Exploring the long term effect of Covid-19 for the New Zealand economy

Some would say the real estate market is fickle! History tells us that over the years there have been highs and lows in the market dictated largely by supply and demand and of course the availability of finance and the cost of borrowing.There are many other influencing factors also contributing to the cyclical nature of real estate, none more so than COVID-19. Market fluctuations are generally expected though and accepted by homeowners and property investors. Most property owners will agree with Tommy’s ongoing message that owning real estate should be viewed as a medium to long term venture which allows property owners to ride out the troughs in the market and reap the benefits of capital gains in the longer term. Tommy’s has thousands of clients that we have guided into homeownership over the last 20 plus years. These people have in most instances, subscribed to this medium/long term mantra and many have accumulated extensive and highly profitable property portfolios. Following the coronavirus lockdown period, there was a lot of second-guessing as to what trends would emerge from the gloom surrounding the economy with many reputable economists and market commentators predicting a drop in residential property values by perhaps as much as 10%. This may be the case in some locations but from our perspective at Tommy’s, significant price reductions have not been apparent from our sales in the Wellington City and suburbs.

The Real Estate Institute’s 30^th June Market Confidence Report stated, “May revealed that the number of properties sold has progressively increased throughout the month and listings showed solid signs of starting to return to more normal levels. The number of properties sold nation-wide during May increased steadily throughout the month from 355 in the first seven days of the month, ending with 1372 sales in the last week of May.” June statistics are not available at the time of preparing this article but the May trend is likely to continue despite the fact we are now in the middle of winter, a time when we normally expect some reduction in market activity. Tommy’s remains optimistic about the NZ real estate market and particularly in our favoured Wellington market place. However, we are not blind to the fact that the shadow of coronavirus still looms over us with a number of scenarios yet to unfold that may have an impact on the future well- being of the real estate market and the wider economy. In our view, the next few months will give a clearer indication of how serious the long term effects of the virus will be for New Zealand. We see the following issues as being critical considerations that will determine the prosperity of the country and its people over the next few years.

We are only a few weeks away from a general election. Historically home buyers and sellers are known to ‘sit on the fence’ in the lead up to an election so this may impact on the level of real estate sales. Conversely, the major parties are likely to be offering new housing packages that attract votes.
Wage subsidies are coming to an end and this will have a bearing on ongoing job retention for many. Real estate activity is likely to suffer if large numbers of employees are faced with redundancies.
Unemployment is already a serious issue and may get worse. 1000+ jobs lost at Tiwai Point is a classic case of how a family’s life can be turned upside-down overnight. This will have a huge impact on the Southland economy with many likely to seek employment elsewhere.
Mortgage holidays all have a finite term. They have been a saviour for many homeowners but retention of homes for some once the mortgage holiday is over will hinge on continuing employment.
With an aging population there is an increasing need for more retirement village and rest home accommodation. It is understood that the current rest home population in New Zealand is around 45,000 and it is reported that the ‘Big 6’ retirement village operators are in the process of planning or building a further 11,900 units. This will free up a significant number of existing homes and will assist a marketplace that is still a long way short of supply meeting demand.
Large numbers of Kiwis are returning home from overseas. While many of these people will have gained qualifications and work experience overseas that will be beneficial in the workplace, they will add to the competition for employment and for already short housing supply.
During and subsequent to the lockdown, Tommy’s has negotiated the sale of a number of yet to be built apartments from plans and specifications. This is a market that is popular for those seeking an inner-city lifestyle and also offers an opportunity for first home buyers. Paying a deposit now and waiting for building to be completed in 1 to 2 years’ time also has the advantage of providing more time to save funds thereby reducing the amount of borrowed finance.

There is no disputing that we are in changing times and the impact of COVID-19 will be apparent for some time to come. Some businesses are recovering more quickly than was expected, but for others, it will be a slower and more painful process. For anyone in the market to buy, sell or rent a home and needing guidance, Tommy’s invite you to give us a call without obligation. We are here to help.