New Zealand Residential Property OverviewNovember 2006

Agenda

Economic overview

• Mixed economic indicators

• Enough positives to keep household spending growing

• The monetary policy pipeline works - eventually

Residential building and property

• Why has this upturn been so prolonged?

• House sales, prices, rents, and building activity

The regions

• Key indicators from north to south

Mixed economic indicators

Annualised change, last 3 mths

Year-end % change

-40% -20% 0% 20% 40% 60%

Used cars

Dwelling consents (excl

apartments)

New cars

Retail sales

House prices

1%

2%

3%

4%

5%

6%

7%

02 03 04 05 06 07 08 09

Household spending and GDP

Real growth

(year ended)

Household

consumption

Total GDP

The economy’s soft landing

NZ’s external position starts to improve:

• imports contracting in response to weaker domestic demand

• global economic growth holds above 3%pa

• depreciation of the currency from highs of 2005

Household spending keeps growing:

• unemployment rate remains low

• tight labour market ensures good wage growth

• more Working for Families in 2007, and tax cuts from 2008

Setting monetary policy

No more rises:

• headline inflation has peaked – helps inflation expectations

• non-tradable inflation should ease

• below-potential output creates spare capacity

• household spending contracting

• effective mortgage rate still rising

• currency has done some tightening work since June

But plenty of reasons to delay any cuts:

• Bank’s inflation-fighting credibility has been eroded

• labour market tightness has continued to surprise

Interest rate outlook

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

02 03 04 05 06 07 08 09

90-day bill

rates

Ten-year bond

rates

House sales

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

97 98 99 00 01 02 03 04 05 06

Monthly sales

(seasonally

adjusted)

House prices – the latest data

0

5

10

15

20

25

30

35

01 02 03 04 05 06

Number of areas with

quarterly price falls

House prices and rents

-5%

0%

5%

10%

15%

20%

25%

99 00 01 02 03 04 05 06

House prices

Rents

Declining rental yields

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

99 00 01 02 03 04 05 06

Average gross

rental yield

Inflation-indexed

government bonds

New house building

19,000

21,000

23,000

25,000

27,000

29,000

31,000

33,000

35,000

02 03 04 05 06 07 08 09

Annual consent

total

Why such a long upturn?

• A shortage of houses?

• Rapid population growth?

• Higher incomes?

• Low real interest rates?

• Increased savings?

• Favourable tax treatment?

- Not much evidence that population is the main driver of demand

- High house prices have spurred supply

- Rental yields have fallen

House price growth

-5%

0%

5%

10%

15%

20%

25%

30%

02 03 04 05 06 07 08 09

Nov 05 forecast

Nov 06 forecast

Northland

Latest indicators:

• House sales growth: -15%pa

• House price growth: 9.7%pa

• Rental growth: 8.4%pa

• Consent growth: -0.3%pa

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

02 03 04 05 06

Northland sales

growth

NZ sales

growth

Northland

Nominal house

price growth

-5%

0%

5%

10%

15%

20%

25%

30%

00 01 02 03 04 05 06 07 08 09

New Zealand

Northlan

d

Auckland

Latest indicators:

• House sales growth: -6.5%pa

• House price growth: 5.8%pa

• Rental growth: 2.5%pa

• Consent growth: -18%pa

-50%-40%-30%-20%-10%

0%10%20%30%40%50%60%

02 03 04 05 06

NZ consent

growth

Auckland consent

growth

Auckland

Nominal house

price growth

0%2%4%6%8%

10%12%14%16%18%20%

00 01 02 03 04 05 06 07 08 09

Auckland

New Zealand

Waikato / BOP / Gisborne

Latest indicators:

• House sales growth: -16%pa

• House price growth: 11%pa

• Rental growth: 5.6%pa

• Consent growth: 3.0%pa

-20%

-10%

0%

10%

20%

30%

40%

50%

02 03 04 05 06

Waikato / BOP / Gisborne

sales growth

NZ sales

growth

Waikato / BOP / Gisborne

Nominal house

price growth

0%

5%

10%

15%

20%

25%

30%

00 01 02 03 04 05 06 07 08 09

New ZealandWaikato / Bay of

Plenty / Gisborne

Hawke’s Bay

Latest indicators:

• House sales growth: -1.1%pa

• House price growth: 1.9%pa

• Rental growth: 6.6%pa

• Consent growth: 12%pa

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

02 03 04 05 06

NZ consent

growth

Hawke’s Bay

consent growth

Hawke’s Bay

Nominal house

price growth

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

00 01 02 03 04 05 06 07 08 09

New Zealand

Hawke’s Bay

Taranaki / Manawatu / Wanganui

Latest indicators:

• House sales growth: -6.4%pa

• House price growth: 16%pa

• Rental growth: 7.8%pa

• Consent growth: 8.2%pa

-15%-10%-5%0%5%

10%15%20%25%30%35%

Sales Prices Consents

Taranaki

Manawatu

Wanganui

Taranaki / Manawatu / Wanganui

Nominal house

price growth

-5%

0%

5%

10%

15%

20%

25%

30%

00 01 02 03 04 05 06 07 08 09

New ZealandTaranaki /

Manawatu /

Wanganui

Wellington

Latest indicators:

• House sales growth: -0.4%pa

• House price growth: 11%pa

• Rental growth: 6.0%pa

• Consent growth: -6.0%pa

-20%

-10%

0%

10%

20%

30%

40%

02 03 04 05 06

Wellington

sales growth

NZ sales

growth

Wellington

Nominal house

price growth

0%2%4%6%8%

10%12%14%16%18%20%

00 01 02 03 04 05 06 07 08 09

New Zealand

Wellington

Nelson / Marlborough

Latest indicators:

• House sales growth: 7.1%pa

• House price growth: 12%pa

• Rental growth: 5.5%pa

• Consent growth: 1.9%pa

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

02 03 04 05 06

Nelson /

Marlborough sales

growth

NZ sales

growth

Nelson / Marlborough

Nominal house

price growth

-5%

0%

5%

10%

15%

20%

25%

30%

35%

00 01 02 03 04 05 06 07 08 09

New Zealand

Nelson /

Marlborough

Christchurch

Latest indicators:

• House sales growth: -0.4%pa

• House price growth: 6.5%pa

• Rental growth: 4.2%pa

• Consent growth: 3.5%pa

-20%

-10%

0%

10%

20%

30%

40%

50%

02 03 04 05 06

NZ sales

growth

Christchurch

sales growth

Christchurch

Nominal house

price growth

-5%

0%

5%

10%

15%

20%

25%

30%

35%

00 01 02 03 04 05 06 07 08 09

New Zealand

Christchurch

Provincial Canterbury / Westland

Latest indicators:

• House sales growth: -3.3%pa

• House price growth: 18%pa

• Rental growth: 6.6%pa

• Consent growth: 2.8%pa

0.0%0.2%0.4%0.6%0.8%1.0%1.2%1.4%1.6%1.8%2.0%

00 01 02 03 04 05 06 07 08 09

Provincial Canterbury /

Westland population

growth

NZ population

growth

Provincial Canterbury / Westland

Nominal house

price growth

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

00 01 02 03 04 05 06 07 08 09

New ZealandProvincial

Canterbury /

Westland

Otago / Southland

Latest indicators:

• House sales growth: 1.5%pa

• House price growth: 8.9%pa

• Rental growth: 3.9%pa

• Consent growth: 6.7%pa

-5%

0%

5%

10%

15%

20%

Sales Prices Consents

Coastal OtagoCentral

OtagoSouthlan

d

Otago / Southland

Nominal house

price growth

-5%0%5%

10%15%20%25%30%35%40%45%

00 01 02 03 04 05 06 07 08 09

New ZealandOtago / Southland

Summary

Economic growth near its low point, at 2%pa:

• Household spending has been pressured by interest rates, slower income growth, fuel prices

• Some improvement in net exports, but currency isn’t helping

• Tight labour market, good income growth, and tax cuts will restore confidence to spend

Signs of slowing housing market:

• Quarterly price falls in many areas

• Strong building activity will cap further price growth

• Sales, rents, and population growth all remain positive

Broader factors to prevent price falls:

• Baby boomer investment a medium term phenomenon

• Households remain in good position to service debt