So when did Aucklands Property Boom really begin?
It's interesting to note that some Auckland property market commentators have the opinion that Aucklands property boom
actually commenced in December 2001.
But Property Market Analyst Kieran Trass of Hybrid Property Consulting completely disagrees with this timing... He
reveals in the graph below that most Auckland regions started their property market "Recovery" phase from September
2001. Trass notes this recovery excluded the Papakura region which only started to recover from reducing values in mid
to late 2002. Trass also points out these figures clearly evidence that Aucklands property market did not enter the
"Boom" phase (i.e. strong growth throughout ALL Auckland regions, not just some) of the property cycle until the third
quarter of 2002.
Trass notes that what we did evidence, in the period from Sept 2001 to June/Sept 2002, was a distinct movement through
the "Recovery" phase of the traditional property cycle.
Trass also states that some market commentators do not understand that a boom is always preceded by a recovery phase (so
they don’t account for the recovery phase) and they also will probably fail to understand when we enter the "Slump"
phase. “You see we don't simply evidence a plummet in values. We will just evidence a trend in lower value growth
initially, followed by an eventual bumpy ride, until we experience negative growth.”
How can Trass be so sure that this will happen when we enter the next "slump" phase... ”Well it's just common sense and
based on simple supply and demand. Also experience has taught me that there are a few issues which typically arise
either at or just after the end of a boom.”
Trass names just a few signals that will appear when this boom is over:
Values ironically continue to increase! Thats right even after the boom is over values continue to increase. Just look
at 1997... The boom clearly ended in 1996 but in 1997 values still increased in Auckland by @ 5%!
2) Ever hungry "developers and speculators" who were in a rush to capitalise on what appeared to be fat profit margins
inevitably realise they have built too many properties and create a glut of unsold stock. After this happens market
values simply react based on the fact that some developers or speculators can not afford the holding costs of their
unsold stock and eventually are forced by the financiers to sell, or to accept a lower (or negative) margin, by dropping
their price. This influences the price of other surrounding properties.
3) Rental levels become generally unaffordable, peak and then start declining (in line with more vacant stock being
available to rent due to slowing sales volumes - i.e. see point 1).
4) The fundamentals of buying rental property are no longer sound. That is, most properties are priced at a point where
if you were to purchase them (and fund 100% of the purchase price) they will be "negatively geared" (i.e. not enough
cash flow to cover all outgoings). This is when developers will start offering you incentives like a free holiday, cash
rebate, interest free term, free car etc,etc to entice you to buy, oh and they will be very adamant that the tax break
alone makes it worthwhilst to buy the property... beware of the sharks which always come up for their last good feed at
the end of the boom!
5) Lenders "tighten" their lending criteria in preparation for an inevitable reduction in values.
Trass’s consistent opinion on the progression of Aucklands property market cycle has been evidenced by his property
clock timings displayed on Hybrid Property Consultings website at www.hpc.co.nz . In the market commentary section of
the website Trass has the Property Clocks progression through the cycle since September 2001 which reveals his early
identification of the property markets progress from the slump phase to the recovery and now the boom phase.