View from the regions – desperate times

Lifestyle Written by Paul Davey, Jan 8 2016

It’s a pretty well-known fact that Auckland’s property market has been on a strong price growth trajectory. A combination of low interest rates, low unemployment, high net immigration and constraints around available land has provided the fertile ground upon which Auckland’s house prices have steadily risen to record levels.

The Reserve Bank of New Zealand has introduced measures to try to curb this price growth that, alongside a fully priced market, has pushed property buyers out to other areas. It appears these buyers didn’t ride the train for too long though, as they have clearly chosen the next stops on the line as the places to put their money to work. Hamilton and Tauranga have both enjoyed considerable price appreciation, especially in the past 6 months, as Aucklanders muscle their way in to these relatively affordable markets. Taupo has seen a surge in sales volumes and prices are on the increase. The Western Bay of Plenty is feeding off Tauranga’s success and even Rotorua is getting in on the game.

You can see the attractions – sun, sand, surf, snow and bubbly mud. They’re great places to live, the lifestyle is relaxed and property prices are a fraction of those in Auckland. The regional economies are buoyant, despite the struggling dairy industry, with employment trends heading in the right direction.

One segment of the property market that is really feeling the pressure are the first home buyers. Younger people with low deposits and those on lower incomes are fighting a tough battle to secure a home. Sure, there are helping hands from Kiwisaver, Home Start Grants and Welcome Home Loans, but those measures are getting outdone by the surge in property prices created by hot demand.

Many of these properties are getting sold at auction. In the regions outside of Auckland, local buyers, desperate to get a foot on the ladder before it’s too late, are hurriedly organising building reports, completing valuations and arranging finance; all of which are time consuming and cost money. They then attend the auction, but find they are priced out of the running by cashed-up Auckland buyers. This process can be repeated many times, creating frustration or even desperation.

Desperate times call for desperate measures, right? We’re seeing local buyers getting bullied into signing unconditional contracts in order to secure a deal before the auction or in negotiation. Often these buyers have not completed the appropriate due diligence and end up taking substantial risks by not including protective conditions in the Sale and Purchase Agreement. A major risk is that the bank often has to approve the security before a finance offer becomes completely unconditional. This may require a registered valuation at or above a specified value. If the bank is iffy on the security, they won’t advance the loan and you run the risk of losing your deposit. That is not cool. 

The upshot of it all is that no matter how desperate you are to purchase a home, you should not be compelled to enter into an unconditional agreement until you are satisfied you’re making an informed and comfortable decision. Always include a finance condition and a general due diligence clause and always consult with your solicitor first. It’s a big decision you’re entering into; you deserve the right to be allowed the time to think, consult and cool off.

Remember, your Squirrel Mortgage Adviser is there for you every step of the way. We’re on your side.

We can help. Have a chat to one of our advisers.