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RBNZ Governor says new LVR limit will be set at just 10% of a new bank's loan book from October 1

Posted in Property Updated

Reserve Bank Governor Graeme Wheeler says that from October 1 banks will be subject to restrictions on high loan-to-value ratio (LVR) housing mortgage loans.

Banks will be required to restrict new residential mortgage lending at LVRs of over 80% to no more than 10% of the dollar value of their new housing lending flows.

Due to some exemptions the effective figure is expected to be about 15%. In recent months banks have been doing about 30% of their lending in high LVR loans. 

But the setting of such a relatively low figure - the 10% is lower than the RBNZ gave in examples of how the limits might work - is likely to come as a shock to the big banks. Many of the banks have already been sceptical about how the LVR limits might work.

Wheeler said that how long the LVR restrictions may remain in place "depends on the effectiveness of the measures in restraining the growth in housing lending and house price inflation".

"LVR limits will be removed if there is evidence of a better balance in the housing market and we are confident that their removal would not lead to a resurgence of housing credit and demand," he said.

"If the measures are not considered to be effective (and cannot be made effective through altering the details of the policy) they will be removed, but in this case their removal might necessitate higher interest rates than otherwise, or the imposition of alternative macro-prudential requirements."

The details were released by Wheeler at a speech, the location of which the RBNZ wouldn't even give earlier in the day other than to say it was in New Zealand.

In fact the speech was at Otago University.

Wheeler said some loans would not count towards the banks’ use of the speed limit.

These included Housing New Zealand’s Welcome Home Loans, bridging loans, refinancing of existing loans and high–LVR loans to existing borrowers who are moving home but not increasing their loan amount.

Allowing for these exemptions, the RBNZ estimated that the 10% speed limit would effectively limit the banks’ high-LVR lending flows to about 15% of their new residential lending.

Banks respond

The industry body for the banks, the New Zealand Bankers’ Association said banks would continue to "work hard to meet their customers’ needs" within the new restrictions - but it warned of some adverse consequences.

"People should be aware they may be declined loans because of the new restrictions imposed by the Reserve Bank. It’s worth talking to your bank about your individual needs and circumstances," chief executive Kirk Hope said.

“Most small New Zealand businesses raise investment capital through equity in their homes. LVR caps may limit their ability to invest in their businesses. The lending limits may also make it more difficult for first-home buyers and home-owners seeking a top-up loan for renovations," Hope said.

"The real issue is a lack of housing supply in some parts of the country, not the availability of cheap credit," he said

"...Credit growth, currently at around 5%, is not driving this."

ASB chief economist Nick Tuffley said the ASB expected the new restrictions "will slow housing market activity over the coming months, although the effects are likely to be modest".

"However, given the persistence of supply and demand imbalances we continue to expect house prices will continue to increase over the next couple of years.

"In early 2014 the inflation outlook will also increasingly point to interest rate increases.  However, on balance we see recent market pricing of a 3.75% OCR by the end of 2014 as a little on the high side," he said.

Westpac senior market strategist Imre Speizer said the timing of the RBNZ announcement may have surprised the market, "which may have been expecting a background discussion rather than an explicit introduction".

"Interest rate markets reacted sharply, the 2-year falling from 3.55% to 3.45%, and the 2-10-year curve steepening slightly  further from 152 basis points to 154bp. The NZD/USD exchange rate fell from 0.8025 to 0.7980, while AUD/NZD rose from 1.1320 to 1.1380," he said.

"An additional reason for the market reaction may be a deeper reflection of the impact on the OCR outlook. The RBNZ will need time to assess whether this measure will slow the housing market, and it is arguable whether that assessment could be completed before January 2014 (markets previously priced in a March 2014 hike which would need to be signalled by the January meeting).

"The market may therefore push out its pricing for OCR hikes." Speizer expected the LVR limits would have "limited" effectiveness in cooling the housing market. 

ANZ chief economist Cameron Bagrie and senior economist Mark Smith said they expected the LVR restrictions to "dampen demand but to be no silver bullet for Auckland’s housing woes".

"They do give the RBNZ more wiggle room."

Bagrie and Smith said there was speculation of "a mad rush of pre-approvals" for mortgages over the six weeks before LVR implementation.

"We don’t think this will be the case: the RBNZ has stated they expect banks to start modifying their approach today.

"Anecdotally, financial intermediaries have already been backing off in the high-LVR space and we expect this to continue. The loan approval process will be tightened to hit the desired speed limit."

BNZ senior economist Craig Ebert said, on how long the LVR limits may be in place, "practically speaking, we must be talking of at least until the end of March 2014, given it’s a six-month period that will be used to judge the 10% ratio initially, before shifting to a 3-month rolling basis after that".

A number of months would also seem necessary before the RBNZ could reasonably expect to discern the impact of the LVR restriction (on cooling the housing market)," he said.

"This runs the risk of the Bank fiddling while Rome (read: the housing market) burns." 

To be fair, the RBNZ was not blind to these risks, as exampled by its comment that it would remove the LVR limits if they could not be made effective but would then possibly have to put interest rates up higher than would have been otherwise the case. or use alternative "macro-prudential tools", Ebert said.

"Still, to the extent orthodox tightening should be the preferred, and more powerful, tool, by the time this is realised it would probably have to involve some aggressive catching up on this front."

Kiwibank's promising to put first home buyers first in the lending queue.

"When it comes to lending with deposits of less than 20%, we will give priority to first home buyers over those who are buying investment properties," chief executive Paul Brock said.

Wheeler concerned

Wheeler said the RBNZ was concerned about the rate at which house prices were increasing "and the potential risks this poses to the financial system and the broader economy".

"Rapidly increasing house prices increase the likelihood and the potential impact of a significant fall in house prices at some point in the future. This is particularly the case in a market that is already widely considered to be over-valued s concerned," Wheeler said.

The LVR restrictions were designed to help slow the rate of housing-related credit growth and house price inflation, thereby reducing the risk of a substantial downward correction in house prices that would damage the financial sector and the broader economy.

“The conventional mechanism to help restrain housing demand, while working on the supply response, would be to raise the Official Cash Rate (OCR), which would feed through directly into higher mortgage rates.

“However, while higher policy rates may well be needed next year, as expanding domestic demand starts to generate overall inflation pressures, this is not the case at present. CPI inflation currently remains below our 1% to 3% inflation target.

"Furthermore, with policy rates remaining very low in the major economies, and falling in Australia, any OCR increases in the near term would risk causing the New Zealand dollar to appreciate sharply, putting further pressure on New Zealand’s export and import competing industries," Wheeler said.

Best response

In the current situation, where escalating house prices are presenting a threat to financial stability but not yet to general inflation, macro-prudential policy "offers the most appropriate response" he said.

Wheeler said house prices were high by international standards when compared to household disposable income and rents. Household debt, at 145 percent of household income, was also high and, despite dipping during the recession, the percentage was rising again.

"Furthermore, the growth in house prices is occurring after only a small correction following the house price boom of 2003-2007 that saw New Zealand house prices increase more rapidly than in any other OECD country."

Wheeler said the RBNZ was not alone in expressing concerns.

"Over the past several months the IMF, OECD, and the three major international rating agencies have pointed to the economic and financial stability risks associated with New Zealand’s inflated housing market."

The RBNZ considered that LVR speed limits would be more effective than other "macro-prudential tools" in constraining private sector credit growth in the housing sector, and dampening housing demand, Wheeler said.

Other macro-prudential instruments, such as counter-cyclical capital buffers and capital overlays on sectoral capital requirements, were likely to have less effect on the demand for housing-related credit and on house price growth.

Abide by the spirit

He reiterated earlier RBNZ sentiment that it was expecting the banks - who will have the LVRs as part of their conditions of retaining registration as a bank - to abide by the "spirit" of the new rules.

“We are concerned to ensure that specially designed lending products are not developed with the purpose of avoiding or undermining the LVR restrictions. The Reserve Bank expects bank senior management and bank boards to respect the spirit and intent of the LVR restrictions and to closely monitor the level of high LVR lending."

Wheeler said it was critical that priority be given to implementing measures needed to relieve the shortage of housing and land supply, "which is the dominant cause of the increase in house prices in Auckland and Christchurch".

"But the LVR restrictions have a useful role to play alongside the supply measures."

The background

The RBNZ's announcement today has been well sign-posted.

It gave more details of its plans last week. Although LVR limits are in theory something aimed to achieve financial stability, the RBNZ has indicated previously it sees them as being able to take heat out of the housing market. While the latest monthly real estate figures showed some easing in price pressure, there is no doubt the overall state of the market could fuel future inflationary pressures.

In the meantime, the Government has been attempting to ease the path of first home buyers into the housing market, having earlier failed in attempts to get first-timers exempted from the RBNZ moves. See here for articles about LVRs. See here for articles on the RBNZ's macro-prudential tools.

The move has already prompted criticism from among banks. Last week BNZ's head of research Stephen Toplis said in his  "Economy Watch", that the LVR move was a "gamble" designed to slow down the pace of house price inflation in order to reduce the banking sector’s vulnerability to a future house price correction. He also talked about the RBNZ being in "panic mode" about house price inflation. And he argued that the central bank was sending conflicting signals and says its credibility is on the line.

The measures have been some time coming. After a memorandum of understanding was signed between the Reserve Bank and Finance Minister Bill English in May paving the way for the macro-prudential tools, Wheeler said the tools could be used to build additional resilience in the financial system during periods of rapid credit growth and rising leverage or abundant liquidity.

They would also dampen excessive growth in credit and asset prices, he said.

“These new tools could be used from time to time to help avoid extremes in credit and asset price cycles. They can promote financial stability by helping to build capital buffers and reduce incentives for speculative behaviour, which can contribute to boom-bust cycles in credit and asset prices," said Wheeler.

The four macro-prudential tools, which could only be applied to registered banks on a temporary basis and wouldn't affect existing loan agreements, are:

  • the countercyclical capital buffer, effectively banks holding more capital during credit booms;
  • adjustments to the minimum core funding ratio, altering the amount of retail funds and longer-term wholesale funding banks have to hold;
  • sectoral capital requirements, or increasing bank capital in response to sector-specific risks;
  • restrictions on high LVR residential mortgage lending.

The Reserve Bank has said it could implement more than one tool at a time.

 

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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87 Comments

Graeme Wheeler must be a

Graeme Wheeler must be a property investor, he won't have to outbid those pesky first home buyers anymore! Jokes aside, while it's good to see the RB do something at least, I feel for first home buyers who will have to apply for new credit cards or visit finance companies to borrow the balance of their deposit at ridiculous interest rates.

Yep, at interest rates that

Yep, at interest rates that get close to pay day loan rates and remain legal.

I wonder what happens between

I wonder what happens between now and 1st October ?
Is it six weeks of frantic pre-approvals to beat the cut-off  ? 

Why don't you find out and

Why don't you find out and let the rest of us know how it went? They won't believe me if I ask for a mortgage approval, no matter what the LVR is.

LMAO

LMAO

Interested ... the younger

Interested ... the younger people are a lot smarter than the boomers.
 
It is the young peoples turn now.
 
Hugh Pavletich

Think Horses and stable

Think Horses and stable doors
The big Q is ... will it slow down demand for housing or take steam out of the market  ?
I cant see it.
The whole thing is mightily stacked against Wheeler.
We have likely had 2,000 new migrants arrive in Auckland since yesterday morning ( two days ago)all wanting somewhere to live .
And where Auckland City restrictions are a major problem  , the city is bound by arbitrary lines around it , and council fees for a subdivision add $100k to the price of a section .
Its a fiasco

Too true on all counts.   If

Too true on all counts.
 
If someone really wanted to subdue this market, nothing short of a multipronged offensive would suffice:
 
- Attack on land supply constraints (slay the evil Councils and the NIMBYs)
- Attack on ease of foreign investment (slay the evil off-shore buyers and speculators)
- Attack on absence of ring fencing of paper property losses (slay the tax fine-tuners)
- Attack on untaxed intentional Capital Gain income (slay, well, about all property vendors in NZ)
- Attack on building material monopolists and oligopolists (slay Fletcher and the gang)
- Attack on the red tape (slay the evil Councils)
- Attack on the crazy infrastructure contributions (slay the evil Councils, yet again)
 
Clearly, the Councils need to be slain at least three times, since they are the most responsible party for the current predicament.

Time to see if our asset

Time to see if our asset prices are overvalued, and whether households and businesses have taken out loans that they cannot pay back. 

You could be onto something

You could be onto something there , almost all asset classes are up  at historical highs
Equities on the NZX 50  are up around 30% for the past year , while Auckland House prices are laggards at a mere 12% .
If anything , the NZX should be the first to adjust if overvalued .
Housing is more stable driven bywhat appears to be  real demand , and I have yet to see any emperical evidence of speculators driving prices.
Time will tell  

Look at the Auckland

Look at the Auckland residential yields falling like a rock.
 
If that's not enough of an indicator for speculators being the main driver, what is?

Who is correct herald or

Who is correct herald or interest.co.nz - as reading this on herald website front page  ?
"He said banks would be required to restrict new residential mortgage lending at LVRs of over 80 per cent to no more than 10 percent of the dollar value of their new housing lending flows."
Is this weasel words for 10% lvr or something different?

Its a bit unclear isn't

Its a bit unclear isn't it.
My interpretation is Wheeler is protecting the Banking system from over-exposure , and has little real concern for first time buyers .
I think he is saying to the Banks ...." look at your whole lending book, and if it exceeds X of total new  loans , you need to rein in"

Not true.  They do not look

Not true.  They do not look at the 'whole lending book'.  They are only looking at banks new lending. 
Banks 'whole lending books' are actually in pretty good shape; as house values have risen, so has the value of the security the banks have against their loans.
The risk is that house values are not that robust, as very small volumes of sales has the effect of re-valuing the entire housing stock of the country.
 

Depends on whether rollovers

Depends on whether rollovers at reset time are considered to be outside the controls or inside .. also means mortgagees in this category looking to move to another bank for a better deal at rollover time will now have to stay where they are - the RBNZ has just handed the banks a set of handcuffs to lock in their existing customers with

From the documents I've read

From the documents I've read (links posted in other interest.co.nz article) it does not apply to rollovers

If you move to another bank

If you move to another bank the RBNZ classifies that as a new mortgage

The answer to my question is

The answer to my question is over on the Kiwibank response article .. there are carve-outs and exemptions .. if you move house and pay off the old mortgage and take out a new mortgage on the new home it is exempt .. so long as it is no more than the old mortgage .. so you can stay in your existing home and move to a new bank with a new mortgage .. so long as it doesn't increase the size of the loan ..

Thanks for that info

Thanks for that info Puketepapa.  So these carve-outs and exemptions have the potential to create a little flurry before the 1 Oct start date.

Thanks for that

Thanks for that

Perhaps the fault lies with

Perhaps the fault lies with our professional valuers. Rather than last sale price perhaps they should weighted average to ascertain a proper valuation. That would help slow down lending on valuations where one house on a street allows an entire neighbourhood to revalue.

Of new bank lending, only 10%

Of new bank lending, only 10% (max) can be of the risky 80% or higher LVR.
This means banks will likely stay within 8% to be safe. 
Which means a whole lot of banks potential customers have just been removed.  Less demand, less people at auctions trying to pay ridiculous prices for average houses in auckland...
 

It is all in the word "value"

It is all in the word "value" and that has not been defined. Currently "value" has been the price people are prepared to pay for a house. You can only borrow what you can afford to service.
What is to stop "values" going up on paper and the borrowings staying inside the LVR cap?
 

Notaneconomist ... in normal

Notaneconomist ... in normal markets housing does not exceed 3.0 times gross annual household income requiring mortgage loads of about 2.5 times.
 
We are now on the rocky road back to "normal".
 
It sure is going to be hard on the rear ends of the losers who are not reading this new trend.
 
Hugh Pavletich

Auckland will be hardest hit

Auckland will be hardest hit for sure.  I imagine we will see a one off adjustment over the next 6 months or so, you might be surprised at the impact this has

Only time will tell . I dont

Only time will tell . I dont see this working at all, but I could be wrong .
There is a severe supply side problem here , and prices could continue to rise  .  

Boatman ... may I suggest you

Boatman ... may I suggest you check out my comments further down the thread on California and Britain.

What I expect is for the

What I expect is for the price growth to slow down a tiny bit due to this measure, but not by much.

Instead of 40-50% of "more affordable" Auckland properties being bought by very well cashed up Asian buyers (be they immigrants or not), we'll now have them take 60-80% of them.
 
So what? Is that a problem? I don't think so. When the prices start correcting massively, and they will at some stage, it's only fair that those who have contributed to the problem the most also suffer the greatest losses. In fact, I am starting to regard the Auckland Property Market as one of the greatest cons perpetrated by the "master planners" against the Chinese investors anywhere on the planet right now, and I am starting to like the idea. I mean, if NZ Inc needs to rip someone off in order to survive, why not rip off the foreigners first (I have nothing against the Chinese personally, if ripoffs were necessary I would happily rip off any other foreigners too without regard to their race, gender, sexual preference or nationality).

Steve-O ....may I with

Steve-O ....may I with respect suggest you check out my recent articles by google search "Hugh Pavletich" and go to the "Scoop InfoPage" for a schedule of my articles.

a

a real lateral-thinking governor would have decreed that forthwith all street numbering throughout the auckland region will begin at 4000 and continue on up 4001, 4002, 4003 etc

Why not let them all start by

Why not let them all start by "8". Isn't the objective to collect as much free foreign equity before any controlled blood-letting in the markets?

The RBNZ's credibility is on

The RBNZ's credibility is on the line in more than one way here. If this doesn't work - will Wheeler and other RBNZ resign?
 
Who is the LVR affecting the banks or the borrowers? What happens to the supply?
I expect house prices will increase with this policy and new distortions will be created.
 

Good question , I think he

Good question , I think he  he is reining in the Banks , as referee of the Banking system  , thats his job .
Although , Wheeler has not actually intervened in the market , merely painted a touch line.
As referee he can enforce the rules. If the game goes out of play , to get it back in play .
I am still not a believer in intereferance with  perfectly well structured , orderly and functioning free markets such as the NZ property market  .
 

Boatman's right - Wheeler's

Boatman's right - Wheeler's responsibility is the financial stability of banks, not house prices. If this LVR speed limit reduces financially stability, then the limit hasn't worked and he should resign. 

Zoltuger - I can't see how

Zoltuger - I can't see how the LVR will provide the financial stability that Wheeler is desiring. It is all in the word "value" and how "value" is currently obtained.
 
We have had previous periods in NZ where values were written up to obtain finance for property. Current supply shortages will help assist in rapid value increases.
I think Wheeler has just made a large mistake, as LVR's are not the correct mechanism to be using. If you don't want a business to fail then you don't target the core of their business function. It seems everyone knows that you have to build equity and income except the RBNZ.
 
This policy could place property out of the reach of many NZ'ers.

Instead of this 10% limit

Instead of this 10% limit about LVR, why not eliminate covered bonds which can comprise up to 10% of bank assets?
Taking away covered bonds reduces the amount of offshore borrowing a NZ bank can do, hence they will be more careful with lending.
Also it negates the risk faced by local depositors who effectively back the covered bonds with cash deposits.
 
Killing 2 birds with one stone.
 

I'm pretty excited about it

I'm pretty excited about it actually... suspected it may have been all warnings and talk.  This is a bold move and it's good to see. 
Appartments that banks already restrict lending to around the 80% LVR max have just become relatively more attractive. 
As banks are forced to play within there own safety limits they may be more likely to take on additional risk by lending more on appartments or maybe even SME's or other productive sectors

+1

+1

Have a look at this link and

Have a look at this link and go to the last comment by Hypertiger, there is no easy way out of this mess.
http://wallstreetexaminer.com/forums/index.php?showtopic=1058562

The Reserve Banks actions are

The Reserve Banks actions are essential, as we cannot have a bubble on top of a bubble, simply because Government at central and local level have failed to deal effectively to date with land supply and infrastructure financing.
 
Reserve Bank Governor Wheeler has made this extremely clear. Once supply issues are dealt with effectively, the Reserve Bank will review the situation.
 
I explained this “government inertia” problem  December with Housing: Mr Key – Get on the Programme .
 
The  Demographia Survey and the Christchurch City Council Quick Facts Graph tell it all really.
 
So people should really be asking their local and central government politicians … when are land supply and infrastructure issues going to be sorted out, so we see $50,000 starter fringe sections with starter house & land packages for about $1,000 per square metre all up
 
. I explained “how” mid last year within Section 4 of Christchurch: The Way Forward … and too recently … where the research focus must be .
 

Hugh Pavletich
 

I doubt your $1,000 per m2 of

I doubt your $1,000 per m2 of new house, all up, is a realistic target for outer Auckland suburbs even for large (350m2+ gross size) new dwellings.
The land banks well outside the current urban boundaries have already had much higher levels of eventual subdivision price/revenue priced in in their today's values. And they, the Auckland fringe landbankers of today, be they overseas or locally based, won't be subdividing only to realise losses, but keep stashing it away if they don't like the new prices. Nothing short of an economic calamity will correct these and force them to dump at such levels that the new developers may find it worthwhile to offer your target section prices.
However, create the right circumstances, wait long enough, and a calamity will come. My main worry then is for the government of the day not to spend all future Tax income bailing out the banks that will certainly go belly up in the process.

steve-O ... some prefer to

steve-O ... some prefer to learn the hard way. Such is life.

Hugh - I'm not so sure I can

Hugh - I'm not so sure I can agree that the RBNZ actions are essential. Supply issues are not going to go away for quite some time.  While I agree on most of your work as to what the problems are this particular policy appears very dangerous at this point in time.
 
I smell a rat in this policy. I could be viewing things completely wrong and actually hope that I am wrong but I see the opposite happening to what the RBNZ says it desires.  The policy could have a slowing effect for the very short term and then prices will escalate away.

If a major eventual

If a major eventual correction was imminent, would you prefer to put Aussie/Kiwi "too big to fail" bank money in front of the line of fire, or speculative foreign capital instead?

All I am saying is - maybe this is all part of a very well thought out plan.
 
I, as taxpayer, would prefer the cashed out foreigners to bear the brunt of any future correction rather than Aussie or Kiwi banks doing it, for the simple selfish reason of not wanting to be forced to have my taxes bail out the latter. The former would be sacrificed without any hope for recompense, so why worry about them.

Notaneconomist … The Reserve

Notaneconomist … The Reserve Bank with Gov Wheeler are spot on, in my view.
 
Bubble values do fall in undersupplied markets as well. Consider the UK where the bubble bust oscillations over recent decades have got larger. Check out Leith van Onselen (the Unconventional Economist) writings on the sick British housing market.
 
Note too … California on a population basis has a million less residential units than Texas. It was California that blew apart ’07 … not Texas. I wrote about this over 3 years ago with Housing Bubbles: Jumbo Mortgages = Jumbo Problems | Scoop News .
 
There is a lot more “elasticity” in housing markets, than the poorly schooled in soft social science degrees realize. They just don’t realize what a deadly economic cancer these totally unnecessary housing bubbles are.
 
Hugh Pavletich

The speed bump should have

The speed bump should have been only for Auckland properties...

The problem is not housing

The problem is not housing affordability in Auckland that the RBNZ is concerned with. It is the kiwis cashing out and moving their money out to the rest of New Zealand and buying retirement properties, buying boats, 70inch LED TVs, spending up at restaurants, buying BMWs and Lambros and general orgy behaviour that is the problem.

Smokey ... any housing market

Smokey ... any housing market over 3 Median Multiple is in bubble territory. Check out the Schedules of the Demographia Survey www.demographia.com . And too the Definition of an Affordable Housing Market on my archival website Peterformance Urban Planning www.PerformanceUrbanPlanning.org .
 
Hugh Pavletich

As a young first time buyer

As a young first time buyer who has spent the last four years saving a 30% deposit, I would like to say a big thank you to Graham Wheeler. Looking forward to big price drops and making a boomer cry on settlement day. GAME ON.
 

Dream on buddy. He's just put

Dream on buddy. He's just put aside more entry-level Auckland properties for cash buyers (read: Chinese) only.
The propery bubble will continue, but they'll now need to find even sillier ways to deny that it's the Asian capital creating most of the mess.

Do you have the slightest

Do you have the slightest shred of evidence that the Auckland property market is being bid up by overseas Chinese buyers? Aside from anecdata and irrational xenophobia?
The closest we have to any evidence as to whether this is occuring is Tony Alexander's survey of real estate agents here http://tonyalexander.co.nz/surveys/bnz-reinz-survey/nz-house-sales-to-fo.... His figures put the overseas Chinese buyer figure at 2.1%.

Not Chinese bidders, but I do

Not Chinese bidders, but I do have the evidence that in the last 70 Quarter periods (up to Q1 2013 inclusive) if you look at the past 5 years of house prices, 80% of the time Capital Transfers (as measured in the Balance of Payments figures) is a more reliable match to house prices than interest rates.
This strongly suggests that offshore money is a more significant factor than local interest rates.

Dh - maybe you could post the

Dh - maybe you could post the information you have put together.  I assume this is part of what you put up last week.
 

It followed on from it.  I

It followed on from it. 
I took Value of New Zealand Housing Stock (From RBNZ key graphs data) Balance of Payments - Capital Transfers - Credit (From Infoshare Econmic indicators, Balance of Payments) Balance of Payments - Capital Transfers - Debit (From Infoshare Econmic indicators, Balance of Payments) Fixed 2 year mortgage rates, average for the three months of Quarter (From RBNZ key graphs data (from 3rd quarter 1998)) Floating mortgage rates, average for the three months of Quarter (From RBNZ key graphs data) Estimated number of dwellings ((from 1991) From Stats NZ) and put them together into this spreadsheet:
https://www.dropbox.com/s/e3yp9y7zwfhyfy1/compare.csv
I then wrote this R code to analyse them
https://www.dropbox.com/s/03kadibu5vib03m/comp.R
And the take home is that in 80% of the past 70 quarters, debit capital flows are a better model for house prices than interest rates for the preceding 5 years.
My analogy is that offshore capital flows in and out of NZ, but it can clog up in the housing market like bad cholesterol.

I absolutely do Hane.   I've

I absolutely do Hane.
 
I've been outbid about 15 times in Auctions, tenders and DD sales in the the period between mid 2010 and mid 2012 (and I failed to be outbid once, which I still own, but not sure for how long).
 
Out of those 15 times, I have been outbid by unmistakeably mainland-y Chinese 12 or 13 times.

That's all the evidence I need I am afraid. A personal, real life, first person shootout kind of anecdotal sample of 15 ain't that bad anymore,  is it, my property hustling friend?
 
And no, I wasn't buying anywhere near Epsom, Mt Albert or Remmers, so some of the real life stats could be more acute than my own.
 
 

I see. So you have no

I see. So you have no evidence at all for your views apart from personal anecotes.
PS: how by the way did you distinguish "mainland Chinese" from NZ permanent residents and citizens at these auctions? Did you ask to see stamps in passports? Or did you make a load of assumptions based on how people looked? I suspect the latter.

I only need evidence for

I only need evidence for myself to the extent that it helps my own future actions. You are a denial propagandist, so a part of the problem, to whom there is no point wasting precious time proving anything, but you and your previous actions will become a part of the solution when the market starts to implode under a combo of changed external parameters and the sheer weight of its own stupidity.
 
If someone as neutral as Statistics NZ was collecting statistics on every single purchase and the purchaser citizenship/place of residence/usage intention, maybe I'd trust it to the extent that I trust self declarations to be truthful. Partial stats from vested interests have no value to me.
 
Having been to PRC enough times on business, leisure or otherwise, being basically able to tell Mandarin and Cantonese, and usually Fukienese too, apart , I can normally tell fresh off the plane arrivals from the highly kleptocratic Communist China apart from the other, more Westernised Chinese.
 
Lack of English is normally one of the defining traits, but not sufficient.
 
Looking straight ahead with a semi-blank stare and a narrow field of vision is also telling of anyone comming from a Communist society. Having been to places such as Albania, Ukraine and Mongolia soon after the Iron Curtain came down, you learn to recognise the facial expressions of those who have lived long in a proper, secret police ridden Communist society. That doesnt quickly wear off.
 
The way they dress vs. their age is another one.
 
Their demeanour is yet another one.
 
Malaysian/Singaporean Chinese are extremely easy to tell apart from all the rest. Body language, pitch, demeanour, habitual lack of introversion.
 
Taiwanese and Hong Kong Chinese are also different. Maybe not so much from the urban ML Chinese.
 
I have no doubt that you may not spend time trying to tell them apart. After all, you would see them all just as someone to pimp land out to.
 
I often times try to talk to the ones who can speak any English (which would normally be the case if they are young). More often then not, they are happy to tell you which city and region they are from etc. Sometimes even more personal stuff, such as what brought them here etc. I like to interview. I don't judge my oponents, especially not individually. They act in what they view as their best interest, and for that I applud them. If I had a rich uncle in China, I'd be laundering his money in a remote animal farming country, too. They are proud of their origin, as they should be. I don't question their motives or right to buy or even settle in New Zealand. I question our own motivation to let them in in such numbers without providing sufficient new accommodation for them, or somehow mitigating their impact on the local markets. Adding their capital onto such a constrained market as Auckland right now is very much pouring petrol over a burning fire.
 
Oh, and the most peculiar part is - sometimes, they are just stocking up for their family and acquaintances in China. Multiple property purchases by an under 25 year old girl, how likely is it that it's all her own money and her own investments? She's outbid me once, and one originally Dutch guy to who I spoke after the auction two more times, bidding in Central/Eastern fringe suburb for totally disparate properties on every occasion. She wasn't even shopping a certain profile, basically just "show me anything in this suburb, I have XX,XX,XX,XX,XX RMB to spend by the end of March". Eventually corraborated by one of the salespeople for the auctioning realtor.

That is evidence to me that

That is evidence to me that you just don't have enough money or income to purchase.

Haha. Good one Scarfie. Well

Haha. Good one Scarfie. Well I bought twice since 2009, which might show that even a dog like me has his day.
 
Funnily enough, the last time I was successful (last year) the agent told me that the winning bidder in a multi-offer also arrived from ML China less than a month ago. Freaked out at some minor thing to do with the records held with the council and decided to pull out. We had been distant second in the ML, until then that is. I guess it takes for a fresh off the plane Chinese lady loaded with exported Chinese inflation to just give up for me to have any hope of winning fullstop :).

And banks and banksters, and

And banks and banksters, and their mouthpieces like that chap, would never lie or decieve, or polish their statistics to suit a motion that makes their uberleveraged collaterals safer, would they?

Sorry to rain on your parade,

Sorry to rain on your parade, but First-time Kiwi VS Frist time Asian Migrant is not a winner for the Kiwi.
Here's why prices will not fall
Chinese can borrow in Hong Kong for 3% and remit the funds here . Your best mortgage rate is a tad under 6%.
For the same instalment , the Chinese Buyer can spend twice as much as you can, ( and thats if they are borrowing instead of using family syndicate money  )
You are bringning Mums Kitchin knife to a Fu fight .
You cannot win this one
 

I agree, althought there

I agree, althought there arent that many recent Chinese migrants in existence as there are Chinese faces at the auctions.
 
I think full waterproofing against the foreign "price gain gambler" capital tap needs to be in place before doing measures such as this one (or increasing the land supply for that matter). Any serious foreign capital inflow is basically more harm than good if the objective is to bring the Kiwi dollar down substantially to let the exporters thrive once again.
 
There is far more Chinese capital that's pumping up this bubble then the confused majority imagine, and the minority in the know want to admit.
 
The other option is to wait for an internal Chinese economic meltdown. That will destroy the Auckland property market (and much of the rest of the NZ economy), but it might take a long wait for that to happen. It will happen some day, though.

"Chinese can borrow in Hong

"Chinese can borrow in Hong Kong for 3% and remit the funds here . Your best mortgage rate is a tad under 6%."
Until the exchange rate drops to 60c. Borrowing in a foreign currency is always a risk play. Just ask many in central Europe with their loans in swiss francs or euros.

As long as they keep

As long as they keep receiving their reliable Chinese incomes to service their Chinese mortgages on AKL property, they'll be fine. They needn't worry about the wee NZ banks and their petty rules and regulations.
 
Even the exchange rates don't matter much until they need to liquidate the money and repatriate the recovered funds.
 
This however is one of the reasons why, once the Chinese economy sneezes, NZ will catch pneumonia.

A bit difficult when you are

A bit difficult when you are a minority and the government is made up of baby boomers. Your confederates have left the country and we now have new migrants with the backing of wealthy families and baby boomers setting government policy more favourable for them. Cry? Unlikely when this economy is being propped up by foreign cash.

Hane ... go to the top of the

Hane ... go to the top of the class. You are very street smart indeed.
 
The money in real estate is always made in the buying.
 
Hugh Pavletich

Whether Mr Wheeler has chosen

Whether Mr Wheeler has chosen the correct policy  to slow  domestic asset inflation is not the issue ,.from his policy perspective its not which is the best policy, but which policy mistake will be easier to reverse  if it all goes wrong. For so long the focus has been on the exchange rate. ,which can fall in days . If asset prices are overvalued ,and on fundamentals they absolutely are , it is going to take substantially longer to get prices/ balance sheet back to an appropriate equilibrium.We have had our Dutch disease, the unwind will be slow and prolonged. For Auckland a city that created  just 4000 additional jobs(3000 census) over the past calendar year, wake up time as we are neither  lucky nor unique. 

True. I didn't see any real

True. I didn't see any real problems in the Affordability indexes for Invercargil, Hamilton or even for Wellington. It was basically done to the entire country to try and fix Auckland.

And of course, we will expect

And of course, we will expect the overseas investors to shut down and go away----except this only reinforces their ability to compete.
As it does the local investors who can raise 50% of the value of their existing home to buy that rental property outright.
Sorry Mr Wheeler, you need some help from elsewhere. God preferably, cos you certainly aint going to get any from Key and English 

Steve O ... you are with

Steve O ... you are with respect ... wrong. Check out the Demographia Survey www.demographia.com .

Hi Hugh,   With all due

Hi Hugh,
 
With all due respect, there's a bit too much information in there. Which particular datum did you have in mind?
 
My reasoning was: PIM of 3 is quite good. 4 or 4.5 is not too bad. 5 is high. 6+ is insane. Auckland's currently on about 7, which is demented, and still northbound. Even Welly's just at about 5, and CHCH is below 5. Ok, in Church the still damaged "subpar" properties in yet to be fixed streets out East are bringing the average down, but in Auckland the leaky or likely to leak eventually dwellings do the same thing. If you took them out, what could the PIM be? 8 or even 9 maybe?

Can you imagine the cartoon

Can you imagine the cartoon in tomorrow's papers :
 
....  Graeme Wheeler togged up as Rambo , with his back against a very big , very thick wall , loaded gun magizines draped over his broad heroic shoulders------ firing off at innumerable property zombies coming at him , salvo after salvo , the clatter of his submachine gun , empty shells spitting out furiously , and zombies falling before him , ...... yet onwards more keep coming  ---
 
--- and off to one corner , on the sly , we can see the silhouette of John Key and Wild Bill feeding Kiwisaver flesh and bones to those self same property zombies !

Super idea this...

Super idea this...

They  will  suck out your

They  will  suck out your ability to think rationally  and logically , Mr SmoKey.... and you too  will join the throng of property zombies , with your eyes glazed over and your arms outstretched , going from open-day to open-day ....
 
... muttering inanely ... " you ... can't ... lose ... with .. property ..... MATE ! " .....
 
And ... .. " land .... they...are ... not ... making.... any....more ...of...it .."

See, just that was exactly my

See, just that was exactly my initial line of thought.
 
But then, I thought it over a few times and had to ask myself why I wanted for young Kiwis to be able to afford ridiculously overpriced houses in most parts of Auckland. If someone had to get burnt buying grossly overvalued housing stock at a r****ded level, as the kids would put it, which will correct somehow, sometime, why would I want them to be those victims?

  Comment from a reader … a

 
Comment from a reader … a well-informed reader …
 
 
This is good news as the banks are being reckless. In my last banking role I introduced credit policies to reduce high LVR lending, in particular those over $400k became almost non existence. I note that this same bank has subsequently reversed this policy and 30 percent of all their lending has been above 80percent LVR. When a bank has to sell the house of a defaulting loan, it usually allows a loss of 15percent for transaction/distressed sale costs. If the market has fallen, the losses can be significantly more than the capital buffer that banks are required to hold on these assets.
 
 This will not stop house prices from rising while we have supply shortages, but it will reduce the risks in our banking system and save some people from locking in huge mortgages (in effect a life sentence of poverty).
 
 
 

I wonder how RBNZ are

I wonder how RBNZ are defining LVR? Often the banks allow you to lend up to say 80% of the purchase price or registered valuation whichever is less. 
If the banks changed their rules such that they were only interested in valuations then this may lead to the emergence of dodgy property valuations (ie inflated valuations) to allow people to meet the 80% restriction whilst only having say 10% or 15% cash to put towards the purchase.
These sort of things always have unintended consequences, worst case more dodgy valuations and the emergence of second tier lenders (sound familiar?)
 
 

Interest ...Be assured the

Interest ...Be assured the RBNZ and other regulatory bodies will be very alert to these old tricks ... and will come down very hard indeed on the "clever buggers".
 
I have enormous admiration and respect for the RBNZ Governor Wheeler. And I mean it.
 
Hugh Pavletich

Hugh please give me evidence

Hugh please give me evidence and reason to know you are capable of discerning a good central banker from a bad one. I only ask as you seem prone to praise the least praiseworthy with abandon lately.

Well so far Dr Bollard and

Well so far Dr Bollard and Mr/Dr? Wheeler have managed to avoid a 30 to 40% housing collapse aka parts of the USA.  Given how little we have suffered and marking them agaisnt everyone from just across the ditch to the opposite side of the world I'd put them in the to 10.
The OBR seems well thought out and unique....it may well save our collective asses...The new limit on LVR can but do better than what we have....which is nothing.
I think the OCR should be lower myself so lets say 8/10 so far.
regards

Hugh agreed, Wheeler is doing

Hugh agreed, Wheeler is doing a great job keeping the wolves, bank paid economists in check and keeping a close watch on our excessively greedy banks. Our Commerce Commission should get better qualified because they keep missing the cartel record profits of our foreign owned banks. Perhaps Wheeler should have a seat on the board of our Commerce Commission.

The banks would be caugth

The banks would be caugth sooner or later and mauled....you dont p*ss with the reserve bank...thats one contest you lose.
Its far more likely ppl will look at a 2nd mortgage or other finance to secure enough deposit, that way the bank can do a pontious pilot....
Valuations are also professionally done,  overvaluing them would or could lead to litigation and civil damages, I cant see it.
regards

“However, while higher policy

“However, while higher policy rates may well be needed next year, as expanding domestic demand starts to generate overall inflation pressures, this is not the case at present. CPI inflation currently remains below our 1% to 3% inflation target."
To see demand increase ie spending we need to see a few things as lead indictors IMHO.
a) Signs that main street and especially lower and middle income earmers are getting pay increases and decent ones ie 4%+
b) Un-employment clearly and well trending down...
c) Increase in debt being taken on.
If these dont show substantial trends then really I odnt se how we'll get overall inflation in NZ because if ppl have no more money they cant spend more on goods which creates inflation....
 
show me the numbers....
regards

I will quote, "It is curious

I will quote,
"It is curious how common sense, wriggling for an escape from absurd conclusions, has been apt to reach a preference for wholly ‘wasteful’ forms of loan expenditure rather than for partly wasteful forms, which, because they are not wholly wasteful, tend to be judged on strict ‘business’ principles. For example, unemployment relief financed by loans is more readily accepted than the financing of improvements at a charge below the current rate of interest; whilst the form of digging holes in the ground known as gold-mining, which not only adds nothing whatever to the real wealth of the world but involves the disutility of labour, is the most acceptable of all solutions."
The last Rings true for the present hosuing market IMHO.
The first one, loans to give ppl for nothing while un-employed (on short term rates) seems to be preferable to borrowing long term very cheaply ie 10 year bonds and employing ppl to build public infrastructure (in moderation).
Seems 80 years ago is the same today, indeed wierd....
regards
 
(

great news, my tenants will

great news, my tenants will be put for longer.

Hey guys read this, some

Hey guys read this, some anecdotal evidence from a friend. 2 units for sale in Browns Bay, connected, both for sale, one was done up, one was not. The one that wasnt done up sold for more than the one with better improvements.
 
Reading into it - this is a capital gains market/ speculators market = inevitable crash

"Banks will be required to

"Banks will be required to restrict new residential mortgage lending at LVRs of over 80% to no more than 10% of the dollar value of their new housing lending flows."

Is that 10% dependents being the Bank Management and Government employees......