Mortgage

How will the Christchurch property market respond to COVID-19 and what’s likely to happen over the coming months?

There’s no doubt about it, these are unprecedented times and trying to work out what the future holds is even harder than usual. Property market outlooks require a bit of crystal ball-gazing at the best of times, but never more so than now.

So, let’s start with what we know.

One thing that’s certain is that these are challenging times. Our entire country, along with much of the world, in lockdown is something we could never have imagined possible just a few months ago. Big changes challenge traditional perspectives. Like many other business owners, I’m rethinking how we do things. Mortgage advisers are classed as essential businesses because the banks are still operating, so there are still clients needing advice and help to get the finance they need. But we’re doing business in an entirely new way – the whole team working from their homes and communicating with clients remotely. For the last couple of years, I’ve leased an office in a business hub in Burnside, but this whole experience has got me wondering: if we can offer the same standard of service from our homes, do we need that office? I’m sure I’m not the only one who’s asking these sorts of questions.

I am missing the team, though, and the energy that comes from working with a passionate group of people, so I’m sure I’ll be itching to get back to the office once the lockdown is over.

Another new business strategy I’ve tried for the first time during the lockdown is running a webinar. Our seminar programme has always been a key part of business for Loan Market Paramount – in fact, we originally had one scheduled for this month. But with in-person seminars now an impossibility, we joined many other businesses, running a webinar with Zoom. I invited Cameron Bagrie, former Chief Economist of the ANZ Bank and one of New Zealand’s top economists, to talk about what COVID-19 would mean for the NZ economy and property market. It was interesting to see how much of what he said reflected the realities that I’ve been seeing and talking about for the past six months.

Here in Christchurch, we are fortunate enough that our property market will be somewhat insulated from a lot of what is happening around the rest of New Zealand – and the world. Unlike other parts of the country, which have boomed on bank loans in recent times, here in Christchurch our big boom of late was based on insurance pay-outs following the earthquakes here. That puts us in a more solid position when times get tougher.

I anticipate that over the next few months we may well see little activity in the way of real estate sales volumes, but a lot of people will be renovating instead. It’s a natural consequence that if people decide to stay where they are rather than moving, they get interested in improving their current living space. Add to that, the fact that so many people are at home with time on their hands, thinking about what bothers them and what they’d like to improve around the house, and probably browsing online for inspiration. Evidence of this is the fact that in the first week of lockdown, we processed six applications for mortgage top-ups to obtain funds for renovations. As a result of this, tradies are going to be busy for the next six months – and that will have a flow-on effect to other parts of the local economy.

Current figures from our office, pre-lockdown, had mortgage applications for owner-occupied properties at about 70% of our business and applications for investment properties at about 30%. I think we’ll see this change over the next few months, as owner-occupied property transactions slow down but the investment property market keeps ticking along. With record-low interest rates and the availability of good-value property here in Christchurch (unlike the other main centres with their inflated property prices), those who have been considering a move into property investment are likely to continue with their plans fairly quickly after the lockdown concludes. At the end of the day, people still need somewhere to live, so rental properties remain a solid investment.

There has been a lot of talk about the drying-up of the Airbnb market due to travel restrictions and the fact that these properties will be going back into the long-term rental pool. One of my own clients has done exactly that: the property that was achieving $540/week as an Airbnb is now earning $410/week as a long-term rental. But there is still demand for good, solid family homes – not necessarily the types of properties that people were acquiring for the Airbnb market. Think standalone homes with their own garden in established neighbourhoods like Bishopdale or Redwood. In my view, you can’t go wrong with these types of properties.

If the timeline for the COVID-19 lockdown plays out as anticipated, I anticipate that next year the property market will bounce back, with buying and selling of owner-occupied properties ramping up again. For most people, buying and selling their family home is influenced by a whole lot of factors that are independent of ‘market trends’. My wife and I are currently thinking about buying a new home with a view to getting into school zones for our young children, so the market won’t affect what we’re doing.

On the downside, finance for developments and business lending has already tightened up and will remain tight for some time. We’ve had clients who fulfilled the criteria pre-COVID-19 and are now finding themselves unable to secure finance. But if businesses and investors can wait it out, I do anticipate massive growth in the manufacturing sector here in years to come. Manufacturing will become a more significant part of the NZ economy and here in Christchurch we have the space to accommodate this industry, so I expect to see job growth in this sector over the next three to five years. We’re also seeing the trend of people relocating from larger centres, i.e. Auckland, to the tune of about an application a week, and I believe that will continue as people re-evaluate their priorities.

Of course, we are living in uncertain times and these predictions are all just my view, but it is a view backed up by other economists. Whatever your own personal situation, if you are borrowing then make sure now, more than ever, that it is affordable. Think about the Plan B and don’t spend everything you have – lifestyle is a consideration, of course, but keeping a safety net of money in the bank is even more important. The COVID-19 lockdown has made that abundantly clear – people with money in the bank seem to be quite relaxed right now, so if you don’t have it now, build that nest-egg so you can be feeling comfortable the next time the market experiences a shock.

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