Century 21 New Zealand’s national manager Geoff Barnett says the Reserve Bank’s latest changes to loan-to-value restrictions (LVRs) will make little difference to the Auckland market, are ‘over the top’ and will unnecessarily punish investors and first-home buyers in the rest of country.
Under the proposed new restrictions, taking effect on 1 September, residential property investors across New Zealand will now require a deposit of at least 40%, while owner-occupier first-home buyers across the country will require a deposit of at least 20%. Loans to construct new dwellings will continue to be exempt from the 20% deposit requirements for first-home buyers.
“These are very blunt instruments and won’t do anything to slow down house prices,” says Barnett.
“That will happen over time when supply catches up somewhat and the price point self-levels. It won’t happen by stinging property investors in Invercargill and making it harder for first-home buyers in Gisborne. We need those people.
“If Auckland investors can find 30%, they’ll probably now also be able to raise the 40% required. Investors are a minority of the Auckland market and in real terms this move is not going to take many more out.”
Barnett says it is a positive that those buying off the plan will continue to be exempt from the restrictions, and will only help encourage more construction and supply.
“From the outset I’ve been positive about 2016 and remain so. The latest changes will have no real impact and so people shouldn’t sit around, waiting and wondering. In fact, as we move from winter into spring the market will get a natural lift and I’m thinking with interest rates remaining low and demand still strong the coming summer will also be buoyant.
“Things might start settling down somewhat from next year but it won’t be dramatic nor will it be because of the latest LVR restrictions. It will be as a result of more new houses coming on stream and possibly slowing immigration numbers.”
Property investor Gary Lin, who has a portfolio of 11 properties valued at around %8.5million told NZ Herald that investor behavior is now in a 'panic buying' stage but expects the LVR changes will ‘drastically’ change how buyers choose to purchase property.
Lin expects the same effect to happen as the last time tougher new lending rules were made late last year.
"Basically, everyone bought before the new rules last October, with the bright line test and the 30 per cent deposit. After that, it quietened down and by March it started to heat up again with more people bidding and higher prices," he said.
"Before the new rules were just announced, the market was pretty hot. Auction clearance rates at Barfoots are now 60 to 70 per cent again.
"I would not be surprised if people with pre-approvals at the old 30 per cent deposits will try to use that before September. But after September, the market will slow down a bit because there will be less investors," Lin said.