New
Zealand property values took a downward turn last month and predictions were
that this would level out, but instead the trend show values are starting to
increase again. The New Zealand residential property market has recently experienced a plateau
in property values. This plateau has been short lived and now house values
continue to rise. The plateau was a delayed response in the market from the
Reserve Banks introduction to Loan-to-Value restrictions. Nationwide property
values rose only slightly in contrast to earlier market trends, indicating a
plateau in property values. Since this plateau the values began to rise once
more, this time at less of a rate.
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. The expected impacts of this restriction were that first
home buyers would be un-able to purchase property, showing a lull in the
property market. 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 short lived plateau was believed to be the result of the LVR
restrictions set in place. This has proved to be mainly un-true as property
values are still increasing. Property growth in
the Super City region continues to rise, up 13.9% year on year and 1.5% in the
past three months (QV, 2014) .
First
home buyers were not expected to purchase property with the LVR restrictions in
place, limiting the property demand and reducing value growth (Landlords,
2014). The
latest monthly QV Residential Price Movement Index shows that nationwide
residential values for April have increased 8.4% over the past year, and 0.2% over
the past three months. QV Valuer Bruce Wiggins said, “Values are still
increasing but at a slower rate than last year and some properties are taking a
little longer to sell.” This could show that sellers are needing to re-align
their sale price expectations to the true market trends and the fact that
market conditions are less competitive than they were prior to October last
year when the LVR speed limits were introduced (QV, 2014) .
With the brief property plateau the LVR restrictions for first home buyers showed signs of being deterred from purchasing new houses 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). With prospective first home buyers will look for cheaper housing such as renting.
The LVR restrictions have showed an impact on the market with the
plateau. This impact was not as large as expected by the reserve bank as it was
a short lived lull in the property value average. Properties continue to rise
in value as they did before the plateau, this time at less of an extent.
First home buyers are still purchasing houses causing the house values
to raise despite the LVR restrictions in place. However the small increase in
values shows that the market is susceptible to the LVR restrictions and it is
likely that the values will drop as anticipated. This likelihood is why it is
wise to invest in rental properties in place of lower value first home buyer
properties.
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.
QV. (2014, May 8). Property
values rise again after a period of flattening off. Retrieved May 8, 2014,
from QV: http://www.qv.co.nz/resources/news/article?blogId=152
Established families or wealthier clientele that are looking for
property would be largely un-effected by the LVR lending criteria.
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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