National property future firm

Property agencies are forecasting another buoyant year for landlords and commercial transactions.

The Bayleys survey of economists, property analysts, business leaders and politicians pointed to slower growth in the commercial property market.

They suggested commercial property was at or near the top of the cycle but there was a long tail yet.

Wellington’s commercial property market benefited from the November 2016 earthquakes which reduced the building stock and improved vacancy levels.

Tenants wanted security and safety and there would be rent differences between buildings as a result, ASB chief economist Nick Tuffley said.

Tom Hooper, chief executive of the Canterbury Development Corporation said it was a tenants’ market in the office sector in Christchurch currently due to the post-2011 earthquake rebuild.

Jim Boult, mayor of Queenstown said there were good prospects in the accommodation sector in the tourist town.

The majority of the respondents believed credit tightening, rising construction costs, uncertainty about the general election, and President’s Trump’s effect on the Asia-Pacific region could have a negative effect.

Rising interest rates were likely to put an end to the long run of firm yields that have benefited sellers of property, Bayleys national director commercial and industrial said.

Industrial and retail landlords should continue to do well, whereas the outlook for landlords in the office sector was more uncertain, with a significant amount of supply coming on stream, driving a competitive leasing market and keeping rents in check, according to Owen Batchelor, vice president of equity research at First Capital New Zealand.

The Crockers outlook commissioned from forecaster Infometrics was focused more on residential landlords and predicted net immigration will continue to rise to a record 72,000 by the middle of the year before easing in mid-2018 to about 64,000 people.

The higher numbers will drive the property market over the next 12 months, Infometrics said.

In the next few weeks and months the average interest rate paid by all mortgage holders will decrease as higher fixed term rates expire. But this will be temporary as owners renew at higher rates.

Infometrics expected interest rates to drift higher during the year with one and two-year rates climbing to 5.2 per cent by early 2018.

Residential rents were continuing to rise faster in the regions than Auckland where the growth had slowed to 3.3 per cent, below the national average of 4 per cent.

However, some outerlying areas like Rodney and Franklin were experiencing rent inflation of up to 10 per cent.

Recent signs of a pick up in house prices signalled a fall in rental yields for landlords (houses become more expensive relative to the rent).

House price inflation was likely to remain relatively strong with Infometrics predicting a rally later this year and in 2018 as the effects of loan restrictions wears off.

But rises will be tempered by the ability of households to pay ‘‘unstainable’’ prices which by December 2017 will be greater than during the lead up to the 2007 financial crash, Infometrics said.

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