Property information and analytics provider CoreLogic says the New Zealand property market is currently showing "a prolonged period of soft conditions" as stricter mortgage serviceability criteria continues to limit the ability of potential buyers to borrow the money required to buy and transact in the market.
CoreLogic's head of research Nick Goodall says the latest QV House Price Index, which utilises data from CoreLogic shows that property value growth remains constrained with five of the six main centres seeing a minor loss in average value through the month of April 2018.
"This is the first time since September 2010 that at least five of the six main centres saw value falls in the same month."
He says the highest capital gains can currently be found across the regional markets, but warns there are signs of weakness ahead.
"We’re starting to see population growth slow in these regional centres, and with extended value growth not matched by wage growth, property is becoming less affordable, especially given a tightening of lending credit policies."
Goodall says a "heavily scrutinised" property investment sector is weighing on the minds of some investors.
"With the extension of the bright line test to five years, as well as the Healthy Homes Guarantees Act changes coming into force later this year and the ring-fencing of losses applicable for negative gearing, some investors will be questioning the profitability of extending their property portfolio."
So far CoreLogic had not seen a noticeable lift in investors listing their properties for sale.
"But we are keeping a close eye on activity taking place in this sector, given the more challenging investment conditions and potentially weaker prospects for capital gains."
Goodall says that the role of lenders and credit policy in the market can't be underestimated.
"While mortgage interest rates have been dropping again recently, lenders remain risk averse, limiting interest only loans and testing serviceability at over 7%, meaning that despite the minor relaxation of the LVR limits from 1 January 2018, there hasn’t been a wave of newly-eligible buyers hit the market."
And despite news last week that the first KiwiBuild homes are now under construction, Goodall says there is a long way to go before housing supply meets demand, especially considering the high rate of net migration.
"A high rate of population growth will help to support housing demand and ensure the slow-down remains a relatively placid one."
Goodall is expecting that property transactions will remain constrained "for at least the rest of the year" as finance remains harder to acquire.
"However, with strong fundamentals underpinning the market, we’re unlikely to see a significant drop in either volumes or values across our main centres."