September 2022 Market Update

by Hamish Wilson on Fri Sep 2022
September 2022 Market Update

It has been an interesting month for us in the office and on the side-lines as a property investor.

It is very difficult at the moment to avoid that dreaded “I” word - inflation.  For some of us this is the first time in recent history, A.K.A 32 years, that we’ve had to deal with it at such a significant level.

Will A Higher OCR Help Inflation?

The consumers price index increased 7.3% in June 2022 quarter compared with June 2021 quarter, Stats NZ quote.

The 7.3% increase follows an annual increase of 6.9% in March 2022 quarter, the previous largest annual movement since a 7.6% increase in June 1990 quarter that occurred shortly after the introduction of the Reserve Bank of New Zealand (RBNZ) Act 1989.  The Act came into effect in February 1990 to target the high inflation from the previous decade and maintain stability in the general level of prices over the medium term, I’m just not sure if that has been achieved recently given light of our current situation.

The RBNZ Monetary Policy Committee raised the Official Cash Rate (OCR) by 0.5 % to 3% recently, as most had expected. The RBNZ’s outlook suggests an even higher OCR will be required to get inflation under control than previously expected. 

Most commentator’s, considerably more qualified than me, see inflation becoming less intense over coming quarters and continue to expect the RBNZ will not raise the OCR to the extent it currently predicts and see the OCR peaking at 3.75% in November.

Most expect inflation to fall faster than currently expected and consider peoples’ outlooks for inflation will likely go in the same direction. It was notable the RBNZ’s latest survey of inflation expectations stabilised in July after an extended period of rises. All acknowledge the RBNZ will likely raise the OCR above the 3.5% previously expected, but continue to anticipate the RBNZ will not raise the OCR to the degree it currently foresees. With luck we will see the OCR reach a peak of 3.75% in November.

Small Changes to CCCFA Have Eased Lending Criteria

On 7 July 2022 some proposed changes to the Credit Contract and Consumer Finance Act (CCCFA) came into effect around current and future spending.  We saw the CCCFA put the brakes on a lot of residential lending due to its prescribed and mandatory requirements with regard to discretionary spending.  Prior to 7 July, any funds regularly put in a savings, trust or other account had to be included in your listed expenses. For example, if you had been contributing to KiwiSaver at 10% you had to carry that to the future.

However, the difference is now lenders acknowledge this will and may change after a house purchase. It can now be explained to the bank that your current expenses, for example your KiwiSaver contribution at 10%, would change to 3% for your future budget, so you’d now benefit from the 7% difference.

A small win, there is nothing as constant as change, as we’ve seen with the sudden U-turn on the proposal to tax fees on KiwiSaver funds - I’ll leave that one there.

As Borders Open Will We See An Increase In Demand For Rentals?

Border controls implemented when COVID-19 first hit more than two years ago have officially ended on 31 July 2022. In making international travel to New Zealand as easy as possible, all international students, skilled workers, backpackers, and travellers booking a holiday or a business trip to New Zealand are now allowed to return. This will have a flow down effect on our housing supply - we could see a boost in rental demand as all of these people need somewhere to live.  Sure, some are transient but others will look to put down roots for a few years thus adding to the tenant pool.

Before the pandemic, international students significantly contributed to New Zealand's economy. Opening borders will hopefully provide a boost to schools around the country as well as landlords with investment properties near universities or polytechs. However, we're still a wee while away from the international student population returning to pre-COVID levels. With student numbers expected to climb back up again, having a rental property in the University area is still a great investment as long as you're willing to take some risks.

What’s Happening In The Local Market?

Bucking the trend of the last four months we have seen a dramatic drop in supply across Christchurch.  There are down 185 properties available for rent on Trademe this month compared to this time last month.  This leaves Trade Me with 735 properties listed for rent in Christchurch this week.  Some of this maybe due to the student letting season being complete but it still makes for an interesting observation of the current “base” market here in Christchurch.

The winter chills are now behind us and as our memories of winter fade, with the warmer weather, the team have again been busy with a strong tenant enquiry rate.   Now that we are technically out of winter, we normally see an uplift in enquiry rates, only time will tell on that front. 

Developers seem to have stepped up a gear with many multi-unit developments becoming available, it amazes me where all the people come from to fill these units.  Demand for them appears to be sustained which will be a great relief to those investors that have had contracts in place for 18 months or more.  Proportionally they make up 30% of the local market.

The “I” Word Again

Last month I mentioned that our goal is to provide a service and knowledge level that is beyond competitive and that like many other businesses we are impacted by market changes such as price increases, staff costs and general inflationary pressures. We have been reviewing our fees due to those increased costs.

This has been the first time we have looked to increase pricing in many years. During that time, we have absorbed rising business costs to assist our customers.  We are still going through that process of review to ensure that we’re able to offer the best possible value to you.  If we make any changes, we will be in touch with you directly before any changes are implemented.

As always, we do truly appreciate your business and the team and I are always just a phone call away. We are always available for a free chat and are happy to share our experience and knowledge wherever we can be helpful.

Hamish Wilson

Hamish Wilson

An active investor for over 25 years & qualified builder, property has always been a part of life. Hamish has sat on the committee of the Canterbury Property Investors Association including two years as President.