Tuesday, 8 April 2014

Hayden Fahey - Property Price Values Plateau

http://www.landlords.co.nz/article/5031/price-rises-plateau-qv

The New Zealand residential property market has plateaued in values. This is a delayed response in the market from the Reserve Banks introduction to Loan-to-Value restrictions. Nationwide property values have risen only slightly in contrast to recent market trends, indicating a plateau in property values.
New Zealand is in a current property boom. This property boom was created by a strong demand for housing and a limited supply. Auckland’s limited housing supply has contributed to raising house prices throughout the city, creating over-priced properties. Nationally the inflation-adjusted annual property value increase was 7.7 per cent. This large increase in prices has made it difficult for home buyers to purchase property (Backhouse). The cost of owning property is increasing at the fastest rate since 2002 (One News).
Buying a house in the current property market with debts has become very expensive. This is a direct result from the Reserve Bank initiating restrictions on low equity mortgages in October last year. The Reserve Bank restricted the mortgage market, making mortgages with a deposit of less than 20% difficult to get. This impacts first home buyers who are mostly unable to purchase property. The LVR has affected mainly the lower value properties in the market (ONE news, 2014). The Reserve Bank initiated this restriction in an effort to control the market for the country’s long term benefit. This is macroeconomics as it adjusts the market behaviour directly (Reserve Bank of New Zealand, 2013).
The LVR restrictions have had a delayed effect on the property market. First-home buyer activity was well down from what it was before the limits were introduced in October last year. The rate of growth in property values across the Auckland region has slowed considerably. Nationwide property values have increased just 0.1% over the past three months. Hamilton City’s increases have slowed to 0.4% and Wellington 0.7% over the past three months. First home buyers are now far less likely to purchase property with LVR restrictions in place, this limits the property demand and reduces value growth (Landlords, 2014).

Therefore with LVR restrictions first home buyers will be deterred from purchasing a new house without proper funding. The LVR changes may have forced first home buyers to wait and save a larger deposit or look elsewhere for finance (Landlords, 2014). Prospective first home buyers will look for cheaper housing such as renting. Renting is a growing alternative for young families today as LVR restrictions do not affect the rental property market (ONE news, 2014).
First home buyers will be less likely to purchase property with LVR restrictions in place. Advice for Welly Real Estate would be to invest in residential property for rental opportunities. Due to LVR restrictions throughout New Zealand prospective first home buyers will look to rental properties instead of purchasing as LVR restrictions do not affect the rental property market.
Established families or wealthier clientele that are looking for property would be largely un-effected by the LVR lending criteria. Up market residential real estate would be a more stable area for investment as the demand for these properties is still in place.

Backhouse, M. (2014, February 21). New Zealand Herald. Retrieved March 12, 2014, from http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11207102

Landlords. (2014, April 7). Price rises plateau: QV. Retrieved May 1, 2014, from Landlords: http://www.landlords.co.nz/article/5031/price-rises-plateau-qv

ONE news. (2014, April 24). LVR taking a chunk of low price sales out of housing market.Retrieved May 1, 2014, from ONE news: http://tvnz.co.nz/business-news/lvr-taking-chunk-low-price-sales-housing-market-5939958


Reserve Bank of New Zealand. (2013). Loan-to-value ratio restrictions. Retrieved April 26, 2014, from Reserve Bank of New Zealand: http://www.rbnz.govt.nz/financial_stability/macro-prudential_policy/5393159.html

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