The Crystal Ball - 2016

Published on: 2016-01-20

The Hamilton residential property market staged a strong recovery during 2015. The number of sales surged almost 60% over 2014 which, coupled with record low number of properties available, caused the median price to soar around 28% between March and the end of the year.

The primary drivers of the increase in demand were from three buying sectors. Firstly Auckland property prices skyrocketing caused a wealth effect amongst Auckland property owners. A number of these owners liberated their capital gains and used them to invest in Hamilton housing. Secondly, Hamilton became a destination for new immigrants as New Zealand’s net migration levels soared to record numbers. Thirdly, many first home buyers who had been sidelined by the Reserve Bank imposed LVR restrictions finally entered the market. A combination of increased banking facilities, an increase in first home buyer savings and a relaxing of restrictions encouraged first home buyers back into the Hamilton market.

All these groups look set to continue with their activity into 2016. However, we predict the upward price pressure will abate as Hamilton values align with other markets. The six month moving average of the difference between the NZ median and the Hamilton median peaked at around 19% at the beginning of 2015. By the end of the year this measure had fallen to 11%. Typically we would expect this will return to 0 as Hamilton as Hamilton prices continue to rise and the rest of NZ, in particular Auckland, prices consolidate.

Price gains in high investment housing areas of Hamilton are expected to slow. Lodge rentals property managers have been inundated with tenant enquiry throughout the summer suggesting rents will come under increased pressure. Investors also appear to be confident that low interest rates are here for the longer term and are therefore tolerating lower yields. However, we are already experiencing investor resistance to prices as they become increasingly concerned with return on investment.

We do expect several suburbs will enjoy gains ahead of the market. In particular the popularity of the north east has been strengthened with improved schooling options, increased shopping choices and a greater selection of entertaining and eatery establishments. Buyers have already displayed a propensity to pay a premium for a spacious, modern home in Flagstaff and Rototuna. As securing a section in the area becomes more difficult we expect prices will advance under pressure.

We equally expect prices in established neighbourhoods close to the city, in particular Woodstock and the Chartwell neighbourhood surrounding Dio, to improve. Many of he properties in these areas have undergone significant improvement in the past few years and buyers have displayed a willingness to pay for modern renovations with larger sections. Offers and sales in excess of $1 million have been recorded for properties without views in the area underscoring the locations value.

Although prices have advanced for do-ups we anticipate this to be an ongoing theme, particularly in Hamilton East. We are surprised properties requiring a makeover in the area have not risen more this year given the sale values of done up properties. We believe it is only a matter of time before buyers recognise the differential and pay more.

Lastly, Beerescourt and Forestlake still appear undervalued. Both leafy suburbs offer plenty of character, affordable housing, are close to the city centre and have an abundance of facilities. Expect early price gains as buyers appreciate the value to be found in these suburbs.

Economically there appear few threats to the continued robustness of the Hamilton housing market. January storms appear to have lessened the drought risk for farmers from El Niño conditions although weak dairy prices continue to be a cloud on the regions sunny economic outlook. The impact of this risk to Hamilton housing has been off set to a degree as Hamilton’s strong population growth is forecast to continue. A core component of the population growth recently has been an increase in student numbers boasting the education and training sector. Coupled with the city’s large service sector the city has diversified its economic base in recent years. Both the population growth and strong economic foundation improving employment prospects will underwrite the success of Hamilton’s housing market throughout 2016.