It’s a beautiful early spring Hawke’s Bay day. Crisp morning, maybe a few degrees. Breathless. The sun came up a while ago but the etched memory of winter keeps most people indoors – apart from a few keen joggers and dog-walkers. Gradually the sun gathers momentum and starts poking through windows it hasn’t pierced at this time of day since May.
The property market feels much the same way. Cold, lifeless, hibernating – but with winds of change on the horizon. Winter 2024 has been tough, but then it’s been a bit tough for a while according to the numbers. Since 2021 agents have been seeing fewer buyers show up at auctions and open homes and house prices have been falling[1]. FOOP – a word that would not seem out of place in a Gen Z dictionary – has been dictating the property market ever since. It is the fear of overpaying for a property – the antithesis of the fear of missing out (FOMO) which had such a stronghold over the property market in the Covid era. These two property market dynamics oscillate like the atmospheric seasons of El Nino and La Nina.
They say that property ownership is all about time in the market – the longer you stay in, the less relevant the cyclical highs and lows become. This has proven over time to be true. But the opposite can apply when you’re a developer. Timing the market is just as important, and lately, it hasn’t been the best of times. Along with a good dose of FOOP driving lower demand for properties, developers have been paddling upstream against high interest rates, continued high construction costs, ever-mounting compliance and bureaucracy, and then of course the weather.
But the dial does appear to be starting to turn and we could be looking at a Spring property recovery. It’s amazing what one little 25-basis point cut to the Official Cash Rate can do. It’s a sudden beam of sunlight into an otherwise grey day. REINZ stated in their July 2024 report that there was a flurry of sales activity not typically seen in late winter. The numbers were compelling – 14.5% more properties were sold this July compared to last July, and 19.7% more properties were sold compared to June[2]. Of course, it’s early days, and the increased volume of sales has not yet equated to higher sale prices overall. However, all signals currently point to further interest rate cuts, from which it is reasonable to expect higher demand for property, eventually leading to higher property prices.
So are we out of the property market doldrums and heading for a Spring property recovery? It’s probably too early to say for sure. But there’s a hint of spring in the air, and that can’t be a bad thing. Like Florence + The Machine once said, it’s always darkest before the dawn.
Killarney Capital supports developers in all market conditions, and we’ve continued to back good developers with good deals throughout the last three years. Talk to one of us if you have a development that you are looking to get underway.
[1] REINZ & Tony Alexander Real Estate Survey, August 2024
[2] REINZ New Zealand Property Report, July 2024 (published 20 August 2024)