Property prices could go backwards: QV

Quotable Value’s latest statistics show that the residential property market continues to slow. It now says that growth could disappear altogether this year and some areas could go backwards.

Monday, February 11th 2008, 12:00AM

by The Landlord

QV's January statistics for the residential property market reveal another drop in value growth – to 8.9%; down on the 10% growth reported in December.

QV spokesperson Blue Hancock says year on year growth, while still positive, has “slowed rapidly”.

“If the easing continues we would expect to see growth flatten to the point where there is no annual gain in value.”

QV Valuations’ David Paterson foresees this happening this year, possibly over winter, and believes there will be negative growth in some areas. “People have to realise we’ve been through a sustained period of growth, and every property cycle has its ups and downs.”

One factor that Paterson says would have the effect of dropping values is any shake-up of the tax treatment of rental properties, if this is back on the political agenda.

Hancock says over the past three months QV has observed many areas across the country where the growth in property values is static.

QV valuers are increasingly reporting properties going to mortgagee sale, and are expecting the number of these sales to increase as the year progresses. However Paterson does not think mortgagee sale numbers are a significant influence on the market at this stage – because “people can still sell and retain their value”.

Values aren’t dropping per se, Paterson emphasises – it’s just that the growth QV is reporting is easing. Even those struggling financially are going to be able to sell the house before it gets to a mortgagee sale situation, he says.

“Higher mortgage interest rates are affecting property owners on low discretionary incomes. Also affected are those who have highly geared investment property portfolios as they come off fixed term mortgages and have to re-negotiate at much higher interest rate levels,” says Hancock.

Interest rates aside, Paterson cites affordability issues and high cost of living – fuel and food prices – as factors working against property value growth.

All the major cities recorded easing growth in property values, with Wellington recording the highest annual growth of 10.6%, down from 11.4% last month. Auckland City eased to 7.9% from 9.1%, Christchurch slowed from 8.2% to 6.9%, Dunedin dropped from 6.9% to 6.1%, and Tauranga also decreased from 5% to 3.4%.

Hamilton dropped significantly from 11.8% to 8.3%. Paterson says until October 2007, growth in Hamilton was higher than in most other main centres – possibly because of the dairy influence – but now the area is struck by drought. Production levels will be down, so rather than putting their money into investments properties, farmers may be thinking that they need to buy additional stock feed.