Buying guide

What's in store for the regions in 2021: Insights from a property economist

What will the regions do in 2021?

In 2020, we saw the fallout from the COVID-19 pandemic hit New Zealand’s property market, with significant knock-on effects. From low interest rates to travel dollars being diverted to real estate purchasing, the market went from a near standstill in the start of the first lockdown to the frenzy we’ve seen since.

The threat of lockdown also saw some interesting new behaviours, as Aucklanders, in particular, started looking to the regions, with Taranaki one beneficiary of this partial exodus from major centres.

But what will 2021 hold for the property market in the different regions of New Zealand? To gain some expert perspective, we spoke to Ed McKnight, an economist at Opes Partners and Opes Real Estate. Here’s what his data is telling him.

A quick recap of regional activity in 2020 – how we got here

One of the areas that saw astronomical growth in 2020 was Gisborne.

In 2020, property values in this region increased by well over 24%. “House prices have increased to over $510,000...which is quite amazing when you think it’s a tiny wee region of roughly 40,000 people,” says Ed.

Similarly, house prices in other regions such as Manawatū-Whanganui have also increased substantially, thanks to boosts to the regional economies.

Property values in Gisborne increased by well over 24% in 2020.

Ed puts these trends down to two key factors:

1. Interest rates

    The drop in interest rates that we saw last year has made purchasing property much cheaper, because the repayments on home loans will stay the same. “As things stand, you can borrow 11.1% more money on a 30 year mortgage, but your actual repayments week-to-week will actually stay the same compared to last year”, Ed explains. This has, however, also been a key factor for driving house prices up, he acknowledges.

    Another impact of the decrease in interest rates has been making property investment much more profitable. Ed gives the example of a property worth $500,000. As interest rates have dropped between 1.1% and 1.2%, on a property like this, that would mean a saving of about $5,500, or roughly $100/week. “In other words, a property investor who bought a home for $500,000, will be making an extra $100 a week compared to what they were this time last year.”


    2. The relative lack of property listings in NZ

    A second critical factor that drove NZ’s property market in 2020, was the lack of properties for sale. “In December 2020, the volume of properties is up about 40% from the average of the last five years, but the number of listings is only up about 20%. This is causing a lot of ‘fear of missing out’ among buyers,” Ed says.

    Crucially, the economist sees both of these trends continuing well into 2021. – “My view of the property market in general is that it’s going to continue to be very strong.”

    So, which regions should we be keeping an eye on?

    We’ll start with the areas Ed sees as having the biggest potential for value growth in 2021.

    Canterbury

    “Canterbury has had house price inflation well below the national average for some time – this is why Christchurch has been held up as somewhere with relatively affordable house prices in New Zealand.” However, Ed doesn’t see this status quo remaining for long. “We’re starting to see house price inflation coming back,” he says.

    Ed cites recent CoreLogic data which shows that, in January 2021, the average house price in Christchurch increased by 3.1% in a single month.” While 3.1% might not sound like a lot, it equates to roughly $15,000 - $20,000, and represented the largest increase of any of the major city centres,” he says.”

    By his analysis, Christchurch and Canterbury is about 17-18% undervalued compared to where he’d expect it to be, which is why he’s expecting to see some growth there.

    Ed sees real potential for value growth in the Canterbury region in 2021.

    Auckland

    The other area Ed is most excited about for 2021 is Auckland. As anyone trying to buy in Auckland will know, has picked up since the start of last year, and Ed doesn’t see this slowing down.

    “The Auckland median house price peaked in March 2017, at $900,000, and only surpassed this a couple of months ago. In December 2020, the median house price in Auckland was $1.04m, and Ed’s predicting that this growth will continue in 2021.

    There are also a couple of places that the economist believes might see value corrections after periods of sustained growth.

    Otago

    One of these plages is Otago. “From my analysis, Otago house prices are roughly 17-18% overvalued, compared to the long term average,” says Ed.

    In the middle of 2020, the Dunedin market started to level off after an “amazing” run that saw it  overtake Christchurch. While Ed doesn’t necessarily think house prices in the Otago region will fall, he’s expecting to see a continued stagnation that will allow other regions to catch up.

    Gisborne

    Similarly, Ed reckons Gisborne is also overvalued, to the tune of roughly 16.87%, compared with its historical average. “This run of 20% house price increases every year isn’t sustainable, meaning buyers and investors will start to look elsewhere,” Ed explains. Again, this will likely mean the market will begin to slow as other areas catch up.

    What’s driving these trends?

    Contrary to what you might hear, Ed doesn’t believe that Kiwis returning from overseas, or Aucklanders looking to escape the city, will have a serious impact on NZ’s property landscape in 2021.

    Instead, he bases his predictions on three main factors:

    • People moving into investment: the already mentioned changes to interest rates, and the favourable conditions this creates for property investors, could mean more Kiwis turn their hand to this way of making money.
    • Lack of supply: During 2020, lots of people renovated rather than relocated, because they had the time and the inclination”, this means the lack of listings is likely to continue.
    • Expectation of future price rises: while the current numbers of returning Kiwis aren’t significant enough to impact the market, there’s a broad expectation that we’ll see large scale arrivals once the border opens. This expectation of future demand is likely to boost prices further, giving an impetus to buy now. As Ed points out, this is a self-fulfilling prophecy.

    Ed sees Kiwis moving into property investment as one of the key drivers of his predicted trends for 2021.

    What would you say to someone looking at buying in a region they’re unfamiliar with?

    Here, Ed has a simple message: Get some advice from someone on the ground as a common sense check on the market. He recommends experts including:

    • Local real estate agents with an in-depth knowledge of the local market, such as Opes Real Estate.
    • Property investment strategy partners, such as Opes Partners.
    • A local property investor who you know is active in the market.


    These conversations are crucial for getting basics right – is this a good area? What are the schools like? Will my kids be safe playing on this street?

    On top of this, Ed also advises using data to understand the market. “Don’t just jump into listings, think about what you’re going to target. Are you going to go for a lower cost with a lower yield, or something that involves more investment, but comes with a higher yield? You need to educate yourself in order to make the decision confidently.”

    *We hope this article has provided some helpful information. It's based on our experience and is not intended as a complete guide. Of course, it doesn’t consider your individual needs or situation. If you're thinking about buying or selling a property, you should always get specific advice.