Housing market announcements

This month there have been several announcements affecting the housing market, but regional areas like Hawkes Bay are unlikely to experience any significant changes to the status quo.

In its six-monthly financial stability report, the Reserve Bank announced its intention to introduce new loan-to-value ratio (LVR) limits on lending to property investors in the Auckland Council area that would require those borrowers to have at least a 30% deposit.

The Reserve Bank imposed its original limits on mortgage lending with deposits of less than 20 % in October 2013, but house prices in Auckland have continued to rise due to strong inbound net migration and a lack of supply.

This new restriction is an attempt to take the heat out of the Auckland property market, which the Reserve Bank sees as a key risk to New Zealand’s financial system.

The supply and demand factors in Auckland are absent from most regional economies like Hawkes Bay where housing supply is consistent and population grown is benign due to relatively poor employment prospects.

The 2013 LVR measures constrained the volume of sales in Hawkes Bay which have been recently been tracking at around 20% below the 10 year average.

Recognising more subdued housing markets outside Auckland, the Reserve Bank is easing the restrictions on high-LVR lending for all residential lending to 15% per cent from the existing 10%. The 10% speed limit will stay in place for Auckland owner-occupiers.

This means banks in Hawkes Bay will be able to approve more loans to people with less than 20% deposit. These changes will come into effect from October 2015.

In recent months turnover has improved in Hawkes Bay. This is primarily because many first time buyers are taking advantage of the Home Start subsidy and improved KiwiSaver withdrawal incentives from 1st April 2015.
This weeks pre-budget announcement adds to the effort to rein in Auckland’s housing market. Speculators who buy and sell residential property for profit within two years will be taxed on the capital gains. The family home or an inherited estate will be excluded.

Measures will also be introduced targeting overseas buyers who have been able to escape paying any tax on their profits.

It is unclear what effect this combination of measures will have on turnover or prices in Auckland or Regional New Zealand. But over time, what the changes will provide will be better quality information about owners of investment properties.

Our reading of the Napier market is that the short to medium term turnover will remain at between 80 and 90 sales per month, and price levels are unlikely to shift significantly from current level, which plateaued several months ago.

Cox Partners publish a monthly analysis of the Napier Real Estate Market which is distributed to our interested people by email.

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Housing market announcements