Last week the Reserve Bank loosened its grip on bank
lending, making it a little easier for low deposit house buyers.
Acting Reserve Bank Governor, Grant Spencer, said, “LVR (Loan Value Ratio) policies have been
in place since 2013 to address financial stability risks arising from rapid
house price inflation and increasing household debt. These policies have helped
improve banking system resilience by substantially reducing the share of
high-LVR loans. Over the past six months, pressures in the housing market have
continued to moderate due to the tightening of LVR restrictions in October
2016, a more general firming of bank lending standards and an increase in
mortgage interest rates in early 2017...Housing market policies announced by
the Government are also expected to have a dampening effect on the housing
market."
From 1 January, the LVR restrictions will require that:
- No more than 15 percent
(currently 10 percent) of each bank’s new mortgage lending to owner
occupiers can be at LVRs of more than 80 percent, and
- No more than 5 percent of
each bank’s new mortgage lending to residential property investors can be
at LVRs of more than 65 percent (currently 60 percent).
The Bank's move mirrors a slowdown in the housing market.
The Governor said "We don't see a
collapse of house prices as a particularly high risk, so we're not acting
because we see things are about to fall off a cliff".
I doubt that the change will in itself affect the market. A
greater influence will be what happens in the Beehive building across the road,
and more will be revealed on the 14th of December when the new government
releases a mini budget. Issues likely to be addressed in that mini budget (and
probably passed through Parliament under urgency) are foreign ownership and
forestry.
Last week Associate Finance Minister David Parker released a
Ministerial Directive setting tough new conditions for foreigners seeking to
buy farmland in excess of five
hectares. The directive was in the form of a letter to the Overseas Investment
Office (OIO) setting out the Government’s policy approach to overseas
investment in rural land. Although the directive does not come into effect
until 15 December - a day after the mini budget
- all applications currently being processed will have to abide by the
new rules.
To gain approval from the OIO an applicant will need to
demonstrate they intend to add value to the New Zealand economy. This is likely
to be in the context of new jobs, new technology and business skills, and
increased exports.
The Directive said, “The
existing directive is too loose…It only applied to very large farms more than
10 times the average farm size. In practice this meant restrictions in
sales generally applied to sheep and beef farms over 7,146 ha or a dairy farm
more than 1,987ha."
Although the Directive refers to "farm land" it
clearly relates to all non-urban land. That raises a big question mark over
demand for lifestyle property, and the impact it will have on regions like
Northland which are popular with overseas buyers. Most lifestyle properties
will not have "added value" potential, and may struggle to overcome
the threshold for approval. All eyes will be on real estate companies
specialising in lifestyle property, especially coastal land, to see what impact
the new rules will have on demand and values. I expect there will be a
noticeable impact on both demand and coastal land values.
Forestry has been specifically excluded from the Directive.
Details are expected to be announced in the mini budget but are likely to
revolve around requirements for overseas owners to establish wood processing
facilities. It seems this initiative is part of the regional development plan
being led by NZ First Minister Shane Jones.
A press release from David Parker said the Directive Letter
is the first step in strengthening the overseas investment regime. It is
expected that existing residential houses will also be classed as
"sensitive land" and require OIO approval. While this is not an outright
ban of overseas house buyers, it is likely to have the effect of being a total
ban as most are unlikely to meet the adding value criteria.
Frank Newman
writes a weekly article for Property Plus.
1 comment:
The loony left have only one panacea for a problem, and that's "get a bigger blody hammer". I certainly agree there should be some curtailment to this overseas purchase of our land. If the loony left had a commecial brain between them, they would encourage overseas investment in our land and housing, then lay a absentee owner tax on those investors, say 5% of the capital value every year. That would then give these green clowns more than enough income to piddle down the creek without beating on those of us that actually get off our backsides and produce something oif value to this nation
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