Data came after introduction of new housing package
New Zealand's property market has been red-hot this year, but Property and Build's latest report expects the property market to slow down soon.
In March, the government introduced a new housing package to address the housing crisis and support first-home buyers (FHBs) into homeownership. As part of the housing package, the government introduced the phased removal of interest deductibility for property investors.
The latest CoreLogic House Price Index (HPI) revealed that nationwide values increased by a further 3.1% in April – bringing the annual growth rate to 18.4%, up from 16.2% in the previous month.
Property and Build's report noted that the monthly pace of property value growth accelerated in April. However, it forecasts that it would take another month or so for the changes to flow through due to the monthly index reading including sales recorded over the past three months.
The report also noted quieter open homes and many auctions “passing in” in April. Fear of overpaying also replaced the “previous over-riding emotion plaguing buyers, which was of fear of missing out (FOMO).”
The flow of valuations last month also provided evidence of reduced housing market activity – with recent valuation orders down -11% than the previous six months, the report said.
“This could reflect the official reimplementation of the loan-to-value ratio (LVR) restrictions from March 01 (requiring a 30% deposit for almost all investment purchases). It may also reflect the uncertainty caused by the interest deductibility changes as property investors take the time to assess the broader market impact and their own financial situation,” it added.
“The drop is probably a lot lower than many have speculated. It seems there remain enough equity-rich investors and/or other home buyers who previously missed out to make up for the pull-back from other buyers. These previously back-row buyers also must have enough confidence in the future to remain active, and this appears the case.”
Property and Build stated that its expectation for future gains was tempered due to reduced investment property profitability following tax changes around interest deductibility.
“This will likely mean a slowing of the recent growth rate over the next few months, which will give the Reserve Bank some time to assess whether they need to announce any intention to limit interest-only loans or put a cap on high debt-to-income lending,” it said.
“Plenty of interest will continue to focus on the government too as calls for rent controls linger, and we await clarification on some of the detail regarding the announced changes. Most importantly, what constitutes a new build and how long it remains a new build – for both interest deductibility and bright-line exemptions. Many current and future property investors will be very interested in the outcome of those final decisions.”
