As I mentioned last month, 2018 has started a lot stronger than 2017 finished. I say this purely off the back of increased levels of enquiries from first home buyers and an overall uplift in activity. Media articles continue to (and will continue to) send mixed messages about the housing market and prices coming off the boil. Whilst this may be true in some areas, it’s not true in others. A 3-bedroom home on a small site in Herne Bay recently sold for $2.8million! Almost 50% above GV. Obviously this is a highly sought after area but it also shows why you can’t look at Auckland as a whole and say prices are down.
Where we are seeing a significant drop (of between 10%-20%) is in the new build market and particularly land prices. I mentioned late last year that I expected some smaller developers to feel the pressure this year as they are forced into selling land below what they paid for it during the height of 2016. This is absolutely happening, but I don’t necessarily see it as a bad thing. In areas south and west of Auckland, new land is coming on the market close to $100,000 below what builders were paying for it 18 months ago. Luckily, in most cases, builders seem to be in a position to sit on land rather than sell and realise the loss.
Developers should be – and are being – more cautious around purchasing land and spec building. Mitigate risks as much as possible with low LVR, cash reserves, and if possible, unconditional pre-sales.
Ultimately, the reduction in land value is allowing for some builders and developers to create more good quality, affordable options which is great for those looking to get into the market. The good news is that these affordable options aren’t ridiculous distances from the CBD. For now at least, you don’t have to move to Helensville or Te Kauwhata to get on the ladder.
Glen Innes for example is a development I am interested in at the moment. Whether you’re a first home buyer or a seasoned investor, there are options in that development that work now and with the future plans for that area, and they’ll continue to work in the future.
All of this isn’t just good news for first home buyers though. Although they seem to be the ones benefiting so far this year. Investors are still pretty quiet and rightly so given you are the main target of tighter credit conditions. However, these softer prices are bringing to the forefront some great deals and in situations where vendors are forced to sell, investors who are ready will be the ones to benefit. If you are actively investing, then make sure you have a pre-approval ready to go so you are in a position to act quickly if a deal is there to be had. This year (and probably next) will be an opportunity for first home buyers to get on the ladder, but it will also be an opportunity for investors to make a step change in your portfolio if you look hard enough.
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