By David Hargreaves
The retreat of housing investors - certainly those wanting/needing to borrow money - is continuing in earnest, but first home buyers in particular are taking up some of the slack.
According to the latest lending by borrower type figures from the RBNZ, housing investors borrowed some $740 million less (31.9% less) in March 2017 compared with the same month a year ago.
This continues the trend seen since the Reserve Bank introduced new rules regarding minimum deposits of 40% for investors. The rules officially came into operation at the start of October 2016, but were in effect applied by the banks from July when the RBNZ announced them.
The latest RBNZ figures show that banks loaned $5.985 billion of mortgage money in March, which is down $587 million, or 8.9% on the amount borrowed in the same month a year ago.
Investors accounted for 26.4% of the total borrowed, which is around the level that has been seen since the new rules were announced in July. Before that investors were borrowing around 38% of the total on a monthly basis.
Interestingly of course, the latest figures mean that the drop in borrowing by investors in March was much bigger than the overall drop when compared with March a year ago.
That's because borrowing by first home buyers and by owner occupiers was actually up compared with a year ago.
In March owner occupiers borrowed $3.499 billion, which was up $91 million, or 2.7% on the same month in 2016.
The amount borrowed by first home buyers, at $818 million, was up some $65 million, or 8.6% on March last year.
The continuation of the subdued borrowing by investors will again reassure the Reserve Bank as it strives to take heat out of the housing market and strengthen the loan books of the banks.
The March figures are significant, catching what is typically the peak house buying season.
A year ago when the RBNZ was trying its short-lived Auckland-centric loan restrictions (implemented in October 2015) the borrowing patterns and housing market had already shrugged off the restrictions by March and were roaring ahead again.
For now the 40% restrictions are still seemingly having an impact - although the banks have also admitted to more restrictive lending policies recently and 'credit rationing'.
And these figures of course only capture those investors who are borrowing to buy.
Data produced by CoreLogic has shown that 'cash investors' have remained active in the market.
25 Comments
The amount borrowed by first home buyers, at $818 million, was up some $65 million, or 8.6% on March last year.
An increase in FHBs taking on more debt than they can afford to purchase an overpriced damp shoebox? Driven by desperation to own a property and/or a fear of "missing out?" Personally I know of a FHB couple (27/28) who bought a 2 bedroom flat for $550k.
"Foreign investors will face a 'ghost house tax' on properties that are left unoccupied....Sky News understands the government will include the tax as part of a wider housing package to be revealed in next week's budget....foreign investors who leave properties vacant could be as much as $5,000."
$5000! Now that will hurt someone whose shelled out,say, $20 big ones and left it vacant for whatever reason! (sarc/off)
http://www.skynews.com.au/news/top-stories/2017/05/01/foreign-investors…
The two recent owners of 102 Kohimarama Road have been happy to forego at least 30K of rent every year for the last four years. When I lived in New Zealand that house was always empty, and in summer the Cow Parsley was knee high.
Previous Sales 102 Kohimarama Road
Sale Date:******Sale Price:*****Capital Value:**Chattels:
05 May 2016*****$2,717,391******$2,250,000******$20,000
29 Sep 2014*****$2,180,000******$2,250,000******$20,000
27 Sep 1983*****$140,000********$71,500*********$12,000
ps - if you're struggling to interpret that table, then what it says is: "Screw you gen X, Y, & millennials. Hope you like renting! The view from where we're standing is truly fantastic. Regards baby boomers and the National party!
This is merely short term stuff.
The big picture is that cities like Wellington and Auckland are top prospects for property investors with long term horizons.
Too much focus on the short term is unhelpful for property investors. The long term's what really matters - even though we'll all be dead in the long term.
Have a happy day!
I think you mean't to say, "Buy low, sell high", which is exactly what the smart money has already done. Only the greater fool would buy in now at todays prices. Buying property is completely different to buying shares. You need to fork out one huge parcel of money to buy a property in one complete transaction at todays over valued price, but shares can be bought over time, with many smaller parcels at various different buy rates. Houses are also not liquid investments if you need to sell out when everyone else is in panic mode, because you are competing for buyers in a rapidly falling market, but shares can be cashed up on the same day. I know what I would rather be buying right now and it isn't property.
If you "buy high, sell low" then maybe you should look for something else to do with your time. Property investment is clearly not your thing!
Personally, whenever I buy property I make sure I sell at a time when I can "sell high". Often, of course, it means one needs to wait years - rather than months...... That's what I mean by having a long term horizon, which I happen to regard as critical to any property investment (just like "location").
With a long term strategy, unless one's a complete fool, property investment yields pretty good returns. In fact, it has an excellent track record.
Notably also, with a long term approach, one can turn a blind eye to all the daily clap-trap reported in the media.
"Good returns" in the form of capital gains or rent? If it's the latter, why do so many people simply negative gear their property? What's the median gross yield of a rental property? 3%? 5%?
If you're in it for the yield, you may as well go for commercial property. Residential property is all about the tax-free capital gains that requires no work, effort or intelligence to achieve.
Wildcard, you have absolutely no idea what you are talking about!!!!
Residential is not about tax free capital gains at all!
Buy right and your returns will be far higher than commmercial.
Many of our rentals are over 10 per cent gross which we can't get with commercial property.
Residential does require work as well to maintain them and property checks etc.
Finally intelligence is required to buy right and Wildcard if you don't currently own residential property then your intelligence is pretty limited!
You are better to keep quiet than speak if you haven't got a clue!!! !!
That may be the case in Christchurch where there are no capital gains.
The case in Auckland is very different in terms of return. The majority will come from capital gain. Gross yields at 3% don't sound very profitable to me.
So, Wildcard is correct.
TM2 is incorrect, again.
Nymad, you are another with no foresight.
Capital gains on paper have been great over the past few years if you buy RIGHT!
There are investors throughout NZ that do not buy right or get good returns, but don't tar all investors with the same brush!
Wildcard is not correct at all!!! He may be in Auckland but Auckland is not the whole country as many on here think it is.
Um, I don't live in Auckland. Almost all of the jobs in my field in NZ are there though.
Capital gains tend to occur whether or not you buy right. It's called "inflation."
Absolutely true; Auckland is not the whole country. However, a large part of NZ's population live there, the majority of immigrants into NZ end up living there and stuff that happens there can affect the rest of NZ. For example: Auckland house prices explode, people can't afford to live there and leave and homeowner sell up and take their capital gains out of the region, the leaving people end up moving to other cities (such as Hamilton, Wellington and Tauranga) and buy houses there or rent, which causes house prices to increase in those cities.
If residential property is not about capital gains, then why do property speculators exist? Why are so many Auckland properties (and to a lesser extent some in Hamilton, Tauranga and the Hutt Valley etc) selling for ridiculous amounts over the CV? Capital gains, pure and simple.
If your rentals are performing well, then good for you and all the best. However, you are but one property investor and by no means have the worst or the best performing property portfolio. There will be a lot of people with single digit gross returns.
I said capital gains requires no intelligence as it happens if you're Einstein or Joe Average. Some houses will receive more than others, but there will be very few properties that are worth the same now as when they were built in the 1950s/1960s etc. Obviously buying rental properties for the yield alone and not the capital gains requires a large amount of common sense, intelligence and experience.
Not owning residential property has no positive or negative impact on my intelligence. In reality, as a FHB I am effectively locked out of the residential housing market due to the massive increase in prices. The median NZ house price is now 14 times my income, while the lower quartile Auckland house price is upwards of 17 times.
As for "having a clue," I may or may not be wrong, but I am on this site to improve my financial literacy and to learn more about property, investing, shares, bonds, gold, the banking sector and global events in general. Surely you're not going to knock me down for educating myself?
Most of the speculators have just got on the bandwagon in Auckland just like they do in the sharemarket.
Yes you don't have to be that intellligent to be a speculator on an up market to make money that is why many eventually do go broke.
Don't tar investors as being speculators and put Auckland in as the only place to live!
if you are worried about fault lines, best bet is up past taupo. the main one turns about rotorua and heads out the BOP.
as for Auckland they have a volcano every 500 years roughly and should have another one in the next century.
so just don't worry about what may happen because it may not in your life time and if it does just deal with it at the time and move on
life is for living
The modern economy runs on the RATE of increase of debt creation. This is primarily mortgage debt/lending. Once the rate starts to decline, the money supply circulating slows. Recessionary conditions will follow within 12 months and the decline feeds on itself. Thus the economy, like housing in NZ, is a Ponzi. Investors are hit by the borrowing restriction in LTV yes. But primarily by fact that their prospect of 16-20% capital gain in Auckland
has evaporated. FHM are aiming to catch a falling knife and banks are tightening lending rules and raising rates. GDP growth will start to fall in July (i.e. second quarter) as the rubber band holding the brick in place on the table (under stress) gives way and the brick hurtles towards the face of the unprepared. Listings up 50% in Auckland in last year. Why? Because people start to think they better sell b4 price falls accelerate. Estate Agent, not seller, fixes price. When inventory rises, Agents see work required rise and start to dampen sellers price expectations. hence prices fall. Self-fulfilling prophecy therefore. Demand is led by price of credit, not number of people wanting to live in Auckland. Chinese buyers were using cash, not loans. The Chinese government needed to protect it's exchange reserves to protect the currency peg. So they have got serious this time. Competition for buyers is about to accelerate markedly for `Agents.
Did you Know ?
The UK introduced something called a Landlords Levy ( this is not some sort of joke) and according to Bloombergs it has overshot its collect target by an eye-watering GBP 1,3 Billion
See Article on Bloombergs By Sharon R Smyth DATED 28 APRIL :- HERES AN EXTRACT
" A levy on landlords and second-home owners that roiled sales of property rentals is becoming increasingly important for U.K. government coffers as home sales fall.
The tax raised 1.64 billion pounds ($2.1 billion) in the fiscal year ending March 31, figures published Friday show, a billion pounds more than the Treasury estimated............."
Now that's not Chump Change for the Government coffers
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