If you’re a first home buyer or property investor in New Zealand, you might be wondering when the next property boom will happen. Aseem Agarwal, Head of Mortgages at Global Finance, talks to us about the next predicted housing market boom and the eagerly awaited an increase in property values that will allow homeowners to build up equity which they can use to either to borrow for an investment property, purchase a new business, commercial property, to renegotiate better terms on their existing mortgage or to support to their children so that they can have their own house.
Understanding the relationship between interest rates and house prices
“When interest rates go down, house prices tend to rise. Conversely, when interest rates go up, house prices tend to decrease or stabilise,” Aseem tells us. This pattern has been evident over the past three years – no more so than during the pandemic when a very clear correlation between interest rates and house prices emerged.
Wholesale rates, OCR and property cycles
A typical property cycle is around seven to eight years: three to four years of an upward momentum, a growth period, followed by a three years period of stabilisation or decline. Aseem explains that to gain an understanding of these property market cycles, you need to examine the trajectory of wholesale rates and OCR.
Wholesale rates and OCR indicate the cost of borrowing for banks. Currently, these rates are projected to reach their lowest point around October 2027. This will mean cheaper retail rates for borrowers. With this projected bottoming out of the cost of wholesale lending, Aseem predicts that we may witness the next property boom, like the one experienced during the pandemic in 2020 and 2021, in 2026 or early 2027.
He unpacks this prediction by explaining how the combination of increasing demand and limited supply further sets the stage for a potential boom in the New Zealand property market.
The Impact of immigration and increasing demand on housing
New Zealand is currently witnessing unprecedented levels of immigration. New Zealand has recently gained approximately 72,000 individuals. This annual net migration gain is expected to continue. As these newcomers become residents, settle into their new lives and secure stable employment, they are expected to save enough money for a down payment on a home. Within the next three to four years there will therefore be a growing demand for permanent housing from our many new Kiwis.
Decrease in available housing stock:
To add to the mix, the supply of housing is not keeping pace with the demand. Developers and builders are not building enough stock to cater for the population growth we are experiencing. Building consents for new builds have gone down by 11 to 12%. The increasing demand from first-home buyers, coupled with this decline will further exacerbate the supply-demand imbalance in the housing market. As a result:
• Existing houses will become scarcer in the market.
• Insufficient housing supply will persist over the next two to three years.
New Zealand Government Policies:
If the New Zealand Government policies changes in future and restores interest deductibility on residential loans, reduction in Bright Line test from 10 years to 5 or 2 years, allowing all foreigners to invest in residential properties in New Zealand, it will boost demand for houses and that will support next housing boom gradually.
Combination of all the above factors will likely lead to future property price increases.
Expert guidance from Global Finance
The property market can be complex, so making well-informed decisions is the key to taking advantage of its cyclical tendencies. “By seeking expert guidance, you can make informed decisions and capitalise on the opportunities presented by the property market.”
Invest in your future
We believe that the number of people looking to buy property, whether as investors or as homeowners will increase. Add to that the supply-demand imbalance and the projected bottoming out of wholesale rates and we predict our next property boom will happen in or around 206 -2027.
If your investment horizon is around five years, then now could be a very good time to buy property in New Zealand. Aseem Agarwal and the experienced team at Global Finance are ready to assist with their expertise and tailored mortgage solutions. “We understand the intricacies of the property market and can provide well-informed guidance. Our team is committed to providing answers, support, and expert advice.” Contact Global Finance team today on 09 2555500 to book a no-obligation chat on info@globalfinance.co.nz
The information and articles published are true to the best of the Global Finance Services Ltd knowledge. Since the information provided in this blog is of general nature and is not intended to be personalized financial advice. We encourage you to seek Financial advice which is personalized depending on your needs, goals, and circ*mstances before making any financial decision. No person or persons who rely directly or indirectly upon information contained in this article may hold Global Financial Services Ltd or its employees liable.
