The road to recovery for New Zealand's property market

There will be winners and losers in the new world post-COVID-19 – food producers have proven their value, share markets have revealed their shakiness when the unpredictable happens, while commercial property owners may be facing a diminishing demand for office space as more office workers prefer the working from home situation once the kids are back at school.

As for residential real estate, never have our homes been so tested for their ability to accommodate us in comfort, they have been reconfigured to make room for home offices in unused corners or bedrooms and to provide extra spaces for the kids to play and homeschool. In some cases our homes haven’t proven up to the task and for those who have survived the lockdown and maintained jobs, we will be house hunting energetically the first chance we get. For others, that kind of thing may have to wait until some certainty has returned to the job market.

After an initial slowing of Trade Me Property audience activity at the beginning of lockdown, the country’s no.1 property website saw daily listing views up by almost 50% by the end of lockdown. Engaged audiences were up even more, Watchlist adds up 61% and daily email enquiries up by 2.3x.

Head of Trade Me Property, Nigel Jeffries says the early signs after the decision was made last week to move to Alert Level 3, allowing for a resumption of buying, selling and renting activities, are that the pent up demand which was cut off over a month ago, has not gone anywhere, and all players in real estate are keen to resume activities.

Mr Jeffries says that for the May and June period, Trade Me expects that new listing volumes will take a month or so to get back to normal levels but there is plenty of “for sale” and “for rent” inventory on site for buyers and renters to choose from.

“May and June are early winter months where we start to see a tail off of activity however we think activity may in fact remain higher than normal due to consumers reacting to all the issues brought about by the challenging times.”

New Zealand property market followers are casting their eyes overseas to see how real estate markets in countries ahead of us on COVID-19, are rebounding after an enforced period of hibernation during lockdown.

US-based real estate tech strategist, Mike DelPrete, former Trade Me Head of Ventures and Strategy, has described the rebounds he is seeing around the world as like a tick or checkmark ✔.

“It begins with a severe, immediate drop, lasts three to four weeks, and is followed by a gradual recovery,” he says.

From his base in Colorado, Mr DelPrete, says: “In general I would expect the recovery in New Zealand to look similar to other overseas markets, which appears to be a checkmark. Steep decline, in stasis for a few weeks, then a slow recovery. I think it's just kinda how it works in this situation.”

Head of a real estate agency in France, Coldwell Banker France CEO’s Laurent Demeure, speaking to Inman.com, the American news website for real estate agents, spoke of a marked increase in leads and website consultations from buyers and sellers in the lead up to the end of France’s lockdown on 11 May.

He is expecting “demand will explode” after a slow adjustment period. This boost in activity will be triggered by people looking for more space or even a baby boom nine months after lockdown. He also forecasts that people will be looking to move closer to work, or quite the opposite – having proven they can work remotely, they’ll be looking to move out of cities.

Closer to home, Mr Jeffries says the Australian real estate market which has been operating at a level similar to New Zealand’s alert level 3, has experienced relatively strong demand and supply, with transaction volumes off by around 25%.

For CoreLogic senior property economist, Kelvin Davidson, he is estimating there will be a phase 1 – a busy period immediately after the business of real estate buying and selling is allowed thanks to pent up demand kept at bay since the alert level 4 lockdown.

“I think there could be a surge of deferred settlements and pent up demand by people keen to move who are able to potentially rush in and make some purchases,” he says.

There were supply constraints at the time of going into lockdown and these will influence the market, he says.

“I think there will be a phase of six or eight weeks, where there is a bit of a rush in activity, but listings will still probably be relatively low,” he says. This could be a kind of “phoney war” for the market and prices will hold.

Then the winter arrival might see the market going through a tricky phase, he says.

The good news is, in the current low interest rate environment, independent economist Tony Alexander doesn’t see people having to sell if they lose income or want to cash up.

With interest rates at record lows, people will be able to hold on, he says. Household debt over the past five years has only risen 40 percent versus 80 percent in the run up to the GFC.

“So price weakness will be limited by people not being forced to sell,” he says.

The other point the economist makes is, those suffering the most in the economy will be people in tourism and hospitality and they tend to be younger, also people on working visas in some cases, and they don’t tend to own a home or be planning to buy.

Who will the buyers be after the lockdown lifts? There could be some cashed-up investors buying properties from other more recent investors. Investors were driving the momentum before lockdown, and these were mortgaged investors, he said.

They will also be people with secure incomes making the usual life choices, either downsizing – and the active market will happily pick up larger homes – or people relocating after this period of lockdown proved they can work from home quite effectively.

In stable real estate markets like Wellington with many government jobs, so arguably a bit more sheltered than the rest of the country, buyers will be active once again, according to local agents.

Nicki Cruickshank, senior Tommy’s agent, who says her office has seen huge enquiries and sales for new developments in Karori and Berhampore in the past couple of weeks says “All we can see at the moment is good demand out there. Supply was quite short in Wellington and it will now be okay but not amazing.

People may be tempted to wait to buy or sell, which may be the wrong decision, she says.

“People have had time to talk to each other (about whether to sell) and they’ve probably had time to do things to the house,” says Ms Cruickshank. 

Read more about the factors affecting the New Zealand property market recovery.