SummaryThe property market has begun to show the impact of the government’s new housing policies and the reintroduction of LVR
restrictions.The country experienced a slowdown in the pace of house price growth in May and a dip in property sales volumes in
April.Fewer people are now showing up at property auctions across the country.
New Zealand’s housing market has been grabbing eyeballs since the onset of the coronavirus pandemic. The property prices
broke records despite the virus-triggered economic slump. Behind the turbocharged housing prices has been the
ultra-loose monetary policy that sent borrowing costs to record lows while fueling a rush into high-yield investments
like property.
The property market played a crucial role in driving the country’s recovery from the COVID-19 storm. Having said that,
an exponential rise in housing prices also piqued the concerns of policymakers. Fears loomed over a potential burst of
housing bubble if the property price rally continued to endure. In response to such concerns, the government introduced
a suite of policy changes in March this year to make the property market fairer for first-time home buyers.
Interestingly, government efforts finally appear to be paying off, as apparent in the recent set of housing data that
showed prominent signs of a cool down in the property market. Let us explore this property market data at some length
below:House Price Growth Slowing Down
The latest statistics from CoreLogic revealed a deceleration in the pace of house price growth in May 2021. The property
consultant’s recent House Price Index (HPI) report demonstrated a rise in nationwide property values by 2.2 per cent in
May, which was lower than the 3.1 per cent growth rate recorded in April.
While house prices saw an annual gain of 20.5 per cent last month, up from 18.4 per cent in April, it was primarily due
to the economic effect of alert level 4 lockdown imposed nationwide in 2020. The latest data reflects the impact of the
government’s new housing policies and reinstatement of tightened loan-to-value ratio (LVR) restrictions on property
prices.
To deliver a more sustainable property market, the government unveiled a housing package in March 2021 targeted at
bolstering the supply of houses and removing incentives for speculators. At the same time, the central bank also put a
throttle on residential lending in order to curb rapid house price increases.
The policy changes introduced by the government and central bank may lead to a further slowdown in the pace of property
price appreciation. However, housing prices may not experience a sharp fall in the near term, given the supply shortages
and enough demand from potential buyers. It is also evident from the recently released Knight Frank Global House Price
Index, which demonstrated that the house price growth in the country is running at the second-fastest rate in the globe.Property Sales Taking a Breather
As per the latest figures from the Real Estate Institute of New Zealand (REINZ), the nation recorded a month-on-month
decline of 28 per cent in property sales volumes in April 2021. This was despite the highest number of properties sold
in April in the last five years.
It seems the reintroduction of LVR restrictions has begun to show a desired effect on the housing market while
curtailing the low-deposit investor flows. In addition to tighter lending standards, REINZ attributes the recent fall in
home sales to government policy changes and the lowest level of inventory in the country during April since its records
began. The fall further reflects the wait and see approach on the part of several investors and some first-time home
buyers following policy changes.
The property game seems to have changed for first home buyers and investors after new regulations. As the loan repayment
deferral scheme has already come to an end, most people have gradually returned to their prior form of loan repayments,
which will potentially shape housing demand. It will be interesting to see the effect of recent changes on buyer
classification figures over the coming months, specifically first home buyers.Auction Activity Simmering Down
According to the recently released REINZ and Tony Alexander Real Estate Survey, fewer people are now showing up at
property auctions. The survey, which was undertaken at the end of May, revealed that about 35 per cent of real estate
agents saw a small number of people at auctions. The report further highlighted that the proportion of agents who are
feeling more investors are coming forward to sell their properties has gradually declined over the last month.
With winter approaching, investors simply seem to be taking a breather following the property frenzy between August 2020
and March 2021. Besides, investors appear to be in a wait-and-see mode, with home buyers still worried over a shortage
of listings. As the nation continues to reel from historically low housing stock levels, it has become relatively hard
for new listings to make a dent in the property market.
At a time when there remains a significant shortage of new housing stock available for sale in the country, the property
market is expected to keep moving unless there is a massive surge in housing supply. Besides, there remains a glimmer of
hope on the horizon for potential first home buyers with property prices taking a breather.