Property slump – where it will strike

Property slump – where it will strike
23 October 2005
By IRENE CHAPPLE

A property slump will hit the South Island over the next three years, but the North Island’s cities will weather the downturn, says a report due out next month.

The Infometrics/PMI Residential Overview shows Auckland and Wellington will hold strong against property price falls, but values in Otago and Southland will slump by 2008.

The report, published every six months, gives detailed forecasts of construction activity, house sales and expected prices rises in each region.

Next month’s report will say that overvalued rural property values will start to deflate as the expected increases in interest rates take effect.

But Wellington’s solid government-driven economy is keeping the capital afloat. The city’s values are forecast to bounce up from an expected 8 per cent rise by 2007 to a 15 per cent rise over the three years to 2008.

Auckland’s population boom is also expected to soften pain in the commerce capital. Prices are picked to rise 15 per cent over the three years to 2008. Last year, the report was forecasting prices up 13 per cent by 2007.

While the cities keep their noses in front of inflation, Canterbury/Westland and Otago/Southland are forecast to fall 3 per cent and 4 per cent respectively.

Infometrics also says property prices will flatten nationally over the next 10 years.

The downturn is now predicted to come later than last year’s report suggested, when the slump was expected to kick in by the middle of this year.

Instead, economic naysayers were silenced by continued strength in the economy and an obsession with house ownership.

That prompted Reserve Bank Governor Alan Bollard to send a harsh message to New Zealanders this month, saying they were spending too much and could not expect high house prices to last.

Infometrics senior economist Gareth Kiernan said investors would be lucky to keep getting capital gains from their properties, although those in the luxury market tended to be cushioned from price fluctuations.

Many in the residential market who had made profits were getting out now.

“If they have been in the market five years they are doing well,” he said. “It’s the ones who got in six months ago who are not necessarily going to get capital gains.”

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