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What to consider when you’re considering

Tags: Residential Residential Views

Amidst the latest COVID-19-induced uncertainty, Bayleys investigates the most important macroeconomic factors worth thinking about when deciding to buy or sell in today’s residential property market.

Providing a powerful stimulus for the residential property industry, record-low interest rates have combined with fervent buyer demand to deliver incredible recent sale results touted as the ‘the biggest housing boom in 17 years.’

In one corner, forced savings are burning a hole in many a pocket courtesy of the ban on international travel and the wealth effect of rising asset prices.

Yet, vaccinations are rolling out across the world while lockdowns, curfews and restrictions endure.

With such push-pull mechanisms at play, the future of ordinary New Zealanders remains unknown, begging careful analysis of the bigger economic picture when making major purchasing decisions.

Monetary policy

Rising property prices across the country and particularly in our main centres have prompted fresh calls for monetary policy settings to be re-examined to facilitate greater affordability.

Temporarily removed back in April 2020 to avoid interference between the COVID-19 policy response and bank obligations, the Reserve Bank of New Zealand (RBNZ) recently announced the return of loan-to-value ratios (LVRs) come March 1.

From that date, owner-occupiers will require at least a 20 percent deposit to qualify for bank lending, with investors needing to front up with a 30 percent deposit.

While New Zealand’s banks were already self-imposing internal LVRs amidst rampant demand for residential property through quarters three and four of 2020, many commentators expect the return of LVRs will have a minimal effect on local market activity.

This may be particularly true in the Auckland region, where the country’s biggest market is less susceptible to volatility than her smaller neighbours.

However, the RBNZ has gone one step further with the announcement of more restrictive policy measures targeted at property investors, namely the requirement for a 40 percent deposit from May 1.

Where aspiring investors with financial vulnerabilities may give pause for thought before further extending themselves, the allure of the property market persists, and reports that residential property prices across New Zealand rose by $332 per day in 2020 prove to be too tantalising for Kiwis with their eyes on the prize.

Flexible financials

The government and the RBNZ can be commended for the ‘hard and early’ adjustments in economic policy that have kept thousands of Kiwis in their homes, employment and at a reasonable quality of life through the global pandemic and ensuing recession.

This stance illustrates just how swiftly policy adjustments can be made when we are faced with economic challenges.

Despite rising LVR requirements for property investors, the question of affordability for first home buyers remains, with landlords and aspiring homeowners often competing for the same quarter-acre dream.

As pressure mounts on policy-makers to take more drastic steps to adjust monetary policy settings so as not to directly inflate asset prices and in turn, add money to the back pocket of asset-owners, it is not unreasonable to expect the RBNZ to make use of existing macroprudential tools to further dampen investor activity.

Government support

While economic confidence rode high at the close of 2020, following better-than-expected results in the quarterly GDP announcement, New Zealand’s borders remain closed to overseas visitors and the effects have been disproportionately devastating on certain sectors of the economy.

Later this month we anticipate the end of the mortgage deferral scheme which allowed struggling homeowners a temporary reprieve from mortgage payments in light of extended lockdowns in 2020.

Once this support measure ends, can we expect an increase in forced sales?

Where New Zealand’s banks have decreed their humility, noting the forces sale of a family residence is indeed a last resort, some homeowners may elect to sell, be it under duress, as government support dries up.


The springboard effect confidence has on the New Zealand economy has been palpable over the last six months, with homeowners benefitting from the wealth effect of rising asset prices, which in turn has offered more bargaining power and increased spending across the economy.

ANZ’s recent Business Outlook Survey reported economic confidence rose to its highest level since August 2017 and more businesses are reportedly making plans to hire staff, increase capital spending and raise the cost of their goods and services.

This bodes well for continued value growth across the residential market as we anticipate business confidence to translate to greater production, more employment opportunities and even more consumer spend.

Material world

The effects of New Zealand’s housing shortage are well publicised and a popular scapegoat for rising issues with affordability.

However, the latest building consent figures from Statistics New Zealand show an industry in recovery, reporting the highest number of new homes consented in the year to November 2020 since 1974.

In Auckland, building consent issuance was up 55 percent with an emphasis on the demand for townhouses and standalone dwellings.

Where the Auckland Unitary Plan has made approximately 80 percent of the city’s land available for development, we can expect to see greater intensification take place across the region with a particular focus on the northern and south-eastern boundaries.

When coupled with annual migration figures which have dropped to their lowest levels since 2013, we have a chance to play catch-up on the supply side of the coin.

How low can we go?

Globally, interest rates have dipped to record-low levels with mortgage-holders across New Zealand benefitting from rate cuts.

The RBNZ’s Funding for Lending Program (FLP) has allowed retail banks to borrow at the much cheaper cost of the Official Cash Rate (OCR), further serving to encourage lending to New Zealanders ready and willing to inject the cash back into the economy.

However, critics are calling this cash injection a contributing factor to leveraged speculation, which is adding to rising wealth inequality between those that own assets, and those that don’t.

Balancing the social obligations of economic policy is becoming all the more important in the current state of play, and with this in mind, we may well have reached the rate trough of this financial cycle, with commentators picking rates to begin a slow and steady rise somewhere in the next two years.

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