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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