New Zealand is witnessing unprecedented increases in property values, with the median property value skyrocketing by 380% since the year 2000. This trend has been highlighted by CoreLogic, whose recent reports reveal stark contrasts across different regions.
One of the standout cases is Mackenzie District, where property values have surged by an astonishing 1074%, moving from $64,723 to $690,578. Other notable increases include Invercargill and Central Otago, both with rises of 775%, and Dunedin, which boasts a 500% increase, skyrocketing values from $101,872 to $611,180 since 2000.
Nick Goodall, CoreLogic’s head of research, points out the significant variances across the nation. "A 500% increase in Dunedin, compared to 262% in Wellington, does translate to quite different compound annual growth (CAGR) rates of 7.4% and 5.3% respectively," he stated. Goodall attributes part of this regional growth to lower starting prices, saying, "It was cheaper to start off with so has often been more affordable for potential buyers." This affordability has translated to notable yields for investors, particularly in areas with high rental prices supported by student populations.
Examining New Zealand's main centers, Goodall noted, "More recently Wellington is now the most affordable, as house price declines and still-high incomes have improved affordability." This shift emphasizes how differing property landscapes affect accessibility for homeowners and potential buyers.
While the compound annual growth rate nationwide stands at 6.5%, the NZX50 equity index marked annualized growth of 8.42% over the same period. Looking forward, Goodall projects residential property growth might slow to about 3% to 4% annually, aligning more closely with anticipated income developments. The reasoning behind this tempered outlook is multifaceted: land restrictions have eased, diminishing land value growth potential; interest rates, which plummeted from 20% to 5% over decades, likely cannot drop to such lows again; and meaningful income increases have contributed to rising property prices, especially since more households are now dual-income.
Goodall adds some speculative insight, noting, "One final speculative point would be... there will have to be a rebalancing of the tax take, toward wealth or capital gains and away from income." Should this occur, it could impose additional constraints on future residential property value hikes.
Dean Anderson, founder of Kernel Wealth, articulated property investment's appeal, particularly how New Zealanders leverage their investments. "The best-performing asset classes have been shares, property, bonds, and then cash," he says, highlighting the comfort many have with borrowing substantial amounts, such as 80%, to invest in property, increasing potential returns.
Yet Anderson concurs with Goodall's prediction of changing future trends, questioning, "Those numbers we've seen with house price growth over the past 20, 30, and 40 years – are they going to continue going forward?" Wellington's recent property evaluations reveal declines of 20% to 30%, underscoring property investment's inherent risks. "That is a really good reminder," he adds, "that property is not a one-way bet. To make a good investment return out of property isn't as easy as it used to be, you need a lot of capital, your cash flow is probably negative, and you’re really banking on some capital gains which are uncertain going forward."
The changing property market presents multiple challenges. Anderson points to increased property listings amid stagnant migration flows and relatively slower rent hikes. He emphasizes, "People are banking on hypothetical capital gains, which might not be as steep as they hope," which leads to questions about the viability of property as the dominant investment choice.
Identifying shifts in mindset, Anderson observes, "The next generation were struggling to get 10% or 20% to buy their own home, let alone an investment property." The increasing requirement for capital with negative cash flow challenges traditional attitudes. He concludes, "I think the capital required and the cash flow required have changed the game."
With property market trends shifting, the once unassailable notion of buying property as the ultimate investment is being re-evaluated. New Zealand’s experience shows how the dynamics of capital requirements, rental trends, and the market's overall health can redefine what successful investment truly means.