Quarterly Property Market & Economic Update - New Zealand | COVID-19 special edition - CoreLogic

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Quarterly Property Market & Economic Update - New Zealand | COVID-19 special edition - CoreLogic
Quarterly Property Market
& Economic Update
New Zealand | COVID-19 special edition
Quarter 2, 2020
Quarterly Property Market & Economic Update - New Zealand | COVID-19 special edition - CoreLogic
Table of Contents
    About CoreLogic.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 3
    Executive Summary.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 4
    Macro Economic and Demographic Indicators.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 5
            New Zealand Asset Classes .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 6
            New Zealand and Australia GDP Growth. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 7
            New Zealand Population and Migration. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 8
            Regional Building Consents .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 10
            Consumer Confidence.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 10
            Employment .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 11
            Interest Rates .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 12
    Housing Overview .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 13
            Early Property Market Indicators .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 14
            Listings.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 15
            Lending conditions. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 17
            Sales Volumes.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 18
            Nationwide Values .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 19
            House Price Index .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 20
            Rent.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 23
            Buyer Classification .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 24
    Main Cities Housing Market Indicators. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 25
            Auckland Market Activity. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 26
            Auckland Values .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 27
            Current Auckland Suburb Values .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 28
            Hamilton Market Activity. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 30
            Hamilton Values .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 31
            Tauranga Market Activity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
            Tauranga Values.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 33
            Wellington Market Activity .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 34
             Wellington Values.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 35
             Christchurch Market Activity.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 36
             Greater Christchurch Values .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 37
             Dunedin Market Activity.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 38
             Dunedin Values. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 39
    CoreLogic Data and Analytics .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 40
             Legal Disclaimer .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 42
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Quarterly Property Market & Economic Update - New Zealand | COVID-19 special edition - CoreLogic
About CoreLogic

CoreLogic is a leading property information, analytics and               Contact
services provider in the United States, Australia and New Zealand.
                                                                         Call us 0800 355 355
CoreLogic helps clients identify and manage growth opportunities,
improve performance and mitigate risk, by providing clients with         Wellington office
innovative, technology-based services and access to rich data            Level 2, 275 Cuba Street
and analytics.                                                           PO Box 4072
                                                                         Wellington 6140
Whilst all reasonable effort is made to ensure the information in this
publication is current, CoreLogic does not warrant the accuracy,         Auckland office
currency or completeness of the data and commentary contained in         Level 5
this publication and to the full extent not prohibited by law excludes   41 Shortland Street
all loss or damage arising in connection with the data and               Auckland 1010
commentary contained in this publication.                                Email: reports@corelogic.co.nz

                                                                         corelogic.co.nz                  3
Quarterly Property Market & Economic Update - New Zealand | COVID-19 special edition - CoreLogic
Executive Summary
    COVID-19 special edition
    It’s obviously been an unprecedented year for the        to undermine the property market. At the same
    economy and property market so far in 2020, and          time, the normal seasonal rise in listings will be
    unfortunately we’re not out of the woods yet. Even       upon us at that time too, which will be a test for
    so, we’ve been wary of some of the doom and gloom        the strength of demand. And in addition, mortgage
    out there, because there are factors that could see a    payment deferrals could potentially have more or
    brighter property market outlook than some expect        less ended by then as well. September’s General
    – e.g. look at the large inflows of kiwis returning      Election is another potential driver of property
    home to live, potentially with equity to put to work     market uncertainty.
    in the housing market (but even if they go renting,
    that’s still extra housing demand). Similarly, housing   In terms of the recent buyer mix, first home buyers
    affordability looks more favourable than it did when     have remained a solid presence in the market, but
    we entered the GFC, thanks to higher household           the more significant shifts in market share have
    incomes and very low mortgage rates this                 come from investors, both mortgaged and cash.
    time around.                                             To be fair, some of that rise in percentage market
                                                             share (especially for cash investors) has been
    That said, there’s no denying that the economic          because of sharper falls in the number of purchases
    outlook remains weak. GDP is set to fall by 6-7%         by other groups, who have had to meet higher
    this year and unemployment is expected to peak at        standards to secure a mortgage (which isn’t an issue
    close to 10% - a level not seen since the early 1990s.   for cash buyers). However, there is also likely to have
    Meanwhile, the extra government debt that’s been         been some genuine ‘bargain hunting’ by investors,
    incurred in recent months could prove to be a long       which has helped their market share to hold up.
    term restraint on the economy, as we potentially         One factor that will have reassured some investors
    face higher taxes to keep the debt servicing in check.   in traditional long-term rental properties is that the
                                                             feared flood of short-term Airbnb-type holiday lets
    But as noted, it’s not all doom and gloom. For           onto the market (as tourism flows collapsed) hasn’t
    example, the NZ Activity Index recently developed        happened to any great degree so far.
    by the Reserve Bank, Treasury, and Statistics NZ
    showed that economic activity in June weighted           Overall, property sales volumes could only be
    across a range of measures was only 1% below a           about 70,000 this year, roughly 20% below 2019’s
    year ago (despite no international tourism). That        level. However, in terms of prices, we suspect that
    return to ‘normality’ has also been seen in the          any falls will be smaller than in the Global Financial
    housing market, with agent appraisals, banks’            Crisis (GFC), when the national average fell by 10%.
    valuations ordering activity, new listings (both         After all, we entered this episode with mortgage
    for rent and sale), mortgage lending, and property       rates much lower and affordability looking better
    sales all improving and holding at seasonally            than in 2007-08, banks in a stronger position to
    normal levels recently.                                  continue lending, and generally speaking more
                                                             households with more equity in their homes (due
    What’s more, given that we entered lockdown              to the previous loan to value ratio speed limits).
    with a low number of total listings available on the     This means that the risks of negative equity are
    market, the return of buyers as we subsequently          reduced. Our projection is that average values might
    moved down the alert levels has seen the supply/         fall by 5-7% in this downturn, which is obviously not
    demand balance remain relatively tight, in turn          welcome for property owners, but a benefit to
    supporting property prices. That said, there were        would-be buyers.
    nevertheless emerging signs of weakness in our
    preliminary quarterly house price index for Q2, and      As always, we keep a running monitor on the
    given the downside risks to the economy, it wouldn’t     property market every week via our NZ Property
    be a surprise to see clearer evidence of house           Market Pulse articles, so be sure to check these out
    price falls later in 2020.                               on our website http://www.corelogic.co.nz/
                                                             news-research/all-news/. Our podcast is also a
    Indeed, the wage subsidy is now scheduled to end         great source of data and commentary: https://
    on 1st September and that seems likely to drive a        corelogicnzpropertymarket.buzzsprout.com/.
    ‘second round’ of job losses, which in turn will tend
4                                                                                                                4
Quarterly Property Market & Economic Update - New Zealand | COVID-19 special edition - CoreLogic
Macro Economic and
Demographic Indicators

                         5
Quarterly Property Market & Economic Update - New Zealand | COVID-19 special edition - CoreLogic
New Zealand Asset Classes

                          RESIDENTIAL REAL ESTATE

                          $1.22 trillion
                          $284 billion in home loans

                          COMMERCIAL/INDUSTRIAL REAL ESTATE

                          $227 billion
                          NZ LISTED STOCKS

                          $165 billion
                          NZ SUPER & KIWISAVER

                          $109 billion

    The value of residential property across the country eroded slightly in Q2, totalling $1.22 trillion, with
    mortgages secured against 23% of this value. In other words, 77% of the value of the property market
    is household equity. However, it’s also important to note that household debt is high relative to income,
    and to some extent the debt has only been sustainable in recent years because of low mortgage rates.

    The period from April to June was clearly a unique time for the world and financial markets, and the value
    of shares and pooled investment funds dropped early on. However, more recently, sharemarkets have
    rebounded and the value of the NZX is now pretty much back to where it was in late March (pre-lockdown).

6   Sources: CoreLogic NZ, Reserve Bank of NZ, NZX, NZ Super Fund                                                6
Quarterly Property Market & Economic Update - New Zealand | COVID-19 special edition - CoreLogic
New Zealand and Australia GDP growth
Annual Average GDP Growth (%)
8
                                                      New Zealand
7                                                     Australia

6

5

4

3

2

1

0

-1

-2

-3
 1990          1994      1998        2002   2006     2010         2014   2018

Annual Change in New Zealand Activity Index and GDP (%)
10%

 5%

 0%

                 NZ Activity Index
 -5%
                 GDP (annual average)

-10%

-15%

-20%
        2004                2008             2012                 2016          2020

New Zealand’s GDP dropped by 1.6% in Q1 2020, the largest decline in 29 years. COVID-related travel restrictions made
a significant contribution to the drop in economic activity in Q1, although continued drought in some parts of the
country was a factor too.

Given lockdown for most of April and restricted activity in May too, Q2’s GDP figures (released mid-September) will
also show a fall – meaning that we are currently in a recession. Indeed, the freshly-released New Zealand Activity
Index (NZAC) indicated that activity was down by 19% year-on-year in April and by 6% in May (albeit only by 1% in June).
Government support such as the wage subsidy will have limited the extent of recession so far, but was never going to
prevent it altogether.

Ultimately, GDP is anticipated to fall by 6-7% this year, and the size of the economy will be restricted for some time to
come by the absence of international tourists.

Source: Reserve Bank of New Zealand, Statistics NZ                                                                          7
Quarterly Property Market & Economic Update - New Zealand | COVID-19 special edition - CoreLogic
NZ Population and Migration
    Quarterly Change in National                                    Population Change Composition
    Population (persons per quarter)                                (persons per quarter)
    40000                                                           35000

                     Quarterly population change
    35000                                                           30000               Natural increase
                     4 quarter moving average
                                                                                        Net migration
    30000                                                           25000

    25000                                                           20000

    20000                                                           15000

                                                                    10000
    15000

                                                                      5000
    10000
                                                                        0
     5000
                                                                     -5000
       0
            1991          2000                  2009       2018     -10000
                                                                             1996                   2005         2014

    Annual Change in Population (persons)

        76,000

                          24,400

                                                   5,300    3,900                   3,600
                                                                                                        1,400    1,200

    New Zealand         Auckland           Christchurch    Tauranga           Hamilton             Wellington   Dunedin

    National population growth accelerated in the first quarter of 2020, rising from an annual rate of 1.7% in Q4
    2019 to 2.0% – the highest since Q4 2016. This meant that our population has now surpassed the 5m mark.

    As ever, the natural rate of increase (births minus deaths) remains pretty steady, leaving migration as the
    most important driver of upswings and downswings in overall population change (and hence property
    demand). Indeed, net migration has increased in recent months as many non-citizens who might otherwise
    have left NZ have had to stay instead. At the same time, more kiwis have been staying home instead of
    making a move overseas, and there’s also been an influx of kiwis returning back from overseas.

    Early in lockdown, it was assumed by some commentators that net migration would drop off sharply in the
    coming months and remove a key support for the property market. However, with as many as 1m kiwis living
    overseas, these ‘returners’ to NZ could prop up our overall net migration balance for some time to come, and
    in turn bolster property demand, whether that be for owner-occupation or renting.

8   Sources: Statistics New Zealand
Long term migration (12-month rolling totals)
200,000
                                 Net
                                 Arrivals
                                 Departures
150,000

100,000

 50,000

       0

-50,000
           2002              2006             2010     2014   2018

Comparison of old and new net migration series (12-month rolling totals)
100,000

                                          Old method
 80,000                                   New method

 60,000

 40,000

 20,000

       0

-20,000

-40,000
        2002                2006              2010     2014   2018

Source: Statistics New Zealand                                             9
Regional Building Consents
     New dwelling consents trend                                              The construction sector has taken a significant hit from
     (consents per month)                                                     COVID-19, with many projects being put on hold over
                                                                              lockdown and some of the larger firms already laying
     1,600
                                                 Auckland Region              off staff. Indeed, the number of new residential dwelling
     1,400                                       Waikato Region
                                                 Wellington Region            consents issued in March was down by 8% compared
     1,200                                       Canterbury Region
                                                 Rest of NI
                                                                              to a year earlier, followed by a 17% drop in April. May’s
     1,000
                                                 Rest of SI                   figure was an improvement, but the annual decline still
                                                                              came in at 5%. We’ve clearly now passed the peak for
      800
                                                                              consents in this cycle (annual total of 37,882 in the
      600
                                                                              February 2020 year), but given the very high starting
      400                                                                     point, it’ll be a long time before the falls return the
      200                                                                     number of consents to ‘normal’.

           0
            1995   1999   2003     2007          2011      2015        2019
                                                                              Indeed, the large upswing in dwelling consents seen
                                                                              prior to COVID-19 means that builders still have a solid
     Sources: Statistics New Zealand                                          pipeline of work for a number of months yet, potentially

     carrying them through into 2021. However, as the recession bites and unemployment rises, fewer households
     will have the confidence or ability to build a new home, so next year could be much more sluggish for
     builders. Any tightening by the banks in terms of finance for construction would be an added pressure.

     Longer term, however, our population is likely to continue to grow steadily and the existing shortages
     of affordable property in some parts of the country will still need to be remedied too. A key trend prior to
     lockdown was the construction of smaller dwellings, such as townhouses and apartments, and this is likely
     to remain a feature post-lockdown too, as a more intensified housing stock becomes more important.

     Meanwhile, alterations & additions activity has also been high in recent years (also helping to improve
     the quality of our housing stock), but will now probably ease down too, as household finances come under
     more pressure.

     Consumer Confidence
     ANZ-Roy Morgan Consumer                                                  The latest ANZ Roy Morgan measure showed that, after
     Confidence (index, monthly)                                              sharp falls in March and April, consumer confidence
     160                                                                      started to rebound in both May and June. The latest
                                                                              reading of 104 in June (seasonally adjusted) was back
     140
                                                                              up to March’s levels, but still below the norm of around
     120
                                                                              120 in late 2019 and early 2020, as well as the long term
     100                                                                      average (119). In other words, confidence amongst
      80                                                                      households has rebounded from the worst point of alert
                                                                              level four lockdown, but there’s still significant caution
     60
                                                                              out there – understandable when jobs are being lost and
     40
                                                                              the wage subsidy will end on 1st September. In turn, this
      20                                                                      caution will also keep a restraint on the housing market.
       0
        2004       2007     2010          2013          2016         2019     Meanwhile, a similar story has applied to business
                                                                              confidence – a sharp drop in and around full lockdown,
                                                                              and then a gradual recovery over May and June, but not
                                                                              back to the levels that prevailed pre-lockdown. A key
                                                                              indicator to watch for business confidence is firms’
                                                                              employment intentions, and unfortunately these
10   Sources: ANZ, Roy Morgan                                                 continue to point to further job cuts ahead.
Employment
Annual change in employment,                                            Labour force participation rate (%)
full time and part time
                                                                        72
10%

 8%                                                                     70

 6%
                                                                        68
 4%
                                                                        66
 2%

 0%                                                                     64

-2%
                                                                        62
-4%
                                          Full time                     60
-6%                                       Part time

-8%                                                                     58
   1987                 1998                   2009              2020        1986   1990   1994     1998   2002   2006      2010      2014   2018

Unemployment Rate (%)                                                   Number of Jobseeker Support claimants
12

                                                                        240,000
10
                                                                        220,000

8
                                                                        200,000

6                                                                       180,000

                                                                        160,000
4
                                                                        140,000

2
                                                                        120,000

0                                                                       100,000
 1986     1990   1994    1998    2002   2006     2010   2014   2018            Jan-20      Feb-20      Mar-20      Apr-20          May-20    Jun-20

In the first three months of the year, employment continued to grow, with full-time up by 0.3% in the quarter (1.8%
annually) and part-time rising by 1.2% (albeit still down by 0.9% annually). Overall employment on the trend series stood
at 2.66m in Q1, about 1.3% higher than a year earlier (or 33,000 employees). Meanwhile, the labour force participation
rate remained above 70% (i.e. seven in every ten working age people were either employed or looking for work) and the
unemployment rate continued to hover at a low 4% or thereabouts. In other words, prior to lockdown, the labour
market was still strong.

Of course, since the end of March, everything has changed and timelier indicators show that the labour market is now
weakening. Stats NZ’s monthly series on filled jobs showed a drop of 1.6% in April, which was only partially reversed by
May’s 0.8% increase. Meanwhile, the Ministry of Social Development’s figures on Jobseeker Support claimants show a
rise of more than 50,000 since the end of March, and implies an increase in the unemployment rate already from about
4% to as high as 6%. The ending of the wage subsidy on 1st September will unfortunately see more jobs lost, and most
expectations are that the unemployment rate will peak towards 10% later in 2020. This clearly highlights downside risks
to property sales volumes and prices.

Source: Statistics NZ, Ministry of Social Development                                                                                           11
Interest Rates
     Mortgage Interest Rates (%)                                                      The Reserve Bank (RBNZ) had already
                                                                                      cut the official cash rate (OCR) to 0.25%
     25                                     Floating mortgage interest rates          prior to alert level four lockdown, but since
                                                                                      then has commenced its large-scale asset
     20                                                                               purchase programme (quantitative
                                                                                      easing), delayed the extra bank capital
                                                                                      requirements for at least a year, and
     15
                                                                                      removed the loan to value ratio (LVR)
                                                                                      speed limits for at least a year too. It
     10                                                                               has also asked the banks to assess their
                                                                                      readiness for a negative OCR, with a view to
                                                                                      potentially implementing that early in 2021
      5
                                                                                      (although retail lending and deposit rates
                                                                                      would stay positive).
      0
      1965      1971   1977   1983   1989    1995    2001   2007      2013     2019   In other words, the RBNZ has taken
                                                                                      significant action to try and avert the
     Official Cash Rate and Mortgage Rates (%)                                        worst effects of the COVID-19 pandemic
     12                                                                               and economic recession, and to date this
                                                                                      has been successful in keeping market
     10                                                                               interest rates low – indeed, mortgage rates
                                                                                      have generally fallen to less than 3% across
                                                       OCR history
                                                       OCR projection                 all fixed terms. Clearly, this has benefitted
      8
                                                                                      mortgage borrowers, alongside the help
                                                                                      they’ve been able to access via shifts to
      6
                                                                                      interest-only loans, extensions to mortgage
                                                                                      lengths, and payment deferrals. At least
      4
                                                                                      $40bn of existing mortgage debt has had
                                                                                      some form of relief in recent months,
      2
                                                                                      equivalent to about 15% of the stock
                                                                                      of loans.
      0
      2000                       2009                          2018                   Overall, mortgage interest rates are set
                                                                                      to stay ultra-low for some time to come,
     Average Two Year Fixed Rates (%)                                                 and may not actually have reached a floor
                                                                                      just yet.
     5 .2%

     5 .0%

     4 .8%

     4 .6%

     4 .4%

     4 .2%

     4 .0%

     3 .8%

     3 .6%

     3 .4%
             2018                    2019                        2020

12   Sources: Reserve Bank of New Zealand and interest.co.nz
Housing Overview

                   13
Early Property Market Indicators
     Property Guru survey – most common reason for listing (% of respondents)

                                                 24% Downsizing

                                                 19% Financial distress

                                                 16% Fearing price falls

                                                 16% Upsize/lifestyle
                                                 14% Other (e.g. job relocation)

                                                 10% Selling a vacant rental

                                       During alert level four lockdown, measures relating
                                       to the early stages of a sale process – i.e. pre-listing
                                       (such as appraisals generated by real estate agents) and
                                       pre-mortgage (valuations ordered by banks) – fell away
                                       sharply, which was no surprise. However, as our Early
                                       Market Indicators Report shows, they then bounced
                                       back steadily, and have recently been running at
                                       around normal levels: https://www.corelogic.co.nz/
                                       early-market-indicators

                                       However, a survey we recently launched of Property Guru
                                       users was less reassuring, as it showed some vendors
                                       bringing property to the market for the ‘wrong’ reasons,
                                       such as financial distress (either now or potentially in the
                                       short term) or fears about future price falls. The reasons
                                       why a listing has been made will be a key factor to keep
                                       an eye on as we move through the rest of the year.

14
Listings
Total listings (Three-week rolling total)

                 Rest of NZ
1,800            Auckland

1,500

1,200

  900

  600

  300

      0                                                                            Year Ago
          Jul 15           Jul 16           Jul 17            Jul 18         Jul 19           Jul 20

New property listings for sale clearly fell sharply during lockdown, but like a range of other indicators they’ve now
rebounded and are similar to the same time last year, or even above in some parts of the country. The normal seasonal
lull is upon us, however, so new listings flows will now ease downwards (as they usually do) over the next 6-8 weeks, before
rising again in Spring. That increase will be a test for the strength of demand, and whether or not there are enough buyers
circling from September onwards to absorb some of that stock.

                New Listings                   Average last 3 weeks         1 month change              1 year change

New Zealand                                            1,841                       13%                       11%

Auckland                                                523                        25%                        7%

Waikato                                                 205                        9%                         7%

Bay of Plenty                                           143                        4%                         6%

Wellington                                              126                        -5%                        -6%

Canterbury                                              293                        17%                       17%

Otago                                                   121                        2%                        38%

                                                                                                                           15
Listings
     Total Listings                                                                          Although new for-sale listings have
                                                                                             rebounded, so have actual sales of
                                                                                             property, which means that the total
     35,000                          Auckland (RHS)                                          stock of listings available on the market
                                     Rest of NZ                                    10,000    remains pretty low in most parts of the
     30,000                                                                                  country. Auckland has dropped steadily
                                                                                   8,000     over the past year, while Bay of Plenty
     25,000
                                                                                             and Wellington have also experienced
     20,000                                                                        6,000     annual declines in the stock of total
                                                                                             listings. Waikato and Canterbury have
     15,000                                                                                  been flat (at low levels), while it’s only
                                                                                   4,000
                                                                                             Otago that’s really seen any meaningful
     10,000
                                                                                             rise in total listings lately. But even
                                                                                   2,000     there, although the rise has been strong
      5,000
                                                                                             (33%), that again was from a low base.
              0                                                   Y ear
                                                                  Ye ar Ago
                                                                        Ag o       0
                                                                                             Overall, the market is now likely to
                  Jul 15     Jul 16      Jul 17   Jul 18       Jul 19     Jul 20
                                                                                             remain tight in terms of stock on
                                                                                             the market until at least Spring.

                           New Listings                               Latest week           1 month change         1 year change

     New Zealand                                                        26,279                    -1%                    -5%

     Auckland                                                             7,922                   1%                    -17%

     Waikato                                                              3,123                   0%                     0%

     Bay of Plenty                                                        1,894                   -3%                    -7%

     Wellington                                                           1,118                  -13%                    -9%

     Canterbury                                                           4,271                   0%                     0%

     Otago                                                                1,495                   0%                     33%

     Weekly flow of new for-rent listings
     4,000
                                                                                             Meanwhile, the early fears in lockdown
                                                               2020                          that Airbnb-type properties would be
      3,500                                                    2019                          switched out of the holiday let sector
                                                               2018
                                                                                             and into the traditional long-term
      3,000
                                                                                             rental market (hence raising supply
      2,500                                                                                  and suppressing rents) don’t seem to
                                                                                             have been borne out so far. Indeed,
      2,000                                                                                  anecdotal evidence suggests that many
      1,500
                                                                                             Airbnb hosts are happy with the level
                                                                                             of domestic bookings that they’ve had.
      1,000                                                                                  Moreover, our for-rent listings data
                                                                                             show that the weekly figures are
       500
                                                                                             actually running below the 2018 and
          0                                                                                  2019 levels – suggesting no major
16         Jan-20           Feb-20      Mar-20        Apr-20     May-20        Jun-20        switching of Airbnb properties.
Lending conditions
Annual Change in Gross New                                                   High LVR Lending to Owners and
Lending Flows ($m per month)                                                 Investors (% of new lending)
1,500                                                                        25%
                                                                                            Owner occupier lending > 80% LVR
1,000                                                                                       Investor lending > 70% LVR

  500                                                                        20%
                                                                                   Previous owner occupier speed limit(20%)
      0

 -500                                                                        15%
-1,000

-1,500                                               Investor                10%
                                                     Owner-occupier
-2,000

-2,500
                                                                             5%
                                                                                   Previous investor speed limit(5%)
-3,000
          2016               2017      2018          2019             2020

                                                                             0%
Refinancing Profile for Mortgages                                              2017                 2018                2019       2020

(% of stock)                                                                 The last few months have clearly been a volatile
40%                                                                          period for mortgage lenders, with most having no
                                                                             choice early in lockdown but to handle queries only
35%              Owner-occupier
                 Investor
                                                                             from their existing customers; new customers were
30%                                                                          largely put on hold. Not surprisingly, then, the value of
25%
                                                                             new lending in April was only $2.7bn, down from nearly
                                                                             $5.5bn in the same month a year earlier. May’s result
20%
                                                                             was stronger, but still well below the levels of a year ago
15%                                                                          – $4.3bn versus $6.5bn the same month a year earlier.
                                                                             Both investor and owner-occupier lending activity has
10%
                                                                             fallen sharply over the past few months, as borrowers
 5%
                                                                             remain cautious and banks take a similar approach.
 0%
                  Floating          Fixed < 1 year          Fixed > 1 year

But although new lending activity has been subdued, there have still been plenty of interesting points to note. First,
the government and banks were quick to introduce the mortgage payment deferral scheme, while banks have also shown
plenty of willingness to extend the terms of loans for people facing financial stress and/or allow them to switch to interest
only. Indeed, prior to lockdown, about 25% of lending flows were interest only, but that has quickly risen to 30% post-
lockdown. Overall, it’s been estimated that about $40bn of loans have sought some kind of payment relief in recent
months, equating to about 15% of the stock of mortgages.

Meanwhile, the Reserve Bank has also pushed out the extra capital requirements for banks (which were originally
supposed to have started on 1st July this year) for at least a year, which has effectively given banks more money to
potentially lend out over the coming months than otherwise. The Reserve Bank also put a temporary hold on the loan to
value ratio speed limits from 1st May, giving more people scope to buy a property with less than a 20% deposit. However,
the effect of this has been dampened by the banks (understandably) maintaining their own internal LVR policies pretty
close to what was previously mandated.

The Reserve Bank of course has also embarked on its large scale asset purchase programme, or quantitative easing.
This has helped to keep money circulating around the economy and kept downwards pressure on mortgage rates.

Overall, there are clearly challenges ahead for mortgage lending, with question marks around banks’ willingness to lend
and also borrowers’ desire to take on debt. The end of the wage subsidy on 1st September is a key date for the economy
and further rises in unemployment thereafter would tend to dampen the mortgage market, given banks’ focus on
borrowers’ job security and ability to keep servicing the debt.
                                                                                                                                           17
Sources: Reserve Bank of New Zealand
Sales Volumes
     Nationwide Sales Volumes                                        Nationwide Annual Change
     (monthly total)                                                 in Sales Volumes (%)
     12,000
     11,000                                                        40%
     10,000
      9,000                                                        20%
      8,000
      7,000                                                         0%
      6,000
                                                                   -20%
      5,000
      4,000                                                        -40%
      3,000
      2,000                                                        -60%
      1,000
                                                                   -80%
                  2011         2014         2017          2020            1996 1999 2002 2005 2008 2011 2014 2017 2020

     Regional Sales Volumes
     (year-on-year % change)
      0% -37 .3% -32 .4% -47 .8% -45 .8% -37 .3% -30 .6% -36 .7%
      -5%
     -10%
     -15%
     -20%
     -25%
     -30%
     -35%
     -40%
     -45%
     -50%

     Needless to say, the past few months have been a severely distorted period for property sales activity, with
     no settlements involving the physical movement of people allowed for most of April. Even as we moved into
     alert level three, it still wasn’t ‘normal’ to get a property sale done.

     In terms of the actual numbers, sales dropped by about 80% annually in April and by around 40% in May.
     June’s result was much better – a rise of 11% – but this is likely to have been driven partly by a shift of sales
     into June that otherwise would have happened in April or May. That said, genuine new demand does seem to
     have emerged after lockdown, and the rebound has if anything been better than might have been expected.

     At a more detailed level, the decline in sales activity over the June quarter as a whole was at least 30% (from
     the previous year) in each of the main centres, with Hamilton and Tauranga the softest in terms of market
     activity levels. Of course, with the supply of listings low around most parts of the country, the drop in
     achieved sales is not entirely due to sluggish demand – sometimes it’s due to a lack of choice for buyers.

     Again, Spring is looming as a key period for property sales activity, with mortgage payment deferrals winding
     down, the wage subsidy ending, and the General Election also potentially weighing on confidence.

18   Source: CoreLogic
Nationwide Values
Average Value of Housing Stock - New Zealand ($)
                                          $738,018

Annual and Quarterly Change in Value (%)
                                            $9,742 1 .3%
                                           $50,997 7 .4%
                                          $220,139 43%

In the year to June, national average property values rose by 7.4% on our monthly index. But a more informative
comparison in the current environment is either the three month change and/or one month change, with values up
by 1.3% since March, but down by 0.2% from May to June. This is early evidence of a COVID effect on property prices.

In addition, an alternative index we look at is our quarterly measure, which is based on sales agreements across the
whole of each respective quarter. It showed that the national average dropped by 1.5% in Q2 (on a preliminary basis),
with falls of more than 2% in Auckland and Dunedin.

Overall, although it’s not all one-way traffic yet (e.g. Tauranga saw values rise in Q2 on our quarterly index), the signs
seem to be emerging of a turning point for property prices. Our working assumption is that they could ultimately fall
by 5-7% nationally, which would be unwelcome for property owners, but still a smaller decline than the figure of 10%
seen during the GFC.
                                                                                                                             19
House Price Index
     Average Dwelling Value ($)                                          The past three months have obviously been
                                                                         a very distorted period for the property
                                                                         market, and clear price trends haven’t yet
                                                                         emerged – given that property sales
                                                                         volumes only really seem to have
                                                                         normalised towards the end of June, we
                                                                         need to treat price data for April and May
                                                                         with caution.

                                                                         That said, the general message is that
                                                                         property values have probably held up
                                                                         a bit better than seemed likely during those
                                                                         uncertain times of alert level four lockdown.
                                                                         Our monthly index shows that average
                                                                         property values nationally rose by a total
                                                                         of 1.3% between March and June, albeit
                                                                         they dipped by a minor 0.2% in June alone.

     The first signs of a turning point for values may have started to become clearer in Dunedin (0.9% fall in June),
     Wellington (-0.5%), and Auckland (-0.3%), although Tauranga and Christchurch recorded further small gains
     in June.

     Meanwhile, if you look at a broader measure across the whole quarter (which is our quarterly index), the signs
     of a turning point look a little stronger. The national average fell by more than 1% over the quarter as a whole,
     and Auckland and Dunedin saw drops of more than 2%. But to emphasise that it’s not all one-way traffic yet,
     Tauranga saw a rise in Q2 of more than 1%.

     Overall, then, it’s too early to be sure that property values have started a downturn – some areas are still
     rising, and different measures yield slightly different results. However, with the economy in recession and
     unemployment rising, the risks to property values for the rest of 2020 are more to the downside than upside.
     Queenstown stands out as a clear vulnerable area, while Invercargill, for example, now has extra challenges to
     face from the pending closure of the Tiwai smelter.

                                                                    JUNE 2020
                                Current Value            1 month    3 months          12 months           5 years
     New Zealand                   $738,018               -0.2%        1.3%              7.4%              43%

     Auckland                     $1,082,541              -0.3%        1.5%              5.4%              29%

     Hamilton                       $627,777              -0.2%        0.7%              7.3%              64%

     Tauranga                       $794,189              0.2%         2.8%              6.7%              64%

     Wellington                    $783,655               -0.5%        0.4%             10.4%              70%

     Christchurch                   $518,369              0.2%         0.8%              3.7%               9%

     Dunedin                        $547,531              -0.9%        1.8%             18.9%              85%

     Source: CoreLogic NZ QV Monthly House Price Index

20
House Price Index
Annual Value Change (%)

-9%                                     21%

© 2020 Mapbox © OpenStreetMap

The pockets of strength in property values (over a 12-month horizon) around the
country are easy to see in Southland and Otago, and almost all of the lower and
central North Island. The top half of the South Island and Auckland/Waikato/Bay
of Plenty have been more subdued, but still showing gains in values.

*Size of bubble represents the number of properties in the Territorial Authority   21
Three Month Value Change (%)

      -2%                             5%

      © 2020 Mapbox © OpenStreetMap

     Switching to a timelier and more relevant three-month change, the effects of COVID-19
     and the recession since the end of March are easier to see in average property values
     – Queenstown, the West Coast, and top of the South Island have gone flat, or are
     showing falls. Emerging weakness is also becoming clearer around the East Coast
     of the North Island.

22   *Size of bubble represents the number of properties in the Territorial Authority
Rent
National Annual Change in Value and Rent (%) Gross Rental Yield – National (%)
20%                                                                   5 .0%
                                           Annual change in value
                                           Annual change in rent      4 .5%
15%
                                                                      4 .0%

10%                                                                   3 .5%

                                                                      3 .0%
 5%
                                                                      2 .5%
 0%
                                                                      2 .0%

-5%                                                                   1 .5%

                                                                      1 .0%
-10%
                                                                      0 .5%

-15%                                                                  0 .0%
   2005       2008         2011     2014          2017         2020       2004     2007          2010    2013      2016       2019

National rents averaged $445 per week in the three                    Dunedin has already been covered (strong rental growth),
months to June, up by 4.8% from the same quarter a year               but the rest of the main centres are ticking along relatively
earlier. To date, there isn’t much evidence at the national           well for now too – with rental growth in the vicinity of
level that rents have been too badly affected by COVID-19             5% in Auckland, Hamilton, Tauranga, Wellington,
and lockdown, recession etc. Indeed, as noted earlier in the          and Christchurch.
report, rental listings have if anything been a little lower
than normal, underpinning the level of rents. However, if             After a slow upwards trend for a number of months, gross
the GFC is anything to go by, rental growth is likely to slow         rental yields have edged back down slightly in the past few
markedly over the rest of the year.                                   months, with the national average now at 3.2%. The figures
                                                                      in Christchurch (3.6%) and Dunedin (3.7%) are higher than
That steady national average masks some quite large                   the average, but Auckland is significantly lower (2.6%).
regional divergences, however. For example, rents in
Gisborne, Hastings, Palmerston North, Lower Hutt, and                 It remains unclear how yields will move from here, as the
Dunedin have all grown by more than 10% in the past year.             balance of risks to both rents and property values is to the
But Waimakariri for example has seen rents fall by almost             downside. Indeed, it’s possible that yields stay relatively
3% in the past year, and the effects of the closed borders            unchanged over the coming months. Of course, for any
can be seen in Queenstown – rents there have dropped by               investor who is seeing the value of their property drop,
about 10% over the past year, from $593 per week to $533.             a stable yield might only be small consolation.
Practically all of that decline has come since March.

                                                          Average                    Annual
                                                                                                                Gross Yield
                                                         Weekly Rent              Change in Rent
Auckland                                                      $545                        3.5%                      2.6%

Hamilton                                                      $413                        5.7%                      3.4%

Tauranga                                                      $491                        4.0%                      3.2%

Wellington                                                    $543                        5.6%                      3.2%

Christchurch                                                  $363                        2.6%                      3.6%

Dunedin                                                       $388                        10.9%                     3.7%

Sources: CoreLogic NZ and MBIE

                                                                                                                                     23
Buyer Classification
     Buyer Classification –                                       NZ Property Transfers by Non-Citizens
     New Zealand (% of sales)                                     or no Resident Visa (% of total transfers)
                                                                  3 .5%
                                                                                 Buying
     30% 30%                                                                     Selling
                                                                  3 .0%
           26%                                         26%
                                                       25%
                                                       23%        2 .5%
           21%
     20%
                                                                  2 .0%

                                                       14%        1 .5%

     10% 10%                                                      1 .0%

           5%                                           6%
           4%                                           5%        0 .5%
           4%                                           2%
     0%
                                                                  0 .0%
            2005   2008    2011     2014    2017     2020                 2017             2018    2019           2020

      Mover         Multiple Property      Multiple Property      Source: Statistics New Zealand
                    Owner Mortgage         Owner Cash
      First Home Buyer    New to Market      Other      ReEntry

     Broadly speaking, the trends that we’ve seen for a few quarters now remained in place in post-COVID Q2,
     but there were also hints of changes in buyer behaviour.

     Starting with first home buyers (FHBs), after a long upwards trend to a market share of 24% late last year, they
     only accounted for 23% of purchases in the second quarter – not a large change, but still one to watch. After
     all, although KiwiSaver balances (and hence FHBs deposits) have rebounded since the initial lockdown slump,
     it wouldn’t be a surprise if some would-be buyers waited on the sidelines to see if prices fall, with the hope of
     getting a bargain later. Anybody with uncertainty around their job situation is likely to bide their time too.

     Looking at movers, the downward trend in their share of property purchases also continued in the second
     quarter. At 26%, that figure is down from 29% a year ago, and also the lowest level since mid-2009. As has
     been the case for some time now, we suspect that many movers are finding it difficult to raise the funds
     required to trade up, either because of high prices or already-high mortgage debts. This is likely to have
     played a role in the rise in dwelling consents for alterations & additions, as existing homeowners renovate
     rather than relocate. However, movers’ share of purchases could still be supported over the coming months
     by people who ran out of space during lockdown looking to get a larger house (provided that it can
     be financed).

     Turning to investors, cash buyers have continued to steadily raise their market share, helped out by their
     ability to circumvent the still-cautious lending policies at the banks (which have hindered other buyer groups).
     These buyers may also be sensing opportunities to snap up some ‘bargains’ in a subdued market.

     Mortgaged investors have also retained a solid presence in the market since the end of March, sitting at 25%
     for Q2 – anecdotal evidence strongly suggests that ‘mum and dad’ investors are much keener to put their
     equity/deposit to work in the property market rather than the low returns on offer from term deposits.

     More generally, it’s important to reiterate that the number of sales is relatively low at present, so this is a
     caveat that needs to be kept in mind when looking at the market share figures. However, it’s not too hard to
     envisage recent trends continuing – e.g. movers staying quiet as the wait out the uncertainty, FHBs potentially
     also sitting on the sidelines a little, but investors looking more seriously at trying to strike a hard deal.

24
Main Cities Housing
Market Indicators

                      25
Auckland Market Activity
     Buyer Classification – Auckland                                   Generally speaking, the composition of
     (% of purchases)                                                  Auckland’s property purchasers since the
                                                                       end of March has been similar to the prior
                                                                       few quarters, albeit with some early signs
                                                                       of change.
     30%
           28%                                                 26%
           27%                                                         First, movers (or existing owner occupiers
           27%                                                 26%
                                                                       who are relocating, e.g. downsizing,
                                                               23%     upsizing) remain relatively quiet, with just
     20%
                                                                       23% of all purchases in Q2. That market
                                                               13%     share for movers is basically as low as it’s
                                                                       been since 2009 – potentially reflecting
     10%
                                                                       the high costs to move house at present
            7%                                                         (especially in Auckland, where the value gap
                                                               6%
            4%                                                 4%      between three bedroom and four bedroom
      0%                                                       1%      properties is high) and/or already stretched
           2004        2008        2012         2016        2020       borrowing ability. Another factor is likely to
           Mover        Multiple Property      Multiple Property       be the COVID-related uncertainty, so if a
                        Owner Mortgage         Owner Cash
                                                                       mover doesn’t need to relocate, they’re
           First Home Buyer    New to Market     Other      ReEntry    preferring instead to stay where they are
                                                                       and ride out any uncertainty.
     Buyer Classification – Northland region
                                                                       Meanwhile, first home buyers and
     (% of purchases)
                                                                       mortgaged multiple property owners
     40%                                                               (MPOs, or investors) continue to jostle for
                                                                       market share, both sitting at 26% in Q2 –
           34%
                                                                       their figures have been close to each other
     30%                                                               for about the past 18 months now. Despite
                                                              29%
                                                                       the high cost of housing in Auckland, FHBs
           22%                                                 22%
     20%                                                               are holding on well (in some cases targeting
                                                              17%      apartments due to the lower entry cost),
           15%                                                15%
           15%                                                         and although gross rental yields are lower
     10%
                                                               7%      than in the past, investors clearly still see
           6%                                                  7%
           4%                                                          some value in the Auckland market.
           4%                                                  3%
      0%
           2004        2008         2012        2016         2020      Finally, there are hints that cash investors
           Mover        Multiple Property      Multiple Property       (MPOs) may be starting to hunt out some
                        Owner Mortgage         Owner Cash              bargains – their share of purchases rose to
           First Home Buyer    New to Market     Other      ReEntry    13% in Q2, up from 11% in late 2019.

     Admittedly, part of that rise in % market share can be explained by a lower number of purchases by other
     groups, but even so, anecdotal evidence still points to some cash investors genuinely targeting Auckland
     property again now.

     Around Auckland’s neighbouring areas, the mix of buyers across the Northland region is strongly weighted
     towards movers. However, over the past five years their share of sales has reduced, with mortgaged investors
     increasing their share. First home buyers had also been taking a larger share over the last few years but that
     has come back in the last two quarters.

26
Auckland Values
Average value of housing stock –                                  Annual and quarterly value change –
Auckland ($)                                                      Auckland (%)
                                                  $1,082,541
$1,100,000                                                         25%                         $16,506 1 .5%
                                                                                               $55,428 5 .4%
$1,000,000                                                                                    $240,935 29%
                                                                   20%
 $900,000
 $800,000                                                          15%
 $700,000                                                          10%
 $600,000
 $500,000                                                           5%
 $400,000                                                           0%
 $300,000
 $200,000                                                          -5%
 $100,000                                                         -10%

               2005    2008    2011    2014     2017     2020               2005      2008     2011      2014     2017      2020

On the usual measure we report on (rolling three month sales index), Auckland’s property values have generally held up
better since March than looked likely in the early days of alert level four lockdown. The overall Auckland change from March
to June was 1.5%, albeit there was a 0.3% drop in June alone. Waitakere, Manukau, and Papakura recorded stronger gains in
Q2, with Franklin, North Shore, and Rodney lagging a little.

However, when we look at the broader measure of all sales in the June quarter, the patterns have been more subdued.
On this measure, Franklin saw values rise by 0.7% in Q2, and Rodney and Waitakere only saw minor drops of 0.5%. But the
North Shore and Auckland City saw larger falls, which repeats the experience of early 2019, when the more expensive areas
saw larger declines.

Overall, it’s early days yet, and different measures reveal slightly different patterns – e.g. the evidence from the second half
of June alone was more encouraging than for Q2 as a whole. But the risks to Auckland (and national) property values in the
coming months are still more likely to the downside than upside.

                                                                         JUNE 2020
                              Current Value            1 month           3 months            12 months            5 years
Rodney                          $982,802                -0.1%              0.8%                 4.1%                34%

North Shore                    $1,247,243               -0.8%              1.2%                5.9%                 26%

Waitakere                       $857,496                -0.1%              2.0%                5.3%                 28%

Auckland City                  $1,277,755               -0.6%              1.6%                5.8%                 27%

Manukau                         $939,908                0.2%               1.9%                5.7%                 34%

Papakura                        $728,414                0.6%               1.8%                2.7%                 43%

Franklin                        $696,001                1.1%               1.3%                3.5%                 34%

                                                                                                                               27
Current Auckland Suburb Values
     Auckland suburb value change 2020 ($)

     Although property value trends since lockdown have weakened, the prior 6-9 months had seen an upturn,
     and so annual comparisons are still relatively strong. CoreLogic’s interactive ‘Mapping the Market’ product
     shows these changes, it’s freely available and updated quarterly. The heatmaps in ‘Mapping the Market’ are
     point-in-time snapshots of median values from 2019 and 2020, and show the % and $ change over that period
     too. See www.corelogic.co.nz/mapping-market

     Auckland is illustrated in the heatmap here. As at June 2020, Herne Bay remained the highest priced suburb
     in Auckland, with a median property value of $2.61m. Orere Point had the lowest median value, of around
     $535,000. Only eight suburbs had a median value $100,000.

28   *Based on CoreLogic Median E-valuer
29
Hamilton Market Activity
     Buyer Classification –                                          In Hamilton, although the number of
     Hamilton (% of purchases)                                       property transactions has dropped away
                                                                     in Q2 (as it has done everywhere across
     40%                                                             the country), the figures relating to %
                                                                     market share of purchases have stayed
                                                             31%     pretty steady.
     30% 31%
         27%                                                         Cash multiple property owners (investors)
                                                             26%
         25%
                                                             23%     have held steady at around a 10% market
     20%                                                             share, while movers have also been
                                                                     relatively unchanged at 23%. These two
                                                                     buyer groups in Hamilton have tended to
     10%                                                     10%
                                                                     have relatively consistent market shares
           7%
           4%                                                        over the longer run too.
                                                             4%
     0%    3%                                                2%
                                                                     Meanwhile, mortgaged investors’ market
           2004 2006 2008 2010 2012 2014 2016 2018 2020
                                                                     share of purchases was 31% in Q2, up a
           Mover       Multiple Property      Multiple Property
                       Owner Mortgage         Owner Cash             little from Q1, but still in line with recent
                                                                     norms. And then finally, first home buyers
           First Home Buyer   New to Market     Other      ReEntry
                                                                     had a 26% market share in Q2, down a little
     Buyer Classification – Waikato Region                           from Q1, but again pretty much in line with
                                                                     the recent past.
     (% of purchases)
                                                                     Around the wider Waikato region (excluding
                                                                     Hamilton), buyer classification patterns
                                                                     were also pretty consistent from Q1 to Q2,
                                                                     even though we had lockdown early in Q2.
           31%
                                                              30%    The biggest difference between Hamilton
           25%                                                       itself and the wider region is that movers
                                                              21%    have a higher share of activity outside the
                                                              19%    city, with FHBs and investors taking a lower
           17%                                                18%
                                                                     profile in areas such as Waikato District
           14%
                                                                     and Waipa.
           6%
                                                              6%
           4%                                                 5%
           3%                                                 2%

           Mover       Multiple Property      Multiple Property
                       Owner Mortgage         Owner Cash
           First Home Buyer   New to Market     Other      ReEntry

30
Hamilton Values
Average value of housing stock –                                  Annual and quarterly value change –
Hamilton ($)                                                      Hamilton (%)
                                                    $627,777
                                                                                                 $4,490 0 .7%
$600,000                                                          30%                           $42,513 7 .3%
                                                                                               $245,984 64%
$500,000                                                          25%
                                                                  20%
$400,000
                                                                  15%

$300,000                                                          10%
                                                                   5%
$200,000
                                                                   0%
$100,000                                                           -5%
      $0                                                          -10%
             2005    2008    2011     2014   2017      2020              2005      2008    2011     2014        2017      2020

Hamilton’s average property values rose by 0.7% from March to June, albeit there was a minor dip of 0.2% in June alone.
The average value of a property in the city now stands at $627,777.

Hamilton North East weakened the most in Q2 (0.8% drop), while Central & North West showed a 0.7% rise. Meanwhile,
there was a degree of residual strength in Hamilton South East and South West.

Outside Hamilton, the Waikato District continued to see gains, with average values up by almost 4% in Q2. However, Waipa
for example saw values decline in June itself and over the three month period from March (-1.1%).

                                                                         JUNE 2020
                                    Current Value        1 month         3 months         12 months             5 years
Hamilton Central
                                      $587,512            -0.4%            0.7%              8.9%                64%
& North West

Hamilton North East                   $767,383            -0.9%            -0.8%             4.8%                58%

Hamilton South East                   $587,117             0.4%            1.6%              8.9%                69%

Hamilton South West                   $561,994             0.8%            2.1%              7.9%                67%

                                                                                                                            31
Tauranga Market Activity
     Buyer Classification –                                                 During the period from April to June,
     Tauranga (% of purchases)                                              movers remained the key buyer group in
                                                                            Tauranga, accounting for 30% of purchases
                                                                            (albeit in a quieter overall market in terms
     40%                                                                    of number of transactions). This illustrates
                                                                            how a solid base of equity/wealth (which
           33%                                                              movers have, either from having lived
     30%
                                                                   30%      locally or bringing in equity from other
                                                                            parts of the country) is important in
           23%                                                     22%      Tauranga, rather than necessarily local
     20%
                                                                   19%
           16%                                                     17%      wages being a key driver for a property
           15%                                                              purchase.
     10%
            6%                                                     6%       Meanwhile, another interesting trend is the
            4%                                                      4%      rising market share for cash investors,
            3%                                                      2%
     0%
                                                                            accounting for 19% of purchases in Q2, up
           2004 2006   2008   2010   2012   2014   2016   2018   2020
                                                                            from 14% a year ago. Of course, given that
            Mover         Multiple Property        Multiple Property
                                                                            they don’t need to try and secure a
                          Owner Mortgage           Owner Cash
                                                                            mortgage (in a still-controlled lending
            First Home Buyer     New to Market        Other       ReEntry
                                                                            environment), it is logical that their market
     Buyer Classification – Bay of Plenty                                   share will tend to rise in these conditions.
     Region (% of purchases)                                                Generally speaking, Tauranga’s patterns are
                                                                            replicated across the wider Bay of Plenty
     50%                                                                    region (excl. Tauranga), with movers a key
                                                                            buyer group, and cash investors having
     40%                                                                    recently seen a rising market share.

     30% 30%
                                                                   29%
         27%
                                                                   22%
     20% 18%                                                       21%
                                                                   15%
           13%
     10%
        6%                                                         5%
        4%                                                         5%
     0% 3%                                                         3%
            2004 2006 2008 2010 2012 2014 2016 2018 2020

            Mover         Multiple Property        Multiple Property
                          Owner Mortgage           Owner Cash
            First Home Buyer     New to Market        Other       ReEntry

32
Tauranga Values
Average value of housing stock –                               Annual and quarterly value change –
Tauranga ($)                                                   Tauranga (%)
                                                 $794,189
$800,000                                                                                      $21,746 2 .8%
                                                               30%
                                                                                              $50,211 6 .7%
$700,000                                                       25%                           $308,628 64%

$600,000                                                       20%

$500,000                                                       15%

                                                               10%
$400,000
                                                                5%
$300,000
                                                                0%
$200,000
                                                                -5%
$100,000
                                                              -10%
      $0
             2005    2008    2011    2014   2017    2020               2005     2008     2011     2014        2017   2020

The emerging signs of weakness for property values across NZ are yet to be seen to any great degree in Tauranga. Indeed,
our monthly index showed that values rose by 0.2% in June and by 2.8% from March to June. Meanwhile, looking at prices
based across the quarter as a whole, the data for Tauranga was also positive – a rise of more than 1% for Q2. Around the
wider Bay of Plenty, values also continued to increase in Q2, including Rotorua and Whakatane.

                                                                                                                        33
Wellington Market Activity
     Buyer Classification –                                          Similar to the rest of the country, the
     Wellington (% of purchases)                                     number of property transactions has
                                                                     fallen around the wider Wellington area
                                                             33%     (City, Porirua, Lower Hutt, Upper Hutt),
                                                                     but in that quieter market, the share of
     30%                                                     28%
           27%                                                       purchases made by first home buyers has
           27%
                                                                     held high – in fact, at 33% in Q2, that’s on a
                                                                     par with the previous peak in Q1 2018. In
     20%                                                     21%     other words, FHBs are still a strong
                                                                     presence in these markets.

                                                                     Meanwhile, the share of purchases made
     10%
           8%                                                        by mortgaged multiple property owners
                                                              7%
                                                              5%     (investors) also remains high by past
           4%                                                 4%
           3%                                                        standards, at 28%. About two years ago,
      0%                                                      2%
                                                                     it was less than 25%. By contrast, movers’
                2006 2008 2010 2012 2014 2016 2018 2020              market share has continued to edge down,
           Mover       Multiple Property      Multiple Property      now sitting at just 21% - a year ago it
                       Owner Mortgage         Owner Cash
                                                                     was 24%.
           First Home Buyer   New to Market     Other      ReEntry
                                                                     At a more detailed level, mortgaged
     Buyer Classification – Lower Hutt                               investors actually have a higher market
     (% of purchases)                                                share (33%) in Wellington City itself than
                                                                     FHBs (30%), while in Upper Hutt movers
                                                                     and FHBs are neck and neck for first place
     40%                                                             (33% each). In Porirua and especially Lower
                                                            38%
                                                                     Hutt, FHBs are the top buyer group –
         30%                                                         in Lower Hutt, their market share in Q2
     30% 30%
                                                                     was 38%, well above the next group
         25%                                                         (mortgaged investors) at 23%.
                                                            23%
     20%                                                    20%

     10%
                                                            7%
        5%                                                  5%
        4%                                                  4%
     0% 3%                                                  2%
           2006       2008       2012         2016        2020
           Mover       Multiple Property      Multiple Property
                       Owner Mortgage         Owner Cash
           First Home Buyer   New to Market     Other      ReEntry

34
Wellington Values
Average value of housing stock –                               Annual and quarterly value change –
Wellington ($)                                                 Wellington (%)
                                                  $783,655
$800,000                                                                                          $3,253 0 .4%
                                                                                                 $73,852 10 .4%
$700,000                                                        20%                             $323,904 70%

$600,000                                                        15%

$500,000
                                                                10%
$400,000
                                                                 5%
$300,000
                                                                 0%
$200,000

$100,000                                                        -5%
      $0                                                       -10%
               2005   2008   2011     2014    2017     2020             2005      2008     2011      2014         2017      2020

Property values around the wider Wellington area have begun to show some signs of weakness, falling by 0.5% in June
across the City, Porirua, Upper Hutt, and Lower Hutt. However, over the three month measure, only Wellington City saw
values drop (by 0.4%). Across the region, Carterton also weakened a bit in Q2 (-1.3%).

That general pattern was replicated on the measures looking at the quarter as a whole, which showed a fall for values
across the City, Porirua, Upper Hutt and Lower Hutt of 0.4% in Q2.

                                                                      JUNE 2020
                             Current Value           1 month          3 months           12 months                5 years
Porirua                         $691,176              -0.2%              1.1%              15.5%                   80%

Upper Hutt                     $639,489               1.0%              2.0%               13.6%                   90%

Lower Hutt                     $686,283               -0.3%             1.6%               15.0%                   82%

Wellington City                $887,633               -0.8%             -0.4%               7.3%                   62%

Carterton                      $477,087               0.3%              -1.3%              10.1%                   81%

Masterton                      $440,126               3.3%              2.7%               14.3%                   81%

South Wairarapa                $578,835               -0.9%             1.8%               14.7%                   90%

Kapiti Coast                   $669,773               0.1%              1.8%               11.4%                   75%

                                                                                                                            35
Christchurch Market Activity
     Buyer Classification –                                             Christchurch has been a first home buyer’s
     Christchurch (% of purchases)                                      market in recent years (partly due to flat
                                                                        house prices which has helped FHBs to
     40%                                                                have more time to raise larger deposits),
                                                                        but the spread of activity evened out in
           33%                                                          Q2 (bearing in mind the drop in overall
     30%                                                                numbers of sales). FHBs’ share of purchases
                                                                        dropped from 28% in Q1 to 25% in Q2,
           24%                                                    25%
           23%                                                    24%   while movers’ share rose from 23% also
     20%                                                                to 25%. At the same time, mortgaged
                                                                        investors’ share of activity held pretty
                                                                  14%
                                                                        steady at 24%.
     10%
           8%                                                     6%    Similar to many other parts of the country,
           4%                                                     5%    cash investors’ share of purchases rose in
           4%
     0%                                                           2%    Q2 in Christchurch, and is now up from 12%
           2004 2006 2008 2010 2012 2014 2016 2018 2020                 six months ago to 14%. We get the sense
                                                                        that cash investors are starting to hunt out
           Mover       Multiple Property      Multiple Property
                       Owner Mortgage         Owner Cash                ‘bargains’ in a subdued market. But cash
           First Home Buyer   New to Market     Other      ReEntry      investors’ ability to gain market share is also
                                                                        helped by the fact that other buyer groups
                                                                        are restricted by still-restrained credit
     Buyer Classification – Canterbury
                                                                        policies at the banks (which don’t impinge
     (% of purchases)
                                                                        on cash buyers).

                                                                        Around the wider Canterbury region
     50%
                                                                        (excl. Christchurch), movers had the largest
                                                                        market share in Q2 (39%), followed by FHBs
     40%
                                                                  39%   (22%), and mortgaged investors (17%).
           35%                                                          Selwyn, Waimakariri, Ashburton, and
     30%                                                                Timaru are all markets where movers
                                                                        (i.e. existing owner-occupiers who are
           22%                                                    22%
     20%                                                                relocating) are key players.
         16%                                                      17%
         13%
     10% 6%                                                       10%
                                                                  5%
          5%                                                      5%
      0% 3%                                                       2%
           2004 2006 2008 2010 2012 2014 2016 2018 2020
           Mover       Multiple Property      Multiple Property
                       Owner Mortgage         Owner Cash
           First Home Buyer   New to Market     Other      ReEntry

36
Greater Christchurch Values
Average value of housing stock –                                 Annual and quarterly value change –
Christchurch ($)                                                 Christchurch (%)
                                                   $518,369
                                                                                                   $3,925 0 .8%
$500,000                                                         35%                              $18,435 3 .7%
                                                                                                  $44,100    9%
                                                                 30%
$400,000                                                         25%
                                                                 20%
$300,000                                                         15%
                                                                 10%
$200,000
                                                                      5%
                                                                      0%
$100,000
                                                                  -5%
      $0                                                         -10%
             2005    2008    2011    2014    2017      2020                2005   2008     2011       2014        2017      2020

Christchurch’s housing affordability is better than each of the other main centres and this might make it slightly more
immune to a downturn. Indeed, so far the signs of weakness are less obvious, with average values still rising, by 0.2% in
June and 0.8% since March (despite some value falls in Banks Peninsula). Selwyn and Waimakariri also saw values continue
to rise in Q2.

                                                                            JUNE 2020
                                     Current Value        1 month           3 months      12 months               5 years
Banks Peninsula                         $539,096              -1.6%           -1.9%           3.2%                 10%

Christchurch Central & North            $607,304              0.4%            1.3%            3.0%                  9%

Christchurch East                       $393,126              -0.2%           0.4%            4.0%                 10%

Christchurch Hills                      $709,750              1.2%            0.8%            4.5%                 10%

Christchurch Southwest                  $492,086              0.1%            0.5%            3.7%                  9%

Selwyn                                  $567,795              0.6%            0.8%            1.9%                 10%

Waimakariri                             $465,639              0.5%            0.9%            3.3%                 11%

                                                                                                                             37
Dunedin Market Activity
     Buyer Classification –                                          As has been the case for a few quarters
     Dunedin (% of purchases)                                        now, mortgaged multiple property owners
                                                                     (investors) remain the key group in
                                                                     Dunedin, accounting for 29% of purchases
     30% 29%                                                 29%     in Q2 (in a quieter overall market). That’s a
         28%                                                         record high, and likely to have been driven
                                                              23%    by solid capital gains and higher gross
                                                              23%    rental yields than in the other main centres.
           20%
     20%
                                                                     By contrast, movers and first home buyers
                                                                     have been quieter in Dunedin of late. These
                                                                     broad patterns apply across the wider
     10%                                                      11%    Otago region too, with investors still
           8%                                                 6%     important in Queenstown.
           7%                                                 6%
           4%
     0%                                                       2%
           2006       2008       2012         2016         2020
           Mover       Multiple Property      Multiple Property
                       Owner Mortgage         Owner Cash
           First Home Buyer   New to Market     Other      ReEntry

     Buyer Classification – Otago
     (% of purchases)
     40%

     30%   30%
                                                             26%
           23%                                               22%
     20%                                                     21%
           18%                                               17%
           15%

     10%
           6%                                                 6%
           5%                                                 5%
     0%    3%                                                 2%
           2004 2006 2008 2010 2012 2014 2016 2018 2020

           Mover       Multiple Property      Multiple Property
                       Owner Mortgage         Owner Cash
           First Home Buyer   New to Market     Other      ReEntry

38
Dunedin Values
Average value of housing stock –                                    Annual and quarterly value change –
Dunedin ($)                                                         Dunedin (%)
                                                     $547,531
                                                                    35%                            $9,506 1 .8%
                                                                                                  $87,083 18 .9%
$500,000                                                            30%                          $251,483 85%
                                                                    25%
$400,000
                                                                    20%
                                                                    15%
$300,000
                                                                    10%

$200,000                                                             5%
                                                                     0%
$100,000                                                            -5%

      $0                                                            -10%

             2005     2008    2011     2014   2017      2020               2005     2008    2011      2014         2017      2020

Dunedin property values have generally held up well since the end of March, rising by almost 2% across the city as a
whole, with Taieri leading the way (2.7%). However, analysing all sales across the quarter has shown signs of weakness,
down by more than 2% for Q2 as a whole.

                                                                           JUNE 2020
                                     Current Value        1 month          3 months         12 months              5 years
Dunedin Central & North                $558,691             -0.6%            1.8%             17.3%                  83%

Dunedin South                          $525,107             -2.6%            0.3%             18.8%                  84%

Peninsula and Coastal                  $493,532             0.2%             0.5%             19.0%                  77%

Taieri                                 $575,953             -0.2%            2.7%             20.1%                  89%

                                                                                                                              39
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