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Realty Market Update: The Impact of COVID-19
As New Zealand begins to rebuild following the COVID-19 lockdown the big questions in the realty market are whether we will see a slowdown, how much prices are likely to fall and how soon can we expect to see the market return to pre-lockdown levels.
A recent edition of BNZ’s Economy Watch report predicted New Zealand house prices may drop by around 12 percent and residential and commercial construction could also be set to decline due to the impact of COVID-19.
New Zealand is still in the very early days of recovery, however, and market predictions are highly speculative. Over the next quarter if we notice a reduction in property sales this could simply be a result of the traditional seasonal slowdown as we move into winter, although COVID-19 will no doubt have some longer-term impacts.
With the majority of the country being impacted by the lockdown and many households having lower disposable income, the Reserve Bank of New Zealand has temporarily removed the loan-to-value-ratio (LVR) restrictions on mortgage lending. The restriction was put in place in October 2013 to slow down the growth of house prices. While the lifting of the LVR will help open up the market to first home buyers whose deposits may have suffered from recent conditions, it is unclear whether banks may tighten up their lending policies in a response to COVID-19 impacts.
However, those whose income isn't affected by COVID-19 will find themselves in a strong position to invest in property. Record-low interest rates, the removal of the LVR restriction and speculation on house prices dropping could see a rush in the market, especially among first-home buyers. There is certainly a buzz surrounding the markets reopening after a period of strict lockdown. As open homes and property viewings again become possible those who have been holding off on listing their properties will be keen to see their properties moving.
As New Zealand is praised worldwide for our response to the COVID-19 crisis, it is possible that we will be seen as a safe haven which in turn could impact our realty market. There is anecdotal evidence that expat New Zealand families are looking to return to New Zealand to escape prolonged lockdowns and potential second waves of the virus. If Kiwi families were thinking of moving home in future years, it is possible they will bring those plans forward which could have a positive impact on our market.
While unemployment resulting from the COVID-19 crisis could have a negative impact on the realty market, there is a suggestion that the rental market may be harder hit. The greatest number of people to be made redundant will likely be from the tourism, retail and hospitality sectors. While business owners will be impacted, it is their employees who will make up the largest group of redundancies. As many of those impacted may have been on lower than average wages or migrant visas, they possibly were not in a position to buy anyway.
In general, how much house values fall this year may come down to the area people live in. Regions with more exposure to tourism and migration are more likely to see house price falls than others, according to economists.
How soon we are likely to see the markets return to pre-lockdown levels is hard to predict. New Zealand is still in Alert Level 2 of our 4-level COVID-19 alert system and although life feels a lot more normal, with borders closed and restrictions still in place the current crisis remains a fluid situation. One indicator of how the market may be affected is history. Following the 2007 Global Financial Crisis the volume of house sales fell dramatically but house prices only dropped marginally. Of course, COVID-19 has had a far greater national and international impact, and the true impact of the crisis will only be seen as the months unfold.