Today’s Reserve Bank crackdown on Auckland residential property investors excludes overseas (mainly Chinese) investors who pay cash for properties.
And the Deputy Governor of the Bank, Grant Wheeler estimates they could make up 10% of the overall housing buyers in Auckland.
“We don’t think it would be significantly greater than that,” he said.
However the Bank’s Governor, Graeme Wheeler, said there were a lot of doubts about the accuracy of the information.
“There’s a lot going on in terms of overseas interest,” he said.
“That’s not just out of Asia.
“It’s out of other regions and it can also be New Zealanders who intend to return home.
“There is a substantial Asian presence in the Auckland market but then 28% of Aucklanders describe themselves as being if Asian descent.”
Mr Wheeler said it would be helpful if more data was available.
THE RESERVE BANK RESTRICTIONS
Those investors will now be required to have a deposit of at least 30%.
The Bank will also allow banks outside Auckland to increase their total portfolio of high loan to value ratio loans to 15% of their total lending but the total LVR lending to Auckland buyers will stay at 10% of the total portfolio.
The Bank is also establishing a new asset class from October 1 this year for bank loans to residential property investors.
Banks will be required to hold more capital against this asset to reflect what it says are the higher risks inherent in such lending.
“Housing investors have consistently accounted for over one third of property purchases transactions over the past decade,”” it says in its half-yearly “Financial Stability Report” released today.
“Sales to investors in the Auckland market have picked up in line with the rise in sales activity since November and this is likely to be contributing to recent strength in Auckland house prices.
HOW MUCH THE BANK THINKS THE MOVES WILL AFFECT AUCKLAND PRICES
Investors are also a key source of new mortgage credit demand with property investors accounting for approximately one third of new mortgage lending over the six months ended March 2015.
Mr Wheeler said the Bank thought that the moves would reduce the number of property transactions in Auckland by 8 – 10% and possibly reduce house price inflation by 2 – 4% “MAYBE EVEN MORE THAN THAT”.
Conversely the moves would give a slight boost to the property market outside Auckland and Mr Wheeler estimated that sales there could pick up by about 4% and “maybe house price inflation by about one per cent.”
WARNING ABOUT DAIRY FARM PRICES.
The Bank is also warning that financial stress in the dairy industry could rise markedly if low global milk prices extend beyond the current season.
“Financial stress would be exacerbated if low milk prices lead to falling rural land prices.
It said that falling land prices could cause a reduction in equity buffers which could prevent farmers drawing on equity lines and result in a rise in loan defaults in the sector.
And it warns that though current rural land prices are flat there is a significant risk that milk prices could stay low for an extended period.