It is hard to believe that The Profit is celebrating its 10th birthday and that Williams’ Harvey, has been writing a column for a decade now. I went back over all the articles written and it appears that in a nutshell compliance has been the single biggest change in our sector. Whether in response to economic upheavals such as the Global Financial Crisis (GFC) or natural catastrophes especially the Canterbury earthquakes, the level of compliance we need to adhere to in our reporting to satisfy stakeholders stands out.

We set up our business in 2006, little knowing the world was about to be plunged into one of the biggest periods of financial stress since the 1930 Great Depression with the
GFC.

Worldwide housing prices plummeted approximately 31% – more than the price plunge of 1930. As a result, and in response to the GFC by 2010 regulators worldwide were responding to the financial crisis experience with a large and ongoing program of reforms to “strengthen requirements on banks’ capital and liquidity structures and bolster domestic and international financial supervision”.

Regarding valuing property in New Zealand a panel ordering system was established. In February 2011, I wrote an article titled ‘Changes Afoot’ which signaled that lending institutions would adopt the ‘panel ordering’ system if you required a residential property valuation for mortgage security purposes.

Essentially, lending institutions felt this brought about “greater independence and rigour and through its risk management policies, highly incentivise bankers to correctly assess the risk of a loan, and with an independent assessment of value of the collateral for security, which is a critical aspect of the policy.” ANZ was the first adopter and as predicted all banks have now adopted one of the two panels (Corelogic and Valocity) available followed by second tier lenders and mortgage brokers.

Subsequently reporting has considerably increased the amount of compliance placed on as Registered Valuers in order to mitigate the stakeholder’s aversion to risk. Not entirely popular at first and reports made pretty ‘negative’ reading, however, I predict they are here to stay and are now an accepted part of the lending process for all.

No sooner had these changes been implemented when the 2011 Christchurch earthquake hit. The impact on valuing and property values was profound. As a result, earthquake risk was prioritised and adherence to the Building Act of 2004 regarding a building withstanding a moderate earthquake was enforced rather than being a best practice option. Words such as ‘liquefaction’, ‘seismic strengthening’ and ‘earthquake prone buildings’ (EPB) became part of the reporting landscape, driving the Building (EPB) Amendment Act 2016. As Valuers we have to comment on all of the above and in some cases where buildings were found to be earthquake prone, values plummeted.

Commercial property owners found themselves in the insidious position of having to remediate buildings (with regulatory timeframes now set) as well as manage tenants and/or their businesses, if owner occupied. From a valuation perspective lending institutions and insurers became more concerned with a building’s ‘New Building Standard’ (NBS) percentage. As these factors impacted property’s value lending institutions had the ability to structure funding to mitigate perceived risk. Ultimately, the more relevant information we can analyse means a more accurate assessment of value can be determined.

Residentially there were impacts too. Pre the Canterbury earthquakes residential property was insured on a replacement basis for a floor area size, with no regard to cost. Post the earthquakes insurers and reinsurers found themselves to be considerably underinsured. Consequently, there was a change to an agreed sum insured which needed to include
the house, all other site improvements, services, demolition and inflationary provisions. A substantial change and costly exercise for homeowners who wanted to set an accurate sum insured.

The aim is to satisfy the auditing process for both banks and insurer’s risk management systems. This together with the Reserve Banks move to increase the loan to value ratio (LVR) has meant more equity is required by buyers when purchasing a home. Therefore, whether by mother earth or man-made the impacts of the last decade on the property sector have resulted in compliance, taking more time to produce a considered and accurate report.

Williams’ Harvey undertakes a retail shop occupancy survey of the Central Business District (CBD) of Hastings City.

The survey is based on retail shop numbers and considers main street retail, side street retail and overall retail vacancies. Our last survey was completed in October 2018 and recorded 10.20% of the retail space within Hastings to be vacant which equates to 25 retail shops, this is down from 11.87% in April 2018, 13.47% in October 2017 and 16.73% in November 2016. This latest survey is showing some continued improvement and is the lowest level recorded since October 2013. While some tenants have closed their doors others have relocated within the Hastings retail area. Relocating tenants have been able to use the market conditions to their advantage and gain a better quality premise within a better retail position and generally at a lower rent level. This has placed downward pressure on retail rent levels at the present time.

The Hastings District Council have been working hard on plans to revitalise and create a strong CBD with their Hastings City Centre Vibrancy Plan whose key target outcomes were to encourage more people and more business by creating an environment and activities whereby “customers, workers, residents, students and visitors” could experience and enjoy the Hastings city centre. This strategy was kick started by the redevelopment of the 100 – 300 Heretaunga East block as the removal of the Albert Hotel gave way to green space and regeneration of retail and hospitality outlets. As a continued part of this vision Council have taken the bold decision to purchase two main street retail premises with plans to convert them

into alley way ‘pocket parks’ and thus soak up excess retail space. The first pocket park now complete is in the 300 West Heretaunga Street block which links a previously little known public car park to the main street and creates different types of retail opportunities for adjoining owners. The second and more substantial development pocket park will link the 200 West Heretaunga Street block to Queen Street West. More significantly this involves a major redevelopment of the historic Hawke’s Bay Farmer’s Co-operative Building which will provide the opportunity

for retailers to develop different types of retail as well as much needed city car parking.

Another substantial development which will have an impact on the CBD and surrounding environs is the Hansen Group development of the old Hawke’s Bay Today buildings on the corner of Queen Street East and Karamu Road. This will provide a mix of retail and office accommodation. These developments together with the Council’s desire to encourage inner city living in the often vacant upper levels of our current commercial stock will help to create a busier and more vibrant CBD. Quality developments will not only encourage other quality developments it will also encourage more business to grow and invest in the city centre and encourage inner city living which is important if we want to limit the urban sprawl on the Heretaunga Plains. This activity along with the redevelopment and refurbishment of the Hastings Opera House goes a long way towards the vision of creating a vibrant and safe city centre where people want to live and work and play.

The Council’s vision to revitalise the CBD also encourages the hospitality industry to create different types and styles of bars, cafes and eateries which supports not only the daytime commercial trade but also the evening residential trade. Ten years ago the notion of inner city living was not even a viable idea – now it is very much on its own pathway and the Council must be commended on investing in this revitalisation.

2018 was another interesting year in the New Zealand property market. With stable and relatively high volumes Hawke’s Bay values generally showing consistent growth similar to the rest of the country except for Auckland and Christchurch. Without doubt in 2018 our local property market was being impacted by the more macro of government policy and this will continue in 2019. So how will these outside influences impact our values in 2019?

The first milestone for 2019 will be the relaxation of the Loan to Value Ratio (LVR) restrictions on 1 January 2019. It will be interesting to see the effects these changes may have on market activity. Whilst the LVR is relaxed banks should continue to stick to prudent lending criteria. Therefore, we should see an increase in buyers who can now enter the market as they may now meet the new LVR requirements.

The foreign buyer ban has already been in place for a few months (from 22nd October 2018) and it is still reasonably early to see what impact this has had on our local market and any impact on values. Foreign buyers can still buy into New Zealand if they are buying ‘off plans’ and holding apartments in bigger developments (20 apartments or more). This is more likely to affect activity in the higher residential/lifestyle value bracket as well as rural properties.

The Tax Working Group (TWG) will be submitting its final report to the government in February 2019 with a recommendation of whether to impose a capital gains tax, and in what form (if the recommendation is indeed for a tax, which seems likely). However, it’s important to note that the government would then have to accept that recommendation and win the next election in 2020 before any tax would come into law. The official cash rate is signalled to remain at 1.75% in 2019 (and probably most of 2020) and that should help interest rates to stay reasonably low and stable. However, in spite of efforts to keep interest rates stable the balance of risks around mortgage rates is to the upside. Also, the flow on effects from higher offshore rates as well as the signalling by the Reserve Bank that capital adequacy requirements will be raised over the next five years could also see mortgage rates rise. Any increases in 2019 will probably be small. How all of these factors above interact with each other, and other macro factors such as GDP growth and the labour market, will go a long way to determining the path for sales volumes in 2019 both nationally and locally.

New Zealand is currently in the midst of one of the three biggest booms for building consents in the past 50-odd years, driven by Auckland and a gradual shift away from standalone houses and towards smaller dwellings (townhouses, apartments, flats). Hawke’s Bay has also been part of this boom. In short, consents and actual construction volumes need to stay high – or perhaps even rise further to make a real dent in the current shortfall of housing.

That could be problematic in 2019 for an industry already running at capacity. Now for the big question that every property owner or buyer wants to know: Will prices move up, down or stabilise? The region performed well last year and is expected to continue in 2019 with the current imbalance between supply and demand, low interest rates and strong employment. There is certainly a positive vibe in Hawke’s Bay’s property market at present.

One of the issues we face as an industry is the myriad of opinion of a home’s value as indicated on various property websites. These are generally called the “estimated selling range” and are formulated based on various algorithms that use historical sales data.

In many cases these ranges are incorrect, as are the latest council valuations. These two pieces of information together are indicating a likely selling range in excess of today’s value. This can be frustrating for vendors wanting to sell. This article has highlighted that there is much going on in the property sector. Our local market is more stabilised, but there’s still the unknown risk of overseas influence and national influences.

Either way, it’ll be another busy year, with plenty to watch. Of course, if you’re thinking of buying or selling, do your research.

Hawke’s Bay is growing. We can see that by the numerous new infrastructural construction that is going on around us. So, it’s no surprise our region is growing residentially as we need to house a growing population.

It is generally accepted that new housing stock is now a vital part of keeping up with a growing New Zealand. So, the chances are that building your own home will become a more prevalent option.

However, when building the issues you face are completely different from purchasing an existing property. Land value plus the cost to build does not always equal ‘Market Value’. Most people do not have the cash available to have a house built from scratch, they need to sell existing homes and time frames to build and sell often don’t align. It therefore becomes necessary to borrow funds.

So how can a Registered Valuer help?

The bank will just about always require a valuation of the property “As-if-Complete” from a Registered Valuer. “As-if-Complete” simply means what the property will be worth once complete including planned landscaping. A valuation report includes:

A valuation report includes the following information:

• The Market Value (MV) “As If Complete”
• Analyses “Cost to Create”
• Determines whether the project is over capitalising
• Provides full report to your Financier to rely upon to lend Mortgage Security so you can pay your builder
• Confirms your home is being built as per the plans and specifications.

What the Registered Valuer needs for a progress report:

Full set of plans

• Stamped & Approved by the Local Territorial Authority
• Build Contract
• A copy of your building contract stating build cost and any exclusions

Specifications of

• All building materials
• Fittings to be installed

Details of other site improvements, such as:

• Landscaping, fencing, gardens
• Driveway, paths, paving, swimming pools
• Associated out buildings (e.g. shedding)
• Services to the site

What are Progress Payments and Progress Payment Certificates?

The bank will not normally lend you all the money at once but in stages during the building project.

Therefore, as the build advances, progress payments will be needed to pay for the work completed by the builder. Therefore, your

lender/bank may require a ‘Progress Payment Certificate’ which also needs to be undertaken by a Registered Valuer verifying that the appropriate site works have been completed, and what is still required to finish the project.

On your instructions the Valuer will re-inspect the property to assess the percentage of works complete and a ‘Progress Payment Report’ is issued for the lender/bank to release the funds. Any progress payment recommendation is based on the full funds to be drawn down less a calculated amount ‘Cost to Complete’ less a ‘Saleability Allowance’. The number and frequency of ‘Progress Certificates’ required will depend on your personal financial circumstances, and your bank’s requirements however the following can be a used as an estimate:

• Slab down, framing up and roof on
• Fully enclosed and secure all exterior cladding on and all exterior windows and doors in.
• All interior walls lined, and ceiling lined as well as all electrical and plumbing in place.
• All interior and exterior decoration complete and all fittings to bathroom, kitchen as well as all electrical fittings in place.
• Fully complete dwelling with Code of Compliance Certificate issued, all landscaping and other improvements included in the valuation done.

Items included in the ‘Progress Payment Report’ include all items that are physically fitted in place. We cannot include items that are on site but not fitted, such as: stock piles of building materials, joinery, fittings and appliances on site but not fitted.

However, the following four key items are necessary as they are designed to protect your financier’s interests should they ever be put in a position where they need to step in and complete the project. It is also just as important for you to have a good understanding of the process and requirements involved so that you can make prudent decisions during the build process.

1. Stamped and Approved Plans by Council – these are necessary to confirm our valuation findings.

2. Build contract with contract price – to confirm against our estimated market normal costs.

3. Saleability Allowance – what is this? At every progress payment a ‘Saleability Allowance’ is deducted due to the incomplete nature of the property. The allowance decreases as the project progresses.

4. Code of Compliance Certificate – Our final ‘Progress Payment Report’ will hold some funds until the Code of Compliance Certificate is issued by the Territorial Authority.

Building your own home can be a hugely rewarding experience with significant benefits. You get to stamp your mark and your personality on the project. Not to mention the fact that you also get a pristine place to live, fully insulated and with low maintenance required.

From 1 July 2017, the Fire and Emergency New Zealand Act 2017 (FENZ) came into force replacing the Fire Services Levy. The Act replaces the Fire Services Act 1975 and the Forrest & Rural Fire Act 1975.

It has been designed to ensure New Zealand has a modern, fit for purpose, and well-funded fire service that addresses long standing issues such as under funding of rural fire.

Under the new regime FENZ will be funded almost entirely by a levy on insurance required for additional funding to absorb rural fire costs and to cover new ongoing operating costs addressing things such as gaps in rural fire services, support for local communities and volunteers, and transition costs.