sign up log in
Want to go ad-free? Find out how, here.

RBNZ and govt's double teaming on Auckland's rampant housing market will have an impact, but low interest rates in world awash with money printing the key factor

Property
RBNZ and govt's double teaming on Auckland's rampant housing market will have an impact, but low interest rates in world awash with money printing the key factor

By Gareth Vaughan

The Reserve Bank and government's double teaming to try and take some heat out of the Auckland housing market will have some impact, but leaves the key driver of the market unchanged.

So says John Bolton, managing director of Auckland mortgage broker Squirrel and a former general manager at ANZ National Bank. Bolton told interest.co.nz in a Double Shot interview Squirrel, which is eight years old, has never been busier with a "crazy" March followed by a "pretty strong" April.

This month both the Reserve Bank and government have announced new measures to try and cool the Auckland market.

"We have this debate around shortage of houses and immigration but I kind of think it misses the point. At the end of the day this is fundamentally driven by low interest rates," Bolton said.

"And if you think about it we had a housing shortage and high immigration all of last year and we didn't see the same sort of craziness that we're seeing in the market at the moment. And in my mind only two things have changed. The first thing that changed is we got a clean National government, so it removed the political uncertainty which gave people confidence."

"The second thing was the Reserve Bank back tracked on interest rates. We went from an environment where they were talking about increasing rates over the next two to three years to having a pretty limp view of interest rates, and even more recently a view that interest rates could fall." 

"That's all that changed and so I think fundamentally what has happened in this Auckland market is that the population has taken on a view that interest rates are going to stay down at this sort of level for the foreseeable future and it has given them the confidence to just go out and buy," Bolton said.

"The lack of houses and the immigration, sure they're part of the story. But this is purely about printing money and low interest rates. And this is happening right around the world."

Comments from the Reserve Bank last week suggest about 80% of house buyers borrow some money to help fund their purchase.

Last year the Reserve Bank increased the Official Cash Rate four times between March and July, by a combined 100 basis points, taking it to 3.50%. However, with the crude oil price roughly halving through the second half of 2014 and little evidence of inflation, the Reserve Bank called time on its tightening cycle that had been forecast to add about another 100 basis points to the OCR.

With low funding costs banks continue to battle aggressively in the fixed-term home loan market. See all banks' carded, or advertised, home loan rates here.

A hit for young property investors

The Reserve Bank's plans to make Auckland residential property investors using bank loans have a deposit of at least 30% from October will have some impact on the market, Bolton reckons.

"There's a proportion of that property investment market where clearly it will impact. And that's typically the kiwi property investors, and it's typically the younger ones that are just starting to build up a portfolio. So where they would buy, the property would increase in value and then they would leverage out the equity gain to buy the next property, it will kill that part of the market in Auckland," he said.

It won't necessarily stop those investors completely though, with Bolton saying some were already moving outside Auckland prior to the Reserve Bank announcement, targeting the likes of Tauranga and Hamilton, but also places such as New Plymouth and the South Island.

However, for established investors, those with good equity in their portfolios and a lot of people who have immigrated to New Zealand within the past decade and have large deposits, the Reserve Bank move won't impact them.

"I think at the end of the day that's still a very big part of this market, and I think that's the part of the market that's setting the prices," said Bolton.

'Classic crisis management'

As for the Government's moves, including introducing a new "bright line" test to tax gains from residential property sold within two years of purchase, unless it's the seller's main home, inherited or transferred in a relationship property settlement, and requiring non-residents to have a New Zealand bank account and to get a New Zealand IRD number, this was about eight years too late. The government changes are also planned to take effect from October.

"I mean it's classic crisis management. Put that in at the last minute. It would've been good if this stuff was in before house prices started surging four or five years ago," Bolton said.

Nonetheless it was a really good step in the right direction and quite pragmatic.

"It will have an impact. I don't think it will have a huge impact in terms of property price inflation, but from a tax perspective I think there has been a fairly substantial amount of tax avoidance in this space and it's certainly going to close that down." 

'It's going to be really interesting to see how it impacts on the new resident market. We always have this debate about offshore buyers and I've always felt that's kind of a bit misleading," Bolton said.

"There is clearly money flooding in to this country from overseas and it's clearly flowing into the property market in the form of deposits. But the reality is that the legal owner of the property is a New Zealand resident, even if the money's coming from offshore."

Introducing the IRD number requirement and tightening up the application of anti-money laundering rules will create more transparency, allowing for a better informed debate about what's actually occurring in the Auckland market, Bolton suggested. 

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

10 Comments

Slow motion crash scene...C'mon mate I've got my family's life savings in this over priced rabbit hutch... Sorry, I was going too fast, I couldn't stop...

Up
0

Really? The super availability of cheap money (both on-shore and off-shore) is a major driver of the Auckland market. Whoever would have guessed?

Up
0

can someone tell me where is the cheap money coming from? i bought an apartment in China two years ago and interest rate was 6.25%, home loan interest rates in China were higher than NZ in the past few years.

also, to secure a home loan in China, you will need to buy a local property, not overseas.

i have came across a post even suggesting HSBC china is offering 0.xx% rate, HSBC china home loan rate is around 5ish% at the moment.

sorry, i am really confused as a chinese?

Up
0

Flow of capital to residential property in NZ:

Immigrants coming in with lots of $$ earned and parked from host country --> Purchased first home with cash payment or large deposit --> Look around to buy other properties for relatives --> Talk to friends and find out about benefit of owning investment properties --> Keep buying....

We are talking about NZ residents purchasing NZ properties. Is there anything needed to be regulated here?

Up
0

ALOT of them should not be granted NZ residency at the first place. So cut the numbers:

1. report to Chinese government back home, let them to investigate where are their parked money from.

2. NZ immirigation report to Chinese government, where there is long term stay/residency application from Chinese citizens, Chinese government to report NZ immigration back, whether the person is working/have worked for the Chinese government, may need to investigate why moving to overseas. This especially applies for investment and parent reunion category.

3. NZ immigration do the same thing for all chinese student visa applicants, required them to provide identify of their parents.

4. ban all NZ non resident buyers.

I am sick of these chinese as chinese myself... China is going down because of them.

Up
0

Shares of NZX listed RAKON ( NZX : RAK ) have surged 5.5 cents this morning , to 40 cents , on news that the company has achieved a net profit of $ 3.2 million in the financial year to March 31 2015 ... a sharp turn around from the loss of $ 83.8 million in the 2014 year ....

... topline revenue was $ 131 million , a 12 % fall from the previous year , reflecting their departure from the smart wireless market .....

Up
0

"The second thing was the Reserve Bank back tracked on interest rates. We went from an environment where they were talking about increasing rates over the next two to three years to having a pretty limp view of interest rates, and even more recently a view that interest rates could fall."

"The lack of houses and the immigration, sure they're part of the story. But this is purely about printing money and low interest rates. And this is happening right around the world."

Elsewhere:

"...it is important for the central bank to make clear how it will adjust its policy stance in response to unforeseen economic developments in a manner that reduces or blunts potentially harmful consequences. If the public understands and expects policymakers to behave in this systematically stabilizing manner, it will tend to respond less to such developments." Yeah right Read more and more

Up
0

"Low Interest Rates" - That's a funny way to spell "Hysterical Clueless Suckers".

LOL

Up
0

Money flooding into the country....

Reflect a moment.
For every NZ $ buyer ... There was a seller

Where Is the flood?

Strong buying support at higher prices -
But no flood

Up
0

(Personally abusive comment deleted, Ed).

Up
0