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Housing investors borrowed over half a billion dollars less in October than in the previous month

Property
Housing investors borrowed over half a billion dollars less in October than in the previous month

By David Hargreaves

What a difference a month makes - particularly a month that sees new rules introduced.

There was a more than half a billion dollar drop in the amount of money borrowed by investors for house purchases in the past month, new figures issued by the Reserve Bank show.

October saw the introduction of new tax rules targeting investors both offshore and here, while new RBNZ rules targeting Auckland investors came into effect on November 1.

The latest RBNZ figures show that just $1.717 billion was borrowed by housing investors in October, compared with a bumper $2.239 billion in September, which had been up from $1.989 billion in August.

More significantly, the proportion of lending to Investors compared with the overall lending total for all loans of $5.853 billion, slumped to just 29.3% of the total, compared with 34.4% of the nationwide total in September. It's the lowest proportion that lending to investors has constituted of the total since last October and the first time the proportion has dropped below 30% this calendar year.

The decline of the investor figures accounted for $522 million worth of the $647 million drop in total lending from $6.5 billion in September to $5,853 billion in October.

Interestingly, the total loaned to first home buyers fell by just $28 million to $672 million in the latest month. This meant that first home buyers accounted for 11.5% of all lending in the past month, up from 10.8% in September and the highest proportion since the RBNZ began publicly releasing these figures in August last year.

The new RBNZ rules that were introduced at the start of this month are limiting Auckland investors to loans of no more than 70% of the value of the property they are buying.

The latest RBNZ figures show that ahead of the introduction of the rules the proportion of high LVR loans nationally has been dropping sharply. In October some 68% of the money loaned to investors was for loans less than 70% of the value of the property acquired. For the same month a year ago the proportion of sub-70% loans was just 48.6% and that proportion remained below 50% as recently as in the June figures.

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20 Comments

No...surprise. Well done Govt . Still need to close the "I brought it without the intent of capital gain" loophole which is just blatant tax avoidance. While doing that, make it retrospective for the last 5 years and lets really see the debt ponzi loss making capital gain chasers really start to sweat.

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Exactly right Averageman. As for 'investor' tax avoidance, in my view any property where a tax deduction has been gained because of negative cash flow is speculation and subject capital gains tax. IRD could catch a lot of these characters with this and no need to change the law to do so.

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Probably slowing down for Xmas and things will start ramping up next Feb. That's probably the buzz around the banks and and the REA offices. The only people who will be taking notice are the media comms people who will pump out the stock content.

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Property speculators are NOT property investors and should never be lumped into the same group in discussions on housing. Investors aim to hold properties for the long term and provide a service to the community. There is nothing wrong with what this group is trying to achieve. Unfortunately, the misinformed media choose to tar both groups with the same brush to create angst in the general public. Let's do the maths: Pay an investor $10kpa for 5-10 years until a rental becomes freehold to provide housing for NZers? Or spend $500k-$1 million of taxpayer money to build a state home plus the support services required to manage and maintain the place?

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Tell me are your rents all set at an affordable level for someone earning the average wage (i.e. under $200 per week for the whole house)? If not you are a parasite, capitalising off the vulnerability of those who cannot afford or have chosen not to buy their own home. You are sucking off public funds in the form of accommodation supplements to satiate your greed at the expense of many other more deserving people. Your actions have helped deny many ordinary Kiwis the aspiration of owning their own home, and contributed to their poverty. You have helped to deny opportunity while you got rich, without providing any jobs or income for the country. You must be really proud!

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It is your investment, why should we pay you anything?

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And the difference is? Both are in it for GC just timeline is the difference and as for landlords provide a service please, whatever makes you sleep at night and yes I was a rental house owner and yes the ultimate goal was to make money for my old age BUT at least I was true to why I was in it for and understood the reason was the tax laws worked in my favour against investing else ware. But have given that up because don't need the hassle, can see the tax laws being changed in the future and am more interested in positive geared investing don't have any big black clouds overhead that I have to worry about

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It is going to be interesting in December. My nephew has still not bought his first home. He is seeing fear in agents and vendors eyes, some who have never seen a market move backwards. How far back. Only time will tell.

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The best time to buy a house is now but some property speculators will be sitting on the sidelines praying that the Auckland property market crashes or falls by 30%-40% so they can buy more rental properties.

These speculators and naysayers will continue to eat humble pie for many more years from now simply because immigration is at record levels, there is still a massive shortage of houses and mortgage rates are at record low levels. The worst that could happen over the next 3-5 years is that the Auckland market growth will slow down a bit or go flat but I don't see it falling by what the naysayers are hoping for.

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It is possible to be worse than that. Much worse.

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I think your assumption is that current property prices have only been influenced by immigration (a pure supply/demand movement). A substantial amount of the current property prices are based on expected future capital gains at the 20-25% p.a. levels seen recently (and to this point, a rather self fulfilling prophecy).
Yes, maybe an increase of house prices of 5%-10% a year is reasonable - but only 5-10% off the base of pure supply/demand equilibrium, not 5%-10% off the current house prices pushed up by this speculation.

I would say that this 5-10% increase a year through immigration will be well and truly offset by the 30%+ decrease caused by the loss of expectation in future house prices increases.

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interesting... there is 500 homes more on trade me than a month ago ... 500x1m = half a bilion

coincidence?

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I'm keeping a daily spreadsheet of listings. Will probably automate it at some point.

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I think the most interesting thing is the swing that has occurred from auctions to price by negation / listed with a price.
Not only does this reflect the drop in "get in quick or miss out" mentality, but gives the buyer a lot more opportunity to do due diligence, negotiate on price and be more picky in regards to the property they want.
On top of this, I am seeing a lot of listings in trademe with "Buyer must sell, has already purchased unconditionally"
The combination of these factors is definitely not making it a sellers market.
Obviously the right house / right location / 2+ wealthy bidders interested - you are still going to get a crazy price. But from my very unscientific research on trademe comparing listed asking prices (which are often above what they will be selling for now) compared to CV, the % above CV continues to drop. Not long ago 30%+ over CV would be normal - now I am seeing a lot listed 15-20% above CV, and no doubt the final price negotiated will be lower.

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Not great news if you bought recently and need to sell or are being made to sell.

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i am starting to hear of people taking their houses back off the market for the moment because they are getting no offers and what they think they should get for it.

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But if you look at some of the other comments sections people are talking as if the market has taken off again. Are there just differences in particular areas of Auckland?

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I would say there is more evidence that sales volumes and prices are dropping in Auckland generally. There will always be trophy properties selling and rogue sales. Large sections that can be subdivided will be popular. Houses that have not been maintained will get harder to sell with price premiums as time goes by. As prices drop more will put their houses on the market to lock in some profits especially if heavily mortgaged. Markets work on fear and greed. Greed has dominated Auckland and has clouded some of the purchasing. Time will tell what level of fear creeps into the market and also what level it drops to. Decembers figures will be interesting especially from the REINZ. From what I am hearing it is amazing how much some vendors are willing to drop in order to get a sale. My nephew looked at an apartment in central Auckland at $850k that did not sell at auction. He offered $775k which was reluctantly agreed upon but then walked as he felt he was paying too much at $775k. That was a month ago and is sure pleased he has not bought. Your Landlord will wind you up but he cannot stop the market. Fear is worse than greed as it makes people take what they can get.

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Furthermore at what price point can an investor purchase a property with a positive net yield? 30 or 40% below current prices? If the prices stop increasing, there is no reason for any investor to buy. What is left to hold up the market then?

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Gordon is right.When I started in the investment business in the late 60s,I was told by a grizzled old fund manager that the dominant market forces are Fear and Greed.I have never forgotten that and it has stood me in good stead. Warren Buffet made the same point when he said;"Be greedy when others are fearful and fearful when others are greedy".
This still holds good in the stockmarket,but most investors are not geared,whereas,in the housing market,most are and with interest rates likely to fall further,the effects will be more muted,at least in the short-term.

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