By David Hargreaves
Evidence is mounting that the impact of new tax rules and of recent Reserve Bank restrictions on Auckland housing investors has been short lived.
Auckland's largest real estate firm Barfoot & Thompson reported a big bounce in sales volumes and prices in March. The latest QV figures, while on the face of it portraying a flat Auckland market based on what's happened in the past three months, actually gave indications of a more recent upsurge again.
QV National Spokesperson Andrea Rush said over the past few weeks activity and demand had begun to pick up again across Auckland "and values have actually risen again over the past month by 0.6%, so it appears the downward trend may be coming to an end".
The other figure I think was hugely significant in that QV release came from property information, analytics and services provider, CoreLogic - and this was the figure that said 'multiple property owners', so, effectively investors, were currently accounting for 44% of Auckland house sales. This figure did dip to around 40% toward the end of last year but is now well and truly back up and running at the high levels seen previously.
The RBNZ's own monthly figures showing the various categories of property buyers taking up mortgages (although these are national figures) have shown a similar recent strong uptick again from investors after a retreat late last year.
Since both the new tax measures and the RBNZ moves were announced last May there has been the additional development in the housing market of renewed buying interest and rising prices in the regions.
The Real Estate Institutes figures for March will be out next week. Those will be the ones that the Reserve Bank will really be watching closely - it has said as much. Based on the Barfoots figures (and bearing in mind Barfoots normally have around 40-45% of the Auckland market) then it's a reasonable assumption that the REINZ figures will also signal the end of what has been the briefest of pauses in the Auckland market's upswing. And it would be expected that we will also see a continuation of increasing heat in certainly some of the regions.
All of which is vexing and perplexing for an RBNZ that's also under pressure to further reduce interest rates in the face of continued low inflation and a too-strong New Zealand dollar. Faced with strong house price rises, the RBNZ's inclination would be of course to raise rates rather than pouring more petrol on the fire with another reduction - but another reduction there will be, possibly as soon as the next rates decision on April 28. Much will depend on the inflation figures to be released on April 18. If those show some flutterings of inflation then the central bank will be able to sit tight for the time being.
But the inevitable questions over the next few months will centre around what the RBNZ will intend to do, both about the re-emergence of pricing pressures in Auckland and about the gradual spreading of Auckland's heat elsewhere.
On that last point it is interesting to note that there is hard evidence that at least some of the interest in other regions is being partially fuelled by Auckland investors, as recent work by CoreLogic has shown.
The multi-billion dollar housing market question of course is where exactly can the RBNZ go from here? Clearly it can dip into its 'macro-prudential toolkit' again - and perhaps we may see new tools added this year.
Would the RBNZ consider an even higher deposit requirement for Auckland investors than the 30% that has applied since November? Would it consider extending that 30% ratio to the rest of the country? Or is it going to look at making the banks hold more of their own capital against their mortgage portfolios. Or will it look at debt-to-income ratios?
I think the REINZ figures out next week will give the official green light, wake-up call, or whatever you want to call it, for the RBNZ to look at its next steps. I would imagine we'll have something announced before the middle of the year - perhaps again in conjunction (as last year) with May's Budget.
But the interesting additional point to consider is how much more will the RBNZ consider it needs to do to rein in the housing market.
Here we get to the interesting argument of what is the RBNZ's actual role in the housing market?
What the central bank most certainly is NOT is some sort of watchdog looking to ensure an egalitarian market in which house buyers are protected from downturns. And it's worth remembering that. The RBNZ is not there to protect the house buyer from themselves, if the buyer's made a bad individual decision.
No. The RBNZ's role in this is to preserve financial stability. If the house market is galloping upwards in a way that suggests a big correction is possible - and that this correction may then have a bad impact on the banks (and that is the key point) - then it will take action to dampen the market.
This is the important distinction to make. The RBNZ's effectively wanting to prevent damage to the banks, which would damage the operation of the financial system.
What shouldn't be forgotten is that the RBNZ has already done things that will be giving it more comfort than it probably felt three years ago - take for example the impact of introduction of the 'speed limit' on the amount of high loan to value lending banks could undertake.
In last November's Financial Stability Report the RBNZ noted the share of bank mortgage debt with an LVR of more than 80% has fallen to 14% from 21%, "increasing the resilience of bank mortgage portfolios".
In the same vein, no doubt the moves to get Auckland investors on LVRs of less than 70% will also be giving our central bank more comfort.
So, as the house market goes up, up and up again, how much more will the RBNZ feel inclined to do? How much will it feel it needs to do?
72 Comments
A lot of the new immigrants choose not to get NZ citizenship as this means they would need to get rid of their Chinese citizenship as China does not allow dual citizenship. So effectively most of these are people with one foot out the door, they do not care for the well being of NZ.
Yes totally agree, there's no mention of foreign investors and trying to target them to slow down the housing market. Yet we all know that when the IRD requirements came in to force last October the Auckland housing market practically ground to a halt as it put a temporary block on foreign investors.
And yet they're proposing to target and restrict kiwi investors!! How crazy is that!
It's right on my doorstep. I work with a Chinese man whose parents bought a house from some Chinese magazine advert. But at least it's a newly built house. I'd prefer it if all foreign money had to go into building new housing.
Of course his family have hopped over and take advantage of NZ health care.
Also I've never seen so many Indian guys in the gym. I can't imagine how Auckland is if chch is this bad.
http://www.stuff.co.nz/business/money/78630327/auckland-buyers-drive-up…
It's true, I have friends who are locals in Nelson and they are losing every bid and tender to an Auckland investor. The cancer is spreading thanks to the stupid RBNZ only placing a higher LVR on Auckland for speculators. WTF did they think would happen?
I heard a BBC report regarding the Panama Papers and MF. It stated that Chinese mainlanders are their biggest growing market. In Mainland China you are only allowed to transfer or take out $50,000 from the country a year. So they employ cash mules to take this laundered currency to Hong Kong where MF send it off shore, to....places like NZ? Yes, I believe so, even though NZ was the only country not mentioned in the report. They stopped naming countries after Australia.
Yes there's a nice little article on the BBC that show how cash is shipped abroad from China.
Panama Papers: How China's wealth is sneaked abroad
http://www.bbc.com/news/world-asia-china-35957228
This was the latest money laundering trick.
http://www.bloomberg.com/news/articles/2016-02-03/card-swiping-currency…
Being an accomplice to money laundering doesn't sit well in International Law!
As I said earlier we should adopt the same rules as the Brits have just introduced where the beneficial owner behind the Trusts have to be declared on the Deed for the Property.
It is a common sense solution and easy to implement.
This is a good article from last year about the changes that have now been implemented in the UK
http://www.taxjustice.net/2015/07/28/is-it-game-over-for-money-launderi…
I own 3 properties(not only in NZ) and have been luckily to be of the generation that have managed to ride the easy money that has been made in the global property boom.
As I have stated before I think there needs to be a rebalancing of the property market to give the younger generation a chance. If that means me having to pay more tax etc then so be it.
Good question Nitro, in these threads it is clear that there are a number of property investors who try to slant the discussion.
Also LVRs are a tool to limit sub-prime mortgages so some of the comments here are right, they should be applied to all centres, but there should also be a restriction on foreign ownership clearly now for more reasons than previously discussed; freeing up houses for Kiwis or residents, lowering the cost of houses, and stopping or limiting the opportunity for money laundering by foreigners, stopping land banking by investors.
I would say the answer is simple. If you don't live in the house you buy, you need to have 50% deposit or some similar number that discourages investors taking houses all over the country. If you live in the house, no worries, everything is free game.
Of course there are so many considerations etc but you get the gist. Don't restrict the LVR to just one centre, set it to a buyer group to cover the entire country.
The UK AML regulations are having an effect. Come on JK do the right thing and give the young a chance!
http://www.bloomberg.com/news/articles/2016-04-07/london-luxury-apartme…
Asian buyers still buying and then putting the houses up for rent; I can show you four houses in our immediate area (Nth Shore Auckland) which have recently sold and now sit empty weeks later; the house next door has been empty for two months and another house at the rear of our property has been empty since well before Christmas. What sort of return do these buyers expect or are they just getting rid of spare cash
Attended an on-site auction only 2 days ago. Freehold 600sqm land but house is a do-up which is currently tenanted. Smallish garden & kitchen was relocated to a north-facing corner without consent. Sold under the hammer for $2.89m. I am flabbergasted but I suppose it is good for the area :-)
I have a Chinese friend in NZ (not Auckland) and he informs me that Chinese are leaving Auckland to move to the regions because Auckland is too expensive. I think we need to be careful and recognize every Chinese person coming into NZ is not a money launderer. Thinking they are is almost as racist as when the labour party went through the Auckland phone book counting up everyone with a Chinese sounding name.
@ SpaceX; Or we need to ask rival Politicians to shake the political tree to provide us with that information. The IRD register has been in operation for six months now (Since last Oct), so we should have a clear view of how many foreign investors have a hold on the NZ housing market.
According to this article; 'effectively investors, were currently accounting for 44% of Auckland house sales'. No mention of how many foreign investors are part of this figure??
Otherwise the RBNZ could well be putting in force inappropriate restrictions that will just cause the market to continue to increase.
Crashing the housing market to help first time buyers is not the answer. It will cause major problems for people who have got on the ladder in the last couple of years. Putting them in negative equity and making it difficult to move jobs is not going to help the economy.
100% chance of correction, really ? perhaps you want to state under what circumstances this may occur. Cannot see it myself, its going to take something quite nasty which is not going to be good for everyone living in NZ so be careful what you wish for. What needs to happen is a plateau on house pricing and this can be controlled by immigration and foreign buyers. Flat house prices and low or lower interest rates for the next 5 to 10 years.
Well that's just a failure of imagination isn't it. What "needs" to happen is wishful thinking. Reality has a funny way of sorting out what "needs" to happen sooner or later.
Lets talk about what kind of things must to happen forever in order for a correction to be avoided...
- Interest rates never rise
- Housing supply never appears
- Recession never happens
- Unemployment never goes up
- Rental yields keep up with price appreciation
- Black swans never appear
- Auckland remains the 4th most unafforable city in the world (surrounded by empty farmland).
And so on. The point is, sooner or later, a correction will occur. It may go up more first, and it may not, it might be a year or two or three away. But the "steady plateau" story that so often gets peddled is a myth. Markets don't work that way, and anything that can go up 30% in a year is quite capable of also going down 30% in a year.
The hubris is incredible. Buyer beware.
The corruption is rife across many countries and continents.China is easy to identify for corruption due to its shear size and numbers. Also the fact that there is a limit to transferring US$50k per year per person out of China and that the Chinese Govt are trying to crack down on this corruption tells you that some are breaking the rules.
I know many of the clean Asian immigrants are embarrassed about Shonky ones that have come in and would welcome a tightening of the regulations.
I have also heard some of the Chinese are moving out of AKL and the market prices are backing that up.
Yes I was rather shocked when First Time Buyer friends of mine mentioned they were trying to buy in Millwater near Silverdale (AKL NorthShore) and the cheapest they could find was a new build at $900k+
It got to the point where they gave up and are now moving to Wellington.
Yeah Millwater will probably be about 1.5mil once it's sold out and established in about 3 years. Colleague of mine has just bought there, got almost 2mil for his old place in Glendowie, paid half as much for a brand new 4bed in Millwater, he's pretty chuffed at still under 40yo.
Hmmmm yeah but moving from Glendowie to Millwater is a compromise too much for many, although I have to say that he will get plenty more house for his bucks! I attended an evening auction in St Heliers this week and the whole place was so crowded & buzzing I had difficulty moving in the auction room. Witnessed a few young couples (in their 30's) who were under-bidders despite raising their bids past $2.2m. There are a lot of serious buyers out there!
so thats 2 hours travelling time each day, or 10 hours per working week, or 40 hours per month or 520 hours or 21 whole days a year travelling to and from work, good luck with that.
that is not counting for more congestion that will come
you can live elsewhere in NZ and only take 15 minutes to work from just as far
Stamp duty on Foreign buyers 15% (inline with Singapore) and investors 10% and second homes 10%.
Companies also pay 15% stamp duty on residential property which will close any loopholes.
That will sort out the demand overnight. Use the funds to pay for infrastructure such as the rail loop. Stop the circus in its tracks. Give first home buyers a chance and reduce the price growth.
Hopefully this should reduce consumer debt in the long run so less money is spent paying off mortgage interest and more can be spent in the economy.
The government are responsible for the situation with house prices in Auckland and after 3 terms in office can no longer blame Labour or any other government.
I came across an interesting article by Olly Newland written just after the RB announced the new LVR rules in May 2015
He was pretty well right on the button.
Extracts:
"The announcement today by the Governor of the Reserve Bank Mr Wheeler, has one simple aim in mind: To “shock” investors and the public in general into believing that these new rules will dampen the property market.
It will do just the opposite and I predict the “shelf life” of the suggested new rules will be less than 30 days.
The problem is that the academics who dream these ideas up have no idea how these rules will work, relying on text book theories and not on practical solutions, let alone getting advice from experts in the market.
There will be unintended consequences which will play right into the hands of investors to the detriment of the ordinary first home home buyer and to the renters.
The proposed 30% deposit rule will not affect two thirds of the market, the Mums and Dads selling their homes, who will continue buying and selling free from any hindrance thus setting the price for property as they have been doing all along .
The biggest effect will be to push investors into the provinces where prices are much more reasonable. If you are living in Hamilton, Huntly, Mercer, Cambridge , Tauranga, Thames and all the other areas North and South of Auckland City you might be either getting very nervous or gearing up for a bonanza. The good Governor has even raised the amount allowed by banks for lending in these in these areas from 10% to to 15% so look around and take note. There could well be a wave of investors heading out of Auckland to a place near you.
There is of course there is the small matter of the overseas buyers (Asians as they are commonly classified as). These people don’t need our local banks. They can borrow all they went from their local banks at almost zero percent.
Read then rest here:
http://www.interest.co.nz/opinion/75466/property-investor-olly-newland-…
The difference is
The phenomena you describe is the difference between macro and micro economics
The macro-gurus, and thats most of them, sit in a room (in wellington), gazing at historical data and historical charts, and when they dont see results that answer their questions they look for more data, different data-sets, and more charts, having done so, make interpretations and arrive at conclusions that make lofty academic sense only to themselves, but they cant prove it
The micro-gurus (such as yourself, and a few others) examine how individuals and groups of individuals and cross-sections of society will respond (or likely to respond) to the rules, and settings and re-settings dreamed up by the macro-gurus
The intelligent would get out from behind their desks, get out of Wellington, go up to Auckland, and painstakingly interview every real-estate agent, and every purchaser of any property in excess of $1 million, analyse it all and then publish the results
But they won't
There must be a great deal of job security out there to keep this thing rolling?.........off the cliff. We all know in NZ that's just not the case. And I don't see huge wage growth either. What will be the tipping point? There's a desperate frenzy out there again and it's really a warning sign to anyone following.
http://www.stuff.co.nz/business/opinion-analysis/78727017/how-safe-are-…
Read this: Ex RBNZ clown now advocating for yet another insurance scheme. Yet another article that really is just a sly business link advocated by media
"Deposit insurance would be funded by the banking industry through levies. The cost could either be absorbed by the banks or passed on to depositors. In either case, the cost is small – no more than a small fraction of a percentage point per annum on each dollar of bank deposit."
Clearly the Reserve Bank actions are not effective. That clearly means they have done the wrong thing. When will they admit that and correct their mistakes by removing the 30% deposit requirement. Officials around the world and over the ages have always made similar mistakes bur rarely do they voluntarily reverse their taxes or legislative restrictions. The rapidly increasing number of renters means we need more rental accommodation not less. This sort of stinking thinking is what used to be expected from the Soviets and the Chinese communists. Stalin's answer was to send dissenters to Siberia. Is New Zealand going to send people to Southland and Otago to fix Auckland's problems?
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