they're feeling confident about property prices, then we're actually going to see valuations coming into banks that are supporting whatever is being negotiated out in the property market.

So we're going to take the highlights from this. And the first thing that I think is really interesting, just before I hand it over to you, Andrew, is that valuers are saying that they base their decisions on data and based on transactions that are actually selling. So real data about what's sold down the road, what sold across the street, this kind of stuff.

Now that value is the same, this is becoming quite tough, because the volume of houses sold, or I should say the volume of houses settled within the month of April was so low, it's really hard for them to get a feel for how the market is actually operating. And the other thing that's really interesting is there is a delay in the data that's available.

So the properties that were settling in April were probably negotiated in March because there's a delay between signing a contract and going unconditional, when the deal is actually done, and then it actually settling and that data coming out to market for valuers to be able to use when they're making their decisions.

But of course, usually if there's a two week delay in this data coming out, it's usually not a problem, but because we've got, we're in the midst of a pandemic or coming out of it. It's that kind of delay actually makes a difference within the situation because they're not being able to see, well what's happening within when people are making deals out in the market right now?

And I find that's just something really interesting to point out. So they are a little bit cautious in some ways because they don't have the data to be able to support to the same degree that they usually would.

Now, Andrew, what's screaming out to you or speaking to you within this report?

Andrew Nicol: So I've highlighted probably. 75% of this, which Ed was laughing at before, but I'm just going to take through some of my main highlights and particularly around the region.

So I'm talking about Auckland first of all. So, one of the comments is that the city has been flat for four years, and while incomes have been rising, the prices haven't been increasing at the same rate as we would expect previously.

And so, that will act as an insulation blanket for the current prices against the effect of rising unemployment, and temporary reduction and population growth.

One valuer made the comment that he's basing valuations on the quieter periods in 2019 rather than the months of March before lockdown when the market was starting to heat up again. Land prices are expected to fall with banks pulling back on financing land development.

So banks are being very tough on land and construction or development. And so as a result, land usually gets hit pretty hard, and we definitely saw that in the GFC.

Christchurch, the supply of rental properties has risen, but the rents haven't changed much yet. So watch the space. Price reductions for properties being sold are limited to 0% to 2.5% so far. So just to put that into real terms, $500,000 property between zero and 12 and a half grand.

So not much difference at all, if anything. And there's a comment that one valuers said he expects Christchurch to flatten out for a little bit.

Ed McKnight: I do just want to talk about Christchurch as well Andrew, and I don't think it's surprising that a valuer should point out that the supply of rental properties has increased, but rents haven't changed because that was one of the central findings that came out of our Airbnb presentation when we were crunching data, we were saying that look, shifts in supply of rental properties don't make a massive difference to the actual market rents.

It's changes in demand that tend to make a big difference. So it's not unsurprising that we should see look, supply of rental properties increasing, not a lot of change to rents, not unsurprising for us.

What would make a difference is unemployment, decreasing demand for rental properties, and so that's where it would make a difference.

Andrew Nicol: Do you think that unemployment actually does create less demand for rental properties or do people sell their house and go rent a property? So potentially if you need to raise some capital, maybe, I don't know.

Ed McKnight: I think that'd be quite a fringe situation. I mean, the thing is that I wouldn't expect demand for rental properties to decrease en masse because it is, it's a necessity.

You can't just stop doing that. You can stop buying a whole heap of other stuff. But what we've probably all found while we've been under lockdown is you still need a place to live.

The only situation that wouldn't be the case is if people started grouping together. So if you had a three bedroom house and I rented a three bedroom house and a couple of rooms were unoccupied and then we decided we're going to go live together.

That would be the only situation. But it's a pretty fringy unless you do want to come live with me Andrew?

Andrew Nicol: Yeah, I was about to ask is this your way of getting me to move in with you Ed?

Ed McKnight: I didn't hear a no.

Andrew Nicol: Gisborne, interest from both first home buyers and investors is holding up, and so they are reflecting the difficulties that they have been experienced pre lockdown in finding properties to purchase.

Queenstown, unsurprisingly, rental prices have dropped approximately 30%. However, they were extremely high pre Covid 19, and in the levels that have dropped are still at a good level of rent for a landlord.

And I guess, because interest rates have been plummeting, you can absorb some of those lost rents because you know, you rent your interest, which is the largest cost for most people, is going down at such a drastic rate.

And prices appear to be down five to 10% on average. And banks seem to be particularly cautious with this area.

And I know one of my clients I was talking to last week was updating their approval for a property in Queenstown, and the bank was asking a lot more questions.

Wellington, as we know, listings have been and still remain in short supply and there's a backlog of frustrated buyers as interest has remained firm during lockdown and then includes Kapati coast.

Ed McKnight: Hey, I just want to jump in there as well, Andrew, and talk about Wellington cause I'm a bit surprised that the demand for properties has remained so high, given that Wellington is kind of at the end of its property cycle, it was already coming to the end of its boom, and we were expecting it to, when I gave another one of my presentations, I was expecting it to go into a downturn more quickly than some of the other regions because of that.

So it's really interesting to see, that's not what I necessarily would have expected there. I just want to talk about Queenstown for a bit as well because this is kind of what we'd expect.

We'd expect Auckland, Wellington, Christchurch the ones we've talked about to do reasonably well. Good fundamentals, good incomes, good diversified economies and some smaller regions, some smaller towns to not do as well.

But remember that if all of Queenstown properties were to drop by a significant amount and we are talking about only 10% here, but if they did drop by an amount, that would bring the average down for the whole country potentially.

And so you can see a lot of properties doing exactly the same and only some properties doing very poorly, and that can bring down the whole average. And this always comes back to what I talk about, just because the average decreased or increased doesn't mean that the price of your house increased or decreased.

So when you do see headlines, if we see headlines talking about price decreases or price increases, just see what the data actually says about your particular properties as well, because that may not be a need to panic. I also just want to point out what some first home buyers are saying, where they're saying, it's actually cheaper for us to buy now because our mortgage repayments are actually less than we're paying in rent.

We've saved heaps into our deposit during the last few weeks, and the banks pre-approved us for more than we thought we could borrow. So they're actually looking for places to live right now. And so I'd expect there would be some more first home buyers out in the market looking for some good deals given that interest rates have fallen, particularly this week well below sub three.

Andrew Nicol: Yes, there's another couple of quotes here that I just want to read, good quality homes are still in high demand. And so that's one big thing to remember that there will always be the outliers, there will always be properties, particularly at the higher end of the market, or if they maybe got a few complexities to them, maybe they're a leaky home, maybe they're an earthquake damaged home or something like that.

Those will probably suffer more than the really good quality properties out there in the market and low cost housing and boarding houses are likely to be in hot demand is unemployment rises. One other thing is that the messaging from key banks is that they're open for business and they'll do deals as long as they make sense.

Now, one thing I would say there is we're seeing a lot of really good quality clients being declined at the moment, and I guess maybe not declined for their first property, but maybe for the third or fourth property. And so banks are being a little risk adverse if maybe someone's growing a portfolio at quite a quick rate.

So some of our clients are going to have to slow down their plans at the stage purely because the banks are acting with caution. And I do just want to talk a little bit about valuers as a whole.

So valuers, I hope some of them are listening, are unusual creatures. They are inherently conservative and they do have to kind of guess what they think the market will do.

But the reality is the market will do what the market will do. If someone's willing to pay a million dollars for a property, if a valuer says it's worth 900, but someone's willing to pay a million dollars, it's worth a million dollars to someone.

Similarly, if they say it's worth 900,000 but only someone's willing to pay 800,000 it's only worth 800,000 but they tend to be conservative.

And the valuers that I've spoken to lately, going in at discounted rates out of fear or an expectation of a drop in the market. Now, there isn't necessarily the stats to show that yet, but is somewhat of a self fulfilling prophecy.

If a client who's buying a property gets a valuation that's lower, they are likely to renegotiate the price and make that true. And obviously the other side needs to accept that lower price, but if they've got a valuation that gives them a bit of leverage.

And so that does sometimes become true because of that, I'm sure she wouldn't mind me saying this, but Candice, one of our team members, she actually got a valuation on a property that she's buying herself for an owner occupier property, which is all very exciting.

The first valuation came in about $20,000 under the purchase price from memory, and that was a bit frustrating for her, the developer couldn't budge on it, he wasn't making much money on the deal anyway cause he was doing her a favour, and when we went and got another valuation it came in just slightly above the purchase price.

So again, valuers only have to be within 15% of the range for the bank, 15% is their margin of error. So just remember if you do get a valuation now and it does come and low, that's probably just a case of valuers being conservative. It doesn't necessarily mean that the value is not there.

Ed McKnight: Fantastic. Well, let's wrap it up there, but please don't forget to rate, review and subscribe to the podcast. It really does help us get the message out to more people and hey, if you've been thinking about getting into property investment for a while, you're thinking, maybe I should see whether it can do it or not.

Why not check out the property investor quiz, I'm going to link to this in the show notes, but just by answering seven quick questions, it's going to give you a yes, no, or maybe answer about whether you're in the position to invest within your first investment property.

Thanks for listening to the Property Academy podcast. I'm your host Ed McKnight and I'm Andrew Nicol, and we're going to be back again tomorrow with even more daily strategies, tactics, and insights to help you get the most out of the New Zealand property market.

Until next time.