A surge in property sales has led to Auckland becoming the top spot for luxury real estate according to a new report. However, as house prices soar, the Reserve Bank of New Zealand looks at new ways to stabilise the market.
Auckland has joined the ranks of cities like San Francisco in the United States, Sydney in Australia and Stockholm in Sweden as it overtook Toronto in Canada to become the number one spot for the world’s hottest luxury housing market in 2015 – according to international real estate company Christie’s latest Luxury Defined Report.
Based on a survey conducted by Christie’s of 100 affiliate markets, Auckland came out top thanks to an incredible 63 percent growth in million-dollar plus property sales – mostly due to strong international growth and local demand. Bayleys Real Estate is Christie’s exclusive affiliate in New Zealand.
The report describes Auckland as a “comeback market”, meaning the luxury real estate market was slow to recover after the global recession – unlike its higher profile counterparts such as London, New York and Hong Kong – but has seen a dramatic turnaround since 2015.
Christie’s attributes the resurgence in Auckland luxury real estate to “changes in variables that dictate the health and pricing” of the property market. In Auckland’s case, immigration and economic growth are identified as the number one “game changers” that have led to a significant rise in the luxury real estate property market.
According to the report, luxury home sales in Auckland grew by 63 percent annually and were fuelled by New Zealand’s strong economy – resulting in “an influx of migration and prime property investment by overseas students, expats, and affluent investors.”
Interestingly, this surge in the Auckland luxury real estate property market has spread to areas other than urban centres and smaller cities. Coastal communities have also experienced an influx in sales as city dwellers purchase luxury coastal properties after selling a high-value Auckland home. Areas once seen as “second-home resort markets” are now enabling high-net-worth individuals to “work where their passions are best aligned” thanks to advances in technology, communication, business attitudes and transportation.
The surge in the Auckland luxury real estate market has however accelerated house price inflation, leading to concerns from The Reserve Bank of New Zealand (RBNZ).
While there are already measures in place to try and stabilise the Auckland property market – including loan-to-value ratios, a levy on properties purchased and re-sold within two years (barring inherited or primary residences) and a requirement for non-resident overseas buyers to apply for an Inland Revenue tax number – the RBNZ is becoming “increasingly concerned” about the Auckland housing resurgence and considering implementing measures to further improve financial stability.
At a conference after the release of RBNZ’s half-yearly Financial Stability Report, Reserve Bank Governor Graeme Wheeler and his Deputy Grant Spencer said they were “seriously considering” introducing new lending control measures – including a new Debt-To-Income (DTI) ratio control, which is currently used in Britain and was introduced in 2014 in an attempt to stabilise rapidly rising house prices.
A DTI ratio control is calculated by dividing a person’s monthly debt payments by their gross monthly income – which will give lenders the ability to measure a person’s ability to manage the payments they make every month to repay the money they have borrowed.
In effect, this could limit the amount a home buyer could borrow, making it more difficult to join the property market at some point in the future.