Issue 50 - Those Capital Values… - April 2009

Recently, because we have had buyers who are able to purchase unconditionally, but have not had properties suitable to their needs, we have appealed to those considering selling, to give us a call. As a result, we have received a large number of calls from would-be sellers, with most of them wanting to sell their properties for prices in excess of the Capital Values - in one case about 40% above!

There seems to be an impression among many that as the Capital Values were calculated in 2007 (in Waitakere City), the values now must be higher. Despite all the comment in the newspapers and magazines and on TV and radio, it appears that a large proportion of the population is completely unaware that house prices have been declining for the last eighteen months! At time of writing, the average discount to C.V., was a little over 10% in New Lynn, nearly 9.0% in Glen Eden and about 7 ½% in the Titirangi area (which includes Green Bay, Laingholm, Wood Bay etc.).

Apart from that of course, there is also a proportion of the buyers and sellers who have implicit faith in the relevance of the values assigned to a particular property at the time of the re-valuation.

It needs to be made clear that Capital Values are not necessarily as accurate as many would suppose. They are essentially calculations based on a number of factors in respect of actual sales made in the months prior to the values being re-assessed. While I have no doubt that those responsible try their hardest to achieve a fair result, there are some matters about those sales which I am sure are not taken into account.

Among these are the condition of the property at the time of sale, the reason for the sale, (i.e. – was it a mortgagee sale, which may sell at a lower than normal price), sold by auction (likely to sell at a lower price) sale to related parties (which may also sell for a lower price than would normally be the case).

Really nicely presented properties can still sell for a premium over their less well-presented neighbours and conversely, the poorly presented property can attract a far lower price. The effect on the Capital Values of neighbouring properties could be quite marked in such cases.

Auctions

As regular readers will know, my oft-suggested advice for those contemplating auctions is:
Don’t!

I am constantly amazed by those who make the decision to sell by auction.

It was bad enough at the height of the boom when there were plenty of buyers around, but at present when real buyers are few and far between and there are tales of no bids being received at some auctions, taking a property to auction could be seen as a sign of desperation – or madness.

After all – who in their right mind would spend a large sum of money to attract buyers to a property when the chances are that there will be only one real buyer at best (plus, probably a gaggle of gawkers who have come to see a sideshow)?

At present, a number of auctions are, admittedly, for mortgagee sales, their use dictated by mortgagees who favour auctions to get a quick result, never mind that it may not be the best result. It has to be remembered that any shortfall between the net sale price and the amount of the loan, will fall back on the ex home-owner so there is not the same pressure on mortgagees to achieve the best result for their debtor. 

…and the economy is going where?

There have been some interesting signs of late that things might start to get a little better before too long.

Think about these:

A small increase in the latest ‘milk auction’ prices, posted by Fonterra – could this be an indication of a change of direction in dairy prices?

Immigration rates that are growing – many are homeward bound Kiwis, whose pockets are bulging with many more Kiwi dollars than they would have had a year ago, thanks to our rapidly declining dollar.

Slight increases in the volumes of existing house sales – aided by the declining costs of borrowing.

When volumes improve in house sales, before too long, there will be an increase in sales of ‘household merchandise’ – furniture, whiteware and so-called ‘brownware’.

A beneficial tax adjustment that will put a little spending power back into consumers’ pockets.

Some indications that our lower dollar is attracting some (albeit small) increases in tourists visits and similarly, some increases in exports.

My glass is half-full!