Where cheap properties are likely to be in Covid-19 aftermath via Tony Alexander

Until now, I’ve concentrated on the big-picture factors which will influence our housing markets through and beyond the Covid-19 crisis.

To dig deeper and find particular pressure points, I sent a survey out last week to the near 250 real estate agents and mortgage brokers on the emailing list for my weekly publication.

I asked them what they are seeing buyers and vendors thinking and doing and released the results earlier this week.

The main areas of pain beyond some simple falls in prices for the existing housing stock, which we have seen many times before, are these.

These are building companies and individuals who are in the process of building houses and townhouses in particular, but have yet to sell them. In every recession these debt-exposed people can suffer badly.

Their debt levels tend to be high so their bankers are nervous and may not be willing to extend further credit. These people can be located anywhere around the country but this cycle might be especially present in Queenstown, Wanaka, and Auckland where loosening of plan rules has led to widespread small project developments.

These people will be very nervous and were I a buyer looking for a bargain, that is where I would start – a pressured speculative builder.

First-home buyers

Most FHBs have pulled back. They are inexperienced and have not only never seen a housing market downturn, they’ve probably never seen a recession whilst in the labour force, and may never have been made redundant.

They have seen their KiwiSaver balances fall, and some Mum and Dad supporters are now backing away, withdrawing their willingness to stump up with a deposit and saying experience tells them better purchase prices lie further down the track.

Interestingly, in lockdown these young people are saving money and rebuilding their deposits.

Should they keep this restricted spending pattern up (avoiding cafes, expensive drinks, offshore trips) they will grow a bigger deposit quite quickly.

Auckland’s inner-city

Demand for apartments to rent in Auckland’s inner environ has fallen. The foreign students are not there and won’t be coming back for perhaps a couple of years. No foreign tourists are coming through so, as in other parts of New Zealand, Airbnb properties are being placed on the rental market.

People on working visas will be leaving the country once their special visa extension ends and many of these people work in the hospitality sector in the city centre. Many new hotels come on to the market this year and next. And one suspects many people locked into their apartment for four weeks would rather not go through that experience again.

Were I a first-home buyer looking to get my foot on the ladder, or an investor with a long-term focus, this is one market I would be looking at some months from now.

Recent buyers

Some people have bought a property recently but they need to sell their existing house. They know getting bridging finance will be hard to get as banks are devoting few resources to acquiring new customers for the remainder of this year. These people have suddenly become, in property market terms “highly motivated sellers”.

Queenstown and Wanaka

In Central Otago the housing market is being hit from multiple angles. Tourists are gone and won’t return in numbers at all this year and most of 2021-22. Many businesses no longer have any customers to serve and will close. Income lost by business owners will motivate some to sell, some not to buy, many to leave the area.

Queenstown has become reliant upon migrant workers. These people are no longer needed. The accommodation they were squeezing into is no longer needed. There is talk about Kiwis travelling to Central Otago now that the foreign tourists are not there.

But flying there domestically has never been cheap. So, the location is not going to be forefront of the minds for most of us once we start thinking about our local holidays. It depends upon what deals operators down there may offer, especially come ski season.

As a tourism hotspot Rotorua’s property market will suffer this year and next, but the city is accessible and probably has a better chance of achieving a good lift in domestic travel than does Queenstown.

Central Otago contains many “aspirational” homes. Demand for these from mainly successful business owners always falls away strongly during a recession. In addition, such business people look to sell such homes to generate cash to assist their businesses. And finally, not so much Queenstown these days, but Wanaka, has a long-established history of cyclical section over-supply. The land cost is high, the construction cost per square metre much more than elsewhere.

Every cycle in Wanaka, section prices can suffer.

There are other pressure points around the country. But for now, these are the main ones and hopefully people can realise that every downturn presents opportunities for those with a long-term focus.

And that is why my final comment is this. Respondents to my survey noted that they are already receiving calls from long-established professional investors with long-term horizons, asking for them to keep an eye out for the good buying opportunities which they expect to come along before the end of this year.

* Tony Alexander is an independent economist and presenter.

Published by chasgunaratne

Property Investment. Property Syndication. Asset Management. Property Management. Property Financing. Commercial Real Estate. Capital Raising. Strategic modelling and growth management. Acquisition and divestment of property.

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