New Zealand property prices might dip, but consumers still confident

Kiwi buyer confidence still high despite interest rate rises, according to new research

New Zealand property prices might dip, but consumers still confident

Consumer confidence is still high, despite interest rate rises and a predicted dip in New Zealand property prices, according to new research.

ASB released Spring quarter data yesterday that revealed that 62% of customers think that house prices will continue to rise in New Zealand, up 4% from the last quarter.

Despite a widespread acknowledgment that interest rates will rise yet further, only 23% of customers thought that this was a bad time to buy a house, just 3% up on the previous number from March-June.

Saul Eslake (pictured), an Australia-based economist who tracks data across global central banks, told NZ Adviser that the New Zealand market was still buoyant in the face of cash rate rises and an unsustainable rate of growth.

“The New Zealand market has been not simply stronger than Australia’s, but one of the strongest in the world,” he said.

Read more: What is happening in the Auckland property market?

“That partly reflects the demand for property from returning expat New Zealanders, as well as from locals seeking to upgrade to better properties and, as far as we can tell, continued strong demand from investors.

“I suspect that is going to change over the next 12 months. Not only because we’ve seen two increases in the Reserve Bank’s official cash rate already, but we’re likely to see at least two more in the first half of 2022.”

Eslake continued that it might be tax changes, rather than consumer confidence, that causes a slowdown in prices in 2022 and 2023.

“There have been some very important changes in the tax environment for investors in New Zealand,” he said. “In effect, negative gearing has been abolished since October 01 and property investors can no longer deduct interest against rental income, let alone against other income.”

Tax may yet be what brings New Zealand property prices back to earth

“Investors who sell properties which they have held for less than 10 years will also be subject to capital gains or income tax at their full marginal rates,” Eslake explained. “That doesn’t yet seem to have had a dampening demand for property, but I suspect that as people factor it in, we will see New Zealand property prices level out.”

“The Reserve Bank of New Zealand, in its most recent policy statement published last month, forecast that property prices could fall in 2023, which is an unusual forecast for a central bank to make but they have been quite explicit twice in its judgement that the present level of New Zealand house prices is unsustainable.

“While I don’t expect to see an immediate end to the upward movement that has been more pronounced in New Zealand than in any other country in the world over the last 18 months, I think we will see some softening in the market on a two-year horizon.”

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