Is New Zealand's Property Market Finally Cooling Off?

Tuesday, 8 June 2021, 5:24 am
Press Release: Kalkine

Summary

• The 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.

Also Read: New Zealand’s new dwelling approvals stay strong in April

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.

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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.

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