Property Institute welcomes drop in OCR

Thursday, 11 June 2015

Property Institute welcomes drop in OCR

Property Institute of New Zealand Chief Executive, Ashley Church, has welcomed the Reserve Bank’s decision to cut the OCR by .25% to 3.25%

Mr Church says that the message the decision will send to the market will be ‘mostly positive’. He says that it will:

• Encourage sustained economic activity

• Help to lower the exchange rate

• Assist developers to build more homes - particularly in Auckland

• Offset the increased cost of owning a home – again, particularly in Auckland

• And put more money into the pockets of struggling households

On the negative side, Mr Church says that the move will do nothing to dampen house price inflation although he doubts that it will make the situation any worse.

“The average house price in Auckland is now around $800,000 – and a .25% drop in interest rates represents a saving of about $40 a week on a mortgage of that amount. That’s quite a lot of money to a young couple buying their first home – but those people have already been closed out of the market by the clampdown on Loan to Value Ratios”.

“That leaves property investors, property owners who are buying property to upgrade, and foreign buyers – and $40 per week is probably neither here nor there to those folk – so it’s not going to fuel further house price increases beyond what we’re already experiencing”.

However, Mr Church notes that the Governor of the Reserve Bank is signaling further cuts and warns that the cumulative effect of such cuts will certainly drive more house price inflation.

“Once we start seeing savings of .5% or more – then we can absolutely expect that to start being a factor in what buyers are prepared to pay”.

Mr Church also cautions that the news will not be welcome to bank depositors who are already seeing low returns on funds invested.

“Those who rely on interest income will not regard this as good news”.

Ends

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