RFi Group: Appetite for housing wanes in NZ as regulators target speculators

Soaring house prices combined with regulatory changes aimed at curbing demand for investment properties have discouraged Kiwis from entering New Zealand’s white-hot housing market.  

New research from RFi Group revealed that plans to buy a house and take out a mortgage have dropped in the last six months, falling from one-in-four consumers looking to buy a home to one-in-five. 

According to Corelogic, average property prices have jumped 22.8 percent for the year to June.  The total value of all residential property in NZ has now passed $1.5 trillion for the first time. 

Not surprisingly, the RFi data shows the proportion of borrowers who think now is a good time to buy a property has fallen from 54 percent to 38 percent. Further, the number of consumers intending to take out a mortgage in the next 12 months has dropped significantly in the six months to May. 

While there has been a big jump in the number of savers aged between 18 and 24 who are saving for a house deposit, that jump has not yet translated into higher intent to take out a mortgage, the RFi survey showed. 

The percentage of this age group saving for a home has jumped from 17 percent to 30 percent in the last six months. However, it came to buying intent, the numbers rose just three percentage points to 23 percent.  

Nevertheless, that demographic was way more optimistic than other segments. When it came to buying intentions, there was an eight-percentage point drop to 32 percent for those aged between 25 and 34, a three-percentage point drop to 36 percent for the 34 to the 45-age group, and a five-percentage point drop to 21 percent for those between 45 and 54. 

Big policy changes 

The picture looked even bleaker for those planning to buy investment properties, thanks to a raft of onerous new rules. 

The New Zealand government has proposed several policy changes aimed at curbing demand for property investment appear to be working. The measures include an extension of what is known as the bright-line test, 5 to 10 years. This will mean that the capital gain made on a sale of residential property will be taxable for up to 10 years instead of 5 years. The removal of interest deductibility is another proposed change. Investors can no longer offset interest expenses on a mortgage against rental income when calculating taxable income.  

Additionally, the recent decision to add debt-to-income controls to the central bank's macro-prudential toolkit should also curb investor appetite. 

While the true impact of regulation changes on the investment property market is unclear, the RFi report found that just one-in-four borrowers intend to purchase an investment property in the next 12 months. This figure has remained largely unchanged over the last year, despite a massive drop in the number of borrowers who think it is a good time to invest. 

The RFi data also suggested that potential borrowers are looking to either invest in traditional asset classes or renovate their homes When asked about the proposed regulations, 26 percent of first-time property investors decided to use their savings to invest in traditional asset classes. A solid 24 percent were thinking of putting their money into a savings account or term deposit. Just 14 percent were undeterred by new rules and planned to go ahead and buy. This compares to the more seasoned investors. Here, 21 percent would consider putting their money into traditional assets, 14 percent would place the money in term deposits and 21 percent were undaunted by the regulations.  

Shopping around 

RFi research also found that borrowers are increasingly considering more than one lender when taking out loans. Currently, ANZ is the best at converting consideration to actual drawdown, converting 45 percent of customers followed by ASB and Westpac. 

While offering 'green’ features is not a key driver of choice for any lender, it is much more likely to be a consideration for those under 25. RFi concluded that this could be more of a factor if lenders more explicitly market themselves as green.  

ANZ continues to over-index in terms of association with healthy/green homes. 

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