Is Wellington set for another property boom?

Good old Wellington, with it’s slow & steady real estate market that sets us apart from the rest of the Country. We don’t have the big ups and downs of Auckland but we truck along quietly in the background with house prices that seem to show so much promise but deliver so little capital gain (over the last 7 years at least).

I started in real estate in 2007 when the market was really moving. It felt like if you didn’t buy at that time, the prices would be 5-10% higher 6 months later – and everybody bought into the hype and said “Prices won’t drop”.

Then in 2008 the global financial crisis hit and everything went South. North Wellington was one of the least-affected areas though with sale prices dropping around 5-10% at most. Since then the market has slowly recovered that loss (over 7 years) and crept along slowly, barely keeping up with the rate of inflation while the other main centres experience a massive surge in prices – Christchurch due to a massive supply shortage after the quake and Auckland largely due to huge net migration numbers.

I regularly speak to Aucklanders who tell me things like: “My property went up in value $700k last year” (in my mind I’m thinking: “what a jerk”). Meanwhile I get excited about a home in Newlands that sells for $60k more than it did 6 years ago #winning.

A number of Wellington property owners I have worked with during the last few years have ended up selling, out of what simply seemed like boredom at the lack of capital growth on offer in our fair City.

So when will Wellington property prices start moving again? When will the Council need to start doing RV updates every year again just to keep up with values in the area? (Those were the days!)

Before I give my answer let me just say this: I know us real estate professionals are like a broken record. If I had a dollar for every time I had a flyer in my letterbox telling me “It’s a great time to sell!!!!” (complete with 4 exclamation marks) I would be a rich man. We constantly talk about how great the market is even when we can’t give houses away, so why would you believe what we say anyway? It’s a fair point so I’m going to bring in some external help to make my case, maybe even throw in a few charts to make you feel better ūüôā

Are we about to see double digit capital growth each year in Wellington?

In my humble opinion, yes. In fact I believe the boom market has already begun.

According to Stats provided by the Real Estate Institute of NZ, the current median sale price in Northern Wellington is $480k, up 5% in 12 months and up 35% over the past 10 years. 5% is respectable but this certainly isn’t going to lead to house prices doubling every 10 years (like they supposedly have done since the Magna Carta was signed in 1215).

The only problem with these stats and those provided by QV is always the lag time. They are based on sales which happened months ago (it is my understanding that QV stats are based on settled sales and it can take 3/4 months for settlement to occur after a price is actually agreed). In real estate we always talk about what is happening at the ‘coalface’. What are the sales that are occurring today, yesterday, last week and what can they tell us about the market?

Note: You won’t find these in any newspaper article or property magazine so always remember anything you read in the Dom Post is a few months old before it even gets there.

Valuers call me every week to find out what has just sold because they know that these sales will tell them exactly what is happening in the market right now, not what happened 3 months ago.

Here is what I am seeing ‘at the coalface’…

– Standard¬†60’s, 3 bedroom, 1 bathroom houses in Newlands & Johnsonville that sold for $380 – 420k a few years ago are now consistently selling for $440 – 480k.

– Doer uppers in the same areas are now selling for $380 – 420k instead of $330 – 350k.

– The days of buying anything standalone under $350k in the Northern Suburbs appear to be over.

– Modern homes with double glazing are starting at around $550k (for 3 bedrooms & 1-2 bathrooms) if you can find them.

– Spacious 4 bedroom homes in Johnsonville are now regularly selling over $600k. This was unheard of 2-3 years ago.

– A flat section in Johnsonville (545sqm) sold earlier this year for over $300k. That’s just the land.

– Current RV’s are now 14 – 15% too low on average depending on which area you are looking at and a number of properties have sold 30 – 40% over their RV’s in the last 6 months.

You won’t hear about these sales in the paper but this is what has been happening over the last 6 months.

What’s causing this jump in prices you ask?

1. Kiwisaver

Young couples are now finding they have $30 Р60k between them when they combine their kiwisaver accounts and it starts burning a hole in their pockets. Young people are terrible at saving at the best of times so when you tell them they have $60k in the bank and they can either spend it right now on a house (the kiwi dream) or forget about it until they are 65, guess which option they are going to choose? When you add in the home start grant (adding $5 Р10k for buyers up to $450k) there are suddenly so many more young first home buyers out there who would have struggled to save a 10-20% deposit any other way.

2. Shortage of property on the market

The lack of new, smaller, single level homes available to suit retiring couples is seriously affecting our real estate market. There are thousands of empty-nesters stuck in cold, old damp homes all around Wellington with very little money to spare to do them up, and nowhere to move to. They aren’t ready for a retirement home yet but where can they find a decent, warm, single level newish home to buy? (without moving to Waikanae or further North – sorry, no offense intended to Waikanaeians). I recently wrote a post about this – check it out here.

3. Flow on effect from Auckland

All the old-timers in our office tell us that Wellington’s real estate market always follows Auckland, and Auckland always follows Sydney. I can see the Auckland follows Sydney part taking effect but I’m still waiting for good old Wellington to jump on the bandwagon and do it’s part.

4. Cost of living / lifestyle

As Auckland becomes more and more un-affordable more people will start moving to Wellington (or staying in Wellington). My wife moved down from Auckland a few years ago and was pleasantly surprised by the laid back feel of Wellington, the lack of traffic and the fact that people actually said hello to her in the Street. She still hates the Wind but hey, you can’t have everything in life!

Now it’s time to bring in the big-hitters…

According to this recent article by Collette Devlin, featured on Stuff, Wellington properties have been identified as having the best long-term value in the Country! How good is that???

(“See babe, I knew we were right to stay in Wellington!”)

In the same article, BNZ Chief Economist Tony Alexander was quoted as saying…

“If you gave me $10 million and said go forth and buy a bunch of houses you reckon will produce the best capital gains in the next five years, where would I look? I would sink it into Wellington, Hamilton, Tauranga and a bit in Nelson.”

“The ability to buy a reasonably priced house to raise a family, the fact few head offices are planning to shoot north now, the coming long-term benefits of the Transmission Gully Motorway, IT sector, culture, runway lengthening and the film sector.”

That’s good enough for me. I have always been a big fan of Tony’s work and he just went even further up in my books.

Now for a chart or 3 (for all you analytical ones out there)

On Tuesday last week I had the privilege of listening to Bernard Hickey (@bernardchickey) speak at the Harcourts Top 100 Forum in Queenstown. 3 charts he showed us caught my attention…


1. Net Migration numbers compared against Auckland house price growth:

migration house price chart

I know it’s Auckland but looking at that chart it would appear to me that net migration appears to be a key factor in house price growth. According to Statistics NZ, in¬†July 2015, seasonally adjusted¬†figures showed a record net gain of 5,700 migrants!

And some of these people have a lot of money, which leads me to the next 2 charts Bernard showed us:


2. Overseas property investment in Australia
Note: We don’t keep these figures in NZ for some strange reason so Australia is our best comparison…

overseas buyers in australia


Damn, that is a big jump!


3. Bank Deposits in China.
People in China have loads of money in the bank and more and more of it is likely to come this way to buy assets (or just somewhere to say during those “clean-air destination holidays”).

bank deposits in china


In conclusion…

New Zealand is a great place to live and the world is starting to catch on. Wellington is already feeling the flow on effects and this should continue for some time to come. Personally I am excited to see what happens to our local property market over the next 3-5 years. Fun times ahead!

Best wishes,

Andrew Duncan

Every morning you have two choices – continue to sleep with your dreams, or wake up and chase them.—————————————————
  1. Hi Andrew
    3and half month had past, I reckon you had proved what you said on August
    In reply to Anna from above
    As an auckland based investor I had maked a sellout to my properties at manukau before 1 October not purely because of the capital gain but the lower yield when considering the current value, they went up by 45% in two and half years on average , Wellington is my second and final destination where I am building my perfolio, luckly i was able to bought a dozen rentals before October at no lower than 7.5% return and most of then on a flat ground. Aucklanders do not lack of capital especially when bank offering 4.6% for five years long term mortgage. Wellington become a destination for hot money inflow. Sydney auckland Wellington to me is like cherry vs blue berry vs strawberry. You see the value all the way down but still surpreme fruit.
    Be aware of this
    A serious investor buy 10-20 properties at a time. Then of them will wash out 100-200 properties out of Wellington which will cause inbalance and lots movement of tenants.
    Non local preferred arrears in Wellington: johnonville, lower hutt, miramar and other flat suburbs, Duncan’s career looks positive in the next couple years based in johnsonville as this suburb has enough stock than others

  2. People who have invested in Wellington have an invested interest in maintaining or increasing property prices in Wellington so i’m somewhat skeptical. Those who stand to profit from property prices always try to maintain enthusiasm and confidence. Property value is massively influenced by psychological factors, so if you can keep the potential buyers feeling an anxiety to buy before prices increase, you can inflate prices that little bit further.

    Wellington might well not suffer the extremes that Auckland does but far more statistics have come out recently to suggest that Wellington prices have stalled or declined recently rather than increased. What you refer to on the “coalface” was probably the extent to the Wellington property inflation and now it is slowing and may now even reverse a little.

    As for a contagion from Sydney to Auckland to Wellington. Sydney prices are dropping and sales have slowed. Auckland’s most recent statistics also show property inflation slowing so if your theory is correct, then a slow down in Wellington would be expected not something heating up. A slight seasonal surge in summer does not indicate relative value increase.

    Personally, I would put my money on Wellington as a safe but modest bet. Not because there will be huge increases but because their won’t be huge losses either. Bets are off on Auckland as whilst foreign investment from Asia might be cooling, investment from Canada and USA, might well increase, as it has in several European cities.

  3. This has certainly been my experience in the small amount of time I’ve been here in the Wellington city market – good houses in good areas are going up at quite a rate. The median house price across the board may not move so much, but apartment values have been flat or dropping up until now, so they were holding back the stats. We’re starting to see apartments move again now, so I think the stats in 3-4 months time will reflect a little lift over the winter months.

    1. Thanks for your comment Mike. Good point about the apartment sales bringing down the median. I didn’t think of that but it makes a lot of sense. It will be interesting to see if there is any movement in the ‘official’ stats in 3-4 months time.

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