90 seconds at 9 am: Property investment surge

US budget deficit falls; China likes NZ property; Aussie housing investment loans surge; NZ swap rates rise again; oil and gold fall; NZ$1 = 73.7 USc, TWI = 77.6

12th Feb 15, 7:28am by David Chaston

Here's my summary of the key issues that affect New Zealand overnight with news of surging property investment loans in Australia.

But first, in the US the latest Federal Government deficit data for January is out showing it continuing to track lower. In fact it is now running US$1 tln per year less in January than it did at the height of the GFC, down from almost 10% of GDP to about 2.5% of GDP in the year to January. At current levels it is quite sustainable. But they are left with residual Federal public debt of 76% of GDP.

In China, it has been revealed that Japan is the top overseas location favoured by Chinese to buy property. It is followed by South Korea, the US and fourth is New Zealand. Australia is ninth on the list.

In Australia, loans for investment housing skyrocketed almost 20% in the year to December and economists warn they will surge even higher after the RBA's surprise interest rate cut to a record low last week. Sadly we don't have similar data publicly available in New Zealand, but it is unlikely to be much different.

In New York, benchmark UST 10 year bond yields are now at 2%. In New Zealand yesterday our wholesale swap rates rose sharply again and with some steepening at the long end. We also saw NZ Government bond yields rise sharply.

The oil price has fallen back more today and is now below US$50 again, at US$49.70/barrel with Brent crude under US$55/barrel. Official reports of high US crude inventories pushed these prices lower today. Some very high profile investors have lost a lot of money betting the oil price would stay high.

And although we are seeing fatter wallets in New Zealand, ratings agency Moody's says lower oil prices won't spark a growth boom for the world.

Gold is also lower at US$1,223oz.

We start today with the New Zealand dollar basically unchanged from where we left it yesterday. It is at 73.7 USc, but the Aussie is up at 95.8 AUc and only about half a cent from its all-time high.The TWI is now at 77.6.

If you want to catch up with all the changes yesterday we have an update here.

The easiest place to stay up with event risk is by following our Economic Calendar here »

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16 Comments

by Basel Brush III | 12th Feb 15, 9:09am 1423685348

So Chinese like NZ property. On the street we have known that for at least 3 years.

Key is deaf and also blind and cares not for his own people.

What can Wheeler do about it? Stuff all without help from above and I don't mean the Almighty (much as Key thinks of himself as a worthy substiute)

by Craig | 12th Feb 15, 9:21am 1423686113

I hope that report gets picked up more by mainstream. Key can't play the deny as we have no evidence card then.

by dtcarter | 12th Feb 15, 9:45am 1423687547

But why bother collecting evidence when John has had a chat with his mate Tony @ BNZ and is comfortable with the level of foreign investment. If we know it's not a problem, why bother with evidence?

by J.C. | 12th Feb 15, 3:18pm 1423707536

According to the "research", they like Japanese property more and the most. Given that most people would't touch Japanese property with a flame thrower, what do you think this says about Chinese investment?

by xelnaga | 12th Feb 15, 9:57am 1423688267

I was outbid by Chinese this week at a mindblowingly ridiculous level. My contempt for National has reached an all time high.

by KH | 12th Feb 15, 10:24am 1423689883

When the Auckland bubble pops there will be the rush for the exits. I think many of the chinese and foreign 'investors' will abandon ship. They won't even sell, they will abandon the houses and the country.

Many of the zombie suburbs of Auckland could have rows of empty, derelict, 'ownerless' houses. (could already be a couple in Herne Bay by the look of them) Might take a few decades to sort out through that mess. There are still abandoned sections in the south, where the owners have not been seen since the gold rush.

by Basel Brush III | 12th Feb 15, 10:33am 1423690435

I am not sure of the year but it may have been the Asian crisis circa 1998 when some early asian buyers in Meadowlands Howick area were taking cash bids of 70-80% of valuation just to quit.

Chances are it will happen again.

by xelnaga | 12th Feb 15, 10:58am 1423691916

That doesn't make any sense. Surely something is better than nothing?

by Kumbel | 12th Feb 15, 12:24pm 1423697041

Running out of puff to blow the bubble bigger is not the same as the bubble bursting.

Tell me a story of who would sell, why and where they would go This is residential property after all and people have to live somewhere.

Unless a speculator is dangerously leveraged their best option if the market has peaked is to not panic and drip feed their properties back onto the real market. The general conditions do not suggest a fire sale is imminent any time soon.

If the market has peaked (and one January's worth of data is hardly a sign) look for a switch from auction to listing price and a lengthening of the sale time.

On the other hand it might just be the summer hols.

by KH | 12th Feb 15, 1:31pm 1423701116

The point I was making Kumbel is that at exit don't assume all the current owners will responsibly sell down and tidy up etc. Some might just not show up again.

To illustrate, it seems clear that for some of the buyers, they just need to dump the cash. The price to pay for the residence does not figire at all. And thus if the thing goes bad, why even bother to get on a plane to come here and sort it out.

A parallel is all those abandoned Ferraris at Dubai airport. Why bother selling it. Just get on the plane, never come back, and stick the the airport figure with the task of disposing it. Queenstown has the same issue apparently, just a different class of car.

by Kumbel | 12th Feb 15, 1:33pm 1423701236

Are these residences currently empty?

by KH | 12th Feb 15, 1:37pm 1423701438

I'm a long way from Auckland Kumbel. But I have certainly seen anecdotal comment on this site that there are quite a few purchased houses that are not occupied and for long periods.

by Kumbel | 12th Feb 15, 3:11pm 1423707063

I'm also a long way away but the number of empty houses owned by people who are going to dump properties at the first sign or peaking or reversing prices still has to be significant to burst Auckland. I would prefer something more robust that interest.co.nz anecdote :-)

Bear in mind that for Auckland to become affordable prices have to drop to about 33% of current values. Little oscillations of 5%-10% don't count in my book.

by Jay M | 12th Feb 15, 3:16pm 1423707361

I live in Auckland, on the Southern fringe... I'm torn between renewing the mortgage at low rates (fixed rate expires in 3 months), and trying to convince the wife that we should move elsewhere...

I know what I'd prefer to do... but getting the wife to move out of Auckland will be tough...

I know that if we sold where we are, we could move 30-45 mins drive away, which is still commutable for me for work... and save a tonne of money on the mortgage...

by Kumbel | 12th Feb 15, 4:03pm 1423710196

Which, of course, is the government's preferred solution to the housing crisis.

But the unmet demand for accommodation in AKL is still so huge that someone will pay the going rate for your place and your migration to Waikato will make no difference to price levels there.

by iconoclast | 12th Feb 15, 12:15pm 1423696505

yeppy-do

Sadly we don't have similar data publicly available in New Zealand, but it is unlikely to be much different.

The money pouring into investment property in Sydney is being driven by "SMSF" Self Managed Super Funds who are now allowed to raise debt against the equity in their fund's. The Big Bank Fund Managers are lobbying Govt hard to close that loophole. Big Bank FM's dont/wont/cant buy and manage residential property

Can you imagine what would happen to Auckland house prices if the NZ super industry was $1 trillion and they allowed self-managed super-funds

On another note you will notice - we aint giving you that data - and you aint allowed to run your own self-managed tax-effective super schemes