Rental Market Overview

Transcription

1 BARFOOT & THOMPSON Rental Market Overview 2 ND Q U A R T E R 2016/2017

2 Overview The combination of tighter mortgage lending restrictions and perceptions that residential property is fully priced continues to slow Auckland housing activity. In September new listings were down, and sales numbers and prices were restrained, said Peter Thompson, Managing Director of Barfoot & Thompson. With the arrival of Spring, housing activity normally lifts, but it has not been the case this year. Rather the market continued the trend which first showed in July of prices increasing at a much slower rate that in the past two to three years. While in September the average price increased, compared to August, the median price actually stayed constant. The average sales price in September was $919,849. This is 1.5 percent higher than for August, but is up only 2.9 percent on the average for the previous three months. The median price movement is even narrower, and at $850,000 is exactly the same as it was in August and up only 0.8 percent for the previous three months. Compared to what was happening to prices last September the Auckland housing market is subdued and we are now looking at a totally different market to 12 months ago. Sales for September at 1051 were up 4.8 percent on those for August but down 2 percent on the average for the previous three months. New listings at 1536 are down 10 percent on those for August, and are down 6 percent on those for the previous three months and down 20.8 percent on September last year. At month s end available property at 3060 was down 2.9 percent on the number at the end of August, but in line with those available throughout the past 12 months. High end sales were unaffected by the more restrained market, with 403 properties, or 38.3 percent of properties sold, achieving a value of $1 million or more while 7.7 percent of properties sold for under $500,000. Peter Thompson Managing Director 3

3 Rental Market Commentary Average rent for 2 bedroom properties by region A closer look at two bedroom properties Barfoot & Thompson manage over 3,500 two bedroom properties across Auckland. These range from units to up market apartments in the CBD. The following study look at what the average price range is, and how things have changed over time. Barfoot & Thompson manages over 3,500 two bedroom properties across the Auckland region, with this number increasing steadily by 4-5% annually. The average rent for two bedroom properties in Auckland is currently $435. Apartments and townhouses consistently receive higher rental than the Auckland average. Units make up almost half of all two bedroom properties that Barfoot & Thompson manages. 60% of apartments are in central Auckland or in the central suburbs, receiving the highest average rental for two bedroom properties at $518. Most townhouses are in the central or Eastern suburbs, where tenants are paying a premium for the location. The cheapest area to rent a two bedroom property is in the outskirts of Auckland (e.g. Franklin and Rodney), but also in Pakuranga / Howick, followed by central Auckland. With the amount of houses under construction today, especially the apartment boom in the central city, it will be interesting to monitor these measurements over time. Eventually you would expect that majority of 2-bedroom homes will be apartments in the future. Through the difficulty of purchasing affordable houses, as with apartments, we expect to see a lot of the 2 bedroom houses under management to be sold and to be renovated into larger homes. The central 2-bedroom properties generally have the best weekly rent. Although data you see today is based on the current houses prices and current rent, it would appear that these investment options are not producing a high yield. However, long term investors we work with have held these properties for many years and the original purchase price is a lot lower than today. Therefore, in some cases the yield or cash flow is very good with the new high rents. Golden rule, buy and hold. Average Weekly Rent per Area ($) Average rent for 2 bedroom properties Number of properties managed by us Property types 2 bedroom properties From the beginning over 2013 through to Sep 2016, there has been a growth of 20.1% in the average weekly rent for a 2 bedroom property. The greatest yearly growth came in 2015 with an average increase over the year of 6.1% Apart from 2015, every other year has seen a growth of around 3.9% 4 5

4 Tenancy Types Over the past 5 years, tenancy type has changed with a periodic tenancy becoming less common, just dropping below 50%. A fixed term of 6-12 months accounts for ¼ of all tenancies at present. Tenancy type over time Rental average Average rent for periodic tenancies has historically been less than for fixed term tenancies. The tradeoff of having a long term tenant whom the landlord is happy with is on average $130 less per week than a fixed term of 6+ months. Reasons for the lower rent may be that a fixed term rental property has a rent assessment at the end of every fixed term where rent typically goes up a percentage. Average rent per tenancy type Gradually over the last five years we are seeing a reduction in the amount of periodic tenancies. This observation is from when tenancies are started. Historically, many tenancies were started as a periodic, however, we are seeing people opt for a more secure future hence why they fix for a period. Fixed term tenancies that end and the tenant and owner agree to continue, where as in the past the tenancy was allowed to just default to a periodic, clients are opting to resign another fixed term. Mainly for security on both parts tenant and owner. To break this into areas we see more variability between fixed and periodic in Franklin with fixed term rentals averaging 31% more rent per week. Pakuranga/Howick and West Auckland have the least increase in rent on a fixed term. Region Fixed Rent Periodic Rent Average Rent % higher than periodic Franklin/Manukau Rural $ $ $ % Eastern Suburbs $ $ $ % Number of tenancies per area Northland $ $ $ % Central Suburbs $ $ $ % South Auckland $ $ $ % North Shore $ $ $ % Central Auckland $ $ $ % Rodney $ $ $ % West Auckland $ $ $ % Pakuranga/Howick $ $ $ % Grand Total $ $ $ % Another reason for the lower rents for periodic tenancies is often a client who has been managing the property themselves for many years has neglected to review the rent. It is not uncommon to take on a property and existing tenant where there has been no review for a decade! This brings that average down substantially and over the ensuing years we work to lift the rent back up to market value. 6 7

5 Rent difference between periodic and fixed Video tips Part of strategy at Barfoot & thompson is to improve the way in which we can deliver critical information to our clients. In addition to the information we already provide, we are looking to implement new videos as well. These summarize key moments in a tenancy and can be easily referred to by tenants, owners or prospective investors. The following is a selection of videos we have, these are also done in Chinese. To watch our videos, go to youtube.com/user/barfootthompsonnz Property Type How To Write a Winning Rental Application Questions To Ask When Viewing A Rental Property Renting in New Zealand: What You Need To Know (Chinese) Moving Out of Your Rental: How to Get Your Bond Back Renting with Pets: Top Tips Moving Into Your Rental: Entry Inspection Checklist It is interesting to look at the different types of properties and the correlation to the preferred tenancy types. As you would expect, roughly 2/3 of the inner city apartments are on fixed terms. This is largely done to control the move out dates and to avoid lengthy vacancies between semesters. Number of tenancies by property type Looking even closer, we can determine what periods tenants prefer for each type of property if they have gone on to a fixed term tenancy. The shorter term tenancies of less than 6 months are becoming even less common in today s market. 8

6 Market Share July to September 2016 Based on the bonds lodged within the Tenancy Services from July to September, Barfoot & Thompson achieved the following; Mairangi Bay 254 $ $ % Manukau 365 $ $ % Manurewa 712 $ $ % Meadowbank 216 $ $ % Meadowlands 37 $ $ % 1) We lodged 18.1% of total bonds for the period. 2) On average we achieved $41.90 more per week. 3) If you multiply the average weekly rent of $ by our management commission of 7.5% it equals $ ) Therefore, due to our ability to achieve more rent, our management fee becomes irrelevant. 5) Our ability to achieve a higher rent coupled with our very competitive management fee means that we can provide a much more cost effective and comprehensive service. Milford 264 $ $ % Mission Bay 175 $ $ % Mt Albert 563 $ $ % Mt Eden 510 $ $ % Mt Roskill 105 $ $ % New Lynn 478 $ $ % Northcote 100 $ $ % Branch Dept. of Building # of properties Dept. of Building Average Rent B&T Number of properties B&T Average Rent Market Share Onehunga 422 $ $ % Orewa 256 $ $ % Otahuhu 481 $ $ % Albany 369 $ $ % Beach Haven 172 $ $ % Beachlands 66 $ $ % Birkenhead 128 $ $ % Blockhouse Bay 292 $ $ % Browns Bay 116 $ $ % City 2666 $ $ % Dannemora 482 $ $ % Devonport 68 $ $ % Epsom 199 $ $ % Glen Eden 385 $ $ % Glendene 59 $ $ % Glenfield 492 $ $ % Greenhithe 78 $ $ % Greenlane 168 $ $ % Grey Lynn 283 $ $ % Helensville 59 $ $ % Henderson 400 $ $ % Highland Park 84 $ $ % Howick 336 $ $ % Kumeu 126 $ $ % Pakuranga 248 $ $ % Panmure 254 $ $ % Papakura 588 $ $ % Papatoetoe 567 $ $ % Parnell 129 $ $ % Ponsonby 274 $ $ % Pt Chevalier 89 $ $ % Pukekohe 365 $ $ % Remuera 307 $ $ % Royal Heights 159 $ $ % Royal Oak 203 $ $ % St Heliers 170 $ $ % Stonefields 80 $ $ % Swanson 141 $ $ % Takapuna 228 $ $ % Te Atatu 193 $ $ % Torbay 301 $ $ % Waiuku 187 $ $ % West Harbour 178 $ $ % Whangaparaoa 290 $ $ % Market Share Total $ ,129 $ % 10 11

7 Other commentary From BNZ s blog, by Tony Alexander Hot spots Change in median house price from July 15 - July 16 Auckland s housing market: What you need to know when buying Back in the Weekly Overview of November 1, 2012, I produced a list entitled, 19 Reasons Why Auckland House Prices Will Keep Rising. Since then prices on average have risen 65% and while we see minimal chance of another 65% rise over the next four years, it still looks like prices will rise further. Recently, I gave presentations to a few hundred home buyers and investors at functions in Takapuna and Ellerslie and made reference to a list of 15 factors which people should make themselves aware of if they are looking at the Auckland property market. The full list was reproduced in the Weekly Overview of September 15. But here are a few of the points. Underbuilding since the mid-2000s, not enough houses have been built in Auckland to keep up with population growth. That situation is likely to continue for perhaps another decade, especially given the way 60% of the net migration inflow to New Zealand boosts Auckland s population and the average annual net migration gain appears to be settling at higher levels than before. Auckland s economy will outperform most of the rest of the country, especially as technology sectors deepen and Auckland becomes our agglomeration of talented free thinking people from diversified backgrounds. There is a backlog of buyers wanting a house in Auckland. Some delayed their purchase from 2007 to 2011 because of high interest rates, then the GFC and forecasts of collapsing prices. Others have had to save and build a higher deposit because of rising prices and LVR rules. And as each week goes by, this pool of unsatisfied buyers gets bigger and bigger. Interest rates have settled at structurally lower levels and because most people purchase property using borrowed money, the cost of a purchase has declined but this decline has been permanently factored into the prices people are willing (and initially able) to pay. Baby Boomers are seeking assets which yield higher than the now very low returns on bank deposits and bonds. They want to hold these assets for a retirement period expected to last a lot longer than for previous generations. Vital resources needed to build more houses are in short supply. This includes not just builders, materials and land, but finance. Post-GFC, banks globally cannot take the sort of lending risks which they could before. Funds available for property development are limited and unlike the pre-gfc period, there is not a large number of minimally regulated finance companies able to step into the breach and undertake that lending. It means nothing that Auckland s average house price is now $1 million. Unlike a barrel of oil, no two houses are the same and the average price is merely a statistical measure, rather than the actual price of Auckland houses. The $1 million average price will not present any sort of psychological barrier to further price changes. Chinese buyers have eased off their purchases following the introduction of the 40% minimum deposit requirement. But there are millions of people wanting to get assets off the Chinese mainland and eventually these buyers will come. More generally, on both occasions in the past when LVR rules were introduced/tightened, the market went quiet for three to four months and then took off again. We expect the same this time around. The Reserve Bank is almost certain to introduce further controls on bank lending. A rise in the 40% minimum investor deposit to 50% is probable. Introduction of a debt to income regime is virtually certain. Thus, the incentive for buyers is to move sooner rather than later which has been essentially our key point in debate regarding the Auckland housing market for seven years now. Diverse list of suburbs across the city and in different price brackets North Shore leads the way in growth Good transport, schools and lifestyle key Milford came in at number one with 46.3% value growth - almost twice the Auckland-wide average of 24% 1) Milford 2) Epsom 3) Sandringham 4) Sunnynook 5) Te Atatu Peninsula 6) Northcote 7) Forrest Hill 8) Halfmoon Bay 9) Mairangi Bay 10) Mt Albert 5 After the North Shore, the Central Suburbs were the next strongest group, with leafy Epsom and fast up-andcoming Sandringham leading the way with increases of 42.9% and 41.2% respectively Sales volumes also increased by as much as 65.4% (Sunnynook) For more economic commentary, see: Tony Alexander has been employed as Chief Economist at Bank of New Zealand since 1994 with responsibilities including informing the board and senior management about economic developments and prospects, risks and opportunities, and provision of services for the bank s staff and client base. Kiri Barfoot, Director We re seeing strong growth in new rentals apartments in particular are up by 36%. This is a recent upward trend coinciding with new developments in the central city. But rental supply is barely keeping pace with demand. Vacancy rates are just 1% despite 26% growth for all property types. We are turning properties around in an average of less than 4 days

8 The numbers September 2016 New homes for our tenants in Sep 2016 Properties under management ,110 Average rental arrears for Sep % Number of inspections in Sep Average vacancy for Sep % (3 days) Average increase in $ for reviewed properties $15.27 Number of rental reviews 2820

9 barfoot.co.nz