The Reserve Bank’s crackdown on investors is expected to dampen real estate demand over the next month and flatten the rapid growth in house prices.
Friday, March 5, 2021, 2:08 pm
Reintroduced Lending Restrictions (LVR) require investors to pay a 40% deposit to buy existing property under the government’s hard line to reduce speculative activity and improve affordability for first-time home buyers.
CoreLogic research director Nick Goodall says the LVRs will definitely have an impact. “In 2016, when they were originally launched, investor activity and property price growth slowed.”
He expects the LVRs to pull back investor activity by about 4-5% this time around. “That’ll be the thing to look at.”
If investors still rush into the market after the LVRs launched next month, Goodall expects the Reserve Bank to take further action. “It has other macroprudential tools in its box and could introduce debt-income caps for investors later in the year.
“The other factor to consider is the prospect of higher interest rates. In its monetary policy statement published last week, the bank hinted that higher interest rates may come as early as September 2022.
Investors are loosening up
Economist Tony Alexander says the sheer pace of price increases over the last four months of 2020 likely accelerated the normal economic process of weakening demand as prices rose.
His most recent survey of real estate agents shows that investors in the market are easing. Only 31% net of brokers said they saw more investors in the market last month, up from 45% in December and 59% in November. This is the lowest number since the net 30% in August.
Alexander says this is likely in part due to the added tightening of investor minimum deposit requirements by a bank and lower hopes of a bargain.
In June, when agents were first asked to state why investors were in the market, a gross 60% said investors were hoping to find a bargain. That proportion has declined, and last month just under 18% of agents said these “bargain” hopes remained.
Net 2% of real estate agents state that fewer investors want to sell their properties. Alexander says this is the smallest result for this measure, and it will be interesting to see if much changes about that over the next few months.
“If so, it can likely be interpreted as a sign that some investors are looking to take profits on their purchases – whether recently or many years ago. There is also the potential that this move will ultimately send a strong signal that investors are capitulating in their price expectations. “
to fill up the storage
Goodall says LVRs should be enough to slow house price growth. But one problem that has affected the market since the last boom in 2016 is the lack of listings.
“Since the boom five years ago, the sales volume has not really been replenished.” In the last three months of last year 10,000 houses have been sold and the market is crawling for offers again and prices are soaring.
“Constant growth in listings and slowdown in sales will be required before there is any real possibility of depreciation.”
Adding to the shortage of inventory has been building substructures across New Zealand for decades, Goodall says. “Between 2015-2020, more than 15,000 fewer homes than required were built across the country.”
Although building permits reach record levels and certificates of conformity show a completion rate of 97-98% of approved buildings, an existing house will be demolished for every two permits issued. “The housing stock is not really growing,” says Goodall.
He says it is almost a pointless challenge to quantify how many homes are needed now with so many demographic variables constantly changing.
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