New Zealand’s property market and its funding requirements are in for a challenging year.
I’m excited to share my top five predictions for New Zealand’s property market to help both
lenders and borrowers understand and navigate the market in 2024.
1. The Official Cash Rate (OCR) Will Drop
According to our team at Finbase, the OCR is likely to decrease following the April review, as recent data reveals a GDP contraction of 0.3%, subtly indicating a recession. Inflation rates are predicted to stabilize at or below 5%, offering room for further interest rate cuts.
This adjustment is all but certain, and it will reflect a strategic response to the current economic landscape.
2. Modest Growth in Property Prices Amidst Economic Recovery
With the easing of the OCR, consumer confidence in property investment is likely to grow. However, we forecast a restrained property price increase of 5-7% across 2024. While the market shows signs of recovery, the actual financial gains for property investors will be marginal when considering the increase in the costs of rates, insurance, and maintenance.
3. Stricter Debt Servicing Requirements Will Impact Investors
Debt servicing remains a significant hurdle for prospective property investors, especially in the bank lending sector. Net cash flows for investors are weak, often tipping into the negative. Those in need of funding, especially those unable to gain it from banks, will look to other sources. To mitigate risk, businesses that provide alternative access to streams of capital, such as first mortgage lending, will need to focus their due diligence on both the borrower and the realisable underlying value of the security.
4. Focus on Cash-Flow Generating Assets
Investors increasingly recognise the value of, and have a desire for, investments that generate steady cash flow, as opposed to taking on more risk in the property market. They will divest from their property portfolios, a departure from the pre-2022 focus on capital gains.
5. Refinancing Trends and Fixed Rate Projections
We have already observed a significant refinancing trend among investors seeking to downsize their property portfolios, particularly those with main bank lending. Banks are increasingly demanding full repayment from property sales. Additionally, we predict that the main bank one year fixed rates will be around 6.7-6.9% by December 2024.
Finbase offers wholesale investors attractive returns that are secured by first ranking mortgages over New Zealand Real Estate.
For more information contact our portfolio managers:
Pernell Callaghan Hayden Thompson
021 143 4291 021 253 7816