What is happening to New Zealand’s property market?

by Roxanne Libatique07 May 2021

The government launched a new housing package last month to deliver a more sustainable housing market – and a Property and Build report has revealed how the situation was shaping up beforehand.

According to Property and Build’s report, sales activity remained high in the first quarter of 2021 despite record-low listings, rapidly rising property values, and mortgage investor participation that surged from 27% to a record 29% share of purchases.

While the figures covered the period before the housing package announcement, the report stated that they were still valuable to determine the property market’s condition when the government made its changes.

Now, the game has changed, especially for investors – and Property and Build expects to see through its various market measures how the new rules will flow through its buyer classification data and property values.

“It’s now all about what happens next. Buyer classification figures will be of most interest to gauge the fallout from the recent changes, particularly volume of investment purchases of existing property and new builds,” Property and Build said.

With the mortgage deferral scheme ending, most people are now back on a form of loan repayments without undue strain.

Overall, the property market’s recent strength is unsustainable, with a slowdown likely to occur in the second half of 2021, Property and Build said.

“We expect total property sales volumes to be lower in 2021 than they were in 2020 (and potentially fall a bit further again in 2022 too), with property value growth slowing quite markedly too – but not turning negative,” it added.

“Our expectation that price falls won’t be seen reflects underlying shortages of property around the country, although the incentives for investors to target new-builds should give developers the confidence to keep their output high.”

Read more: Government “dead set” on curtailing soaring house prices – BNZ

Property and Build’s report also showed that March was another bumper month for mortgage lending activity. However, the tighter loan-to-value ratio (LVR) rules since March have already significantly curtailed the low-deposit investor flows. The government also took action to dampen higher-debt investor activity in the property market.

“Further measures (e.g., caps on interest-only investor lending) can’t be ruled out at some stage over the next few months either, but the chances do seem to have dropped,” the report said.

“Given we already knew that property sales volumes had been very high again in March, it was no surprise to see that mortgage lenders had another bumper month too. Indeed, the Reserve Bank of New Zealand (RBNZ) figures showed lending flows of $10.5 billion last month, another very high level and up by $4.3 billion from a year ago (although lending in March last year was affected by the first week of the alert level four lockdown).”

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