Market Report 2023 October 2

Value change dependent on Election result

Market Update

Value change dependent on Election result

Market Update - October 2023

October 2023

The upcoming election may have a significant impact on apartment sales and values in the next six months.

Market Report 2023 October 2

The election night is only a few days away, the 14th of this Month, and according to the early polls, change looks to be on the cards. Now please remember I am not putting out a political opinion just Auckland Apartment views and expertise so please don't hold the current political climate against me. 

So, what will this election mean for Auckland Apartments in the next 6 months? 

Will more buyers come out to buy once it's over? 

Will more owners decide to sell? 

Will values go up? 

I look at the sales activity of the last seven elections to see what's coming. 

Firstly, this isn't new.

Most property experts will tell you elections affecting values are all hype but sales volumes do slow before an election but not dramatically and then increase after, again not dramatically, with the change in values before and after being negligible. And they are all correct. If you look back at the data for the last 25 years this has been the story 6/7 times. So, I won't go in-depth into what is already out there. What I am going to do though is go over why this election is not like those 6/7 elections and more like that one outlier - the 2014 Election.

So what happened after the 2014 election?

In the months following the 2014 election, Auckland Apartment sales numbers substantially increased, with values rising an estimated 15% over the next six months. 

So, what's the similarity to 2023? 

Major property policy change was also being campaigned by one of the major parties. Change that if occurred, would dramatically change the property purchase landscape. In 2014 it was the Labour Party campaigning. In 2023 as we know it is National. 

In 2014, Labour, for the first time ever, campaigned to bring in capital gains tax and foreign property purchase restrictions, which the investor community's reaction being that it would negatively affect values. With Labour announcing the campaign three years before the election, investor sentiment was affected for quite some time. The threat was then quashed on election night by a National win, and apartment sales numbers rose substantially as well as values. Remember back then apartments had a bad rap and it was those capital gains that started the train running which led to the biggest apartment value boom in our history.

This election, National are campaigning that they will reduce the bright line test (capital gains tax) from 10 years down to 2 and bring back tax-deductibility, which, if it occurs, will increase transaction volume. Supporting this trend further is a more than usual pre-election reduction in sales volume, in fact over the last 12 months some indicators point to the lowest volume in over 20 years despite Auckland today, having far more property and people than ever. 

Below: Article heading from The NZ Herald in February this year.

Now of course it is not that simple. The property market is much more complex with many more factors like economic climate and interest levels to contend with but you have to admit there is a strong similarity. You just need to throw the politics out of it and say to yourself....if the bright line test is reduced from 10 to 2 years as well as tax deductibility brought back does it make you want to purchase right now while values are at their lowest? 

It certainly encourages me to purchase, and being in the business, more likely to purchase to sell at a profit much more frequently. 

Now unlike in 2014, when there wasn't a change in major party governing, this year, for the narrative to support increased apartment sales a change in major party needs to occur, and if you look to previous elections, just because one party is ahead in the polls leading up to the election doesn't mean a win. Anything can happen. 

So, what do I see occurring for Auckland Apartment values?  

National win 

I see the above narrative pushing sales volumes up over the next six months as the future looks too good; however, not to the same extent as back in 2014/15 due to the ability to purchase. Interest rates are simply too high right now to enable all those who want to purchase to do so. I see a 5% to 10% lift in values over the next 6 months which is very positive given this is only half a year. 

Labour win.

Volumes increase slowly, and values remain relatively flat. The future is good, yet with the coming tax deductibility reducing to 0 and the possibility of further interest rate increases due to recent high GDP figures, I can't see there being enough positive sentiment in the market to lift values more than a few per cent. That is, until interest rates start to come down, or the opinion that they will very soon, occurs.

So a bit of a different one this month...and a bit controversial but as always. Apartment loyal.

And as always...

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      Value change dependent on Election result