Reserve Bank May Crack Down On Regions
1 January 2016
Investors outside auckland are not safely out of the Reserve Bank's sights, warn economists. Since November, investors buying rental property in Auckland have had to have deposits of at least 30%.
In other parts of the country, the loanto- value restrictions limiting the amount of low-deposit loans banks lend have been eased slightly. Banks can now lend up to 15% of their new loans to borrowers with a deposit of less than 20%.
But now economists warn it may soon get harder to secure loans to buy property in places such as Hamilton, too. They warn the Reserve Bank is likely to use its full arsenal of tools in other housing markets that are starting to look over-heated.
Infometrics economist Mieke Welvaert says it is likely house price growth in the areas around Auckland will accelerate through the beginning of the year. Places such as Hamilton and Tauranga are experiencing strong demand as high prices and new restrictions drive buyers out of Auckland.
Hamilton has reported house price inflation of nearly 20% year-on-year and Tauranga is not far behind. Welvaert notes the Reserve Bank says it is closely monitoring those areas.
“Given the side effects that are already apparent from the Reserve Bank’s regionally targeted policy for the Auckland housing market, we believe it would be foolhardy for the bank to try and add further region-specific policies for Waikato and the Bay of Plenty. However, the bank’s increasingly hands-on approach to the housing market gives us little confidence that it will not try to extend its influence with further micro-management.”
BNZ chief economist Tony Alexander says it is very likely the Reserve Bank will introduce a 30% cap for investors in other parts of the country when house price inflation hits the 20% mark. “Around the world, central banks are finding they can’t use interest rates to influence the housing market as they used to because the economy can’t handle the high interest rates.”
He says if the hot prices in Hamilton and surrounding areas continue for another six months, the bank will have to use the tools available to it. Alexander suggests the Reserve Bank is also likely to start working on the possibility of debt-to-income ratios if the tighter LVR rules do not work.
“If after imposing a 30% restriction on the rest of the country, prices are still rising strongly, they will at least do the work on implementing such things in New Zealand. I believe they do not want to go down that route and would prefer to use what they have got, but if the market stays like this they will implement that.”
Investors Plan Rent Rises
Many property investors think the rents their tenants pay are too cheap. Crockers’ latest research shows while 61% of investors feel prices are fair, nearly a third feel rents are below or well below a reasonable price.
Nearly half plan to increase their rents in the next six months. 42% of investors plan an increase of 3% or more. Another 16% are considering an increase of more than 5%. An increase in local rates will be the biggest driver of increases, those polled say, followed by insurance increases and maintenance to the property.
But compared to a similar survey last year, fewer respondents say an increase in interest rates will drive them to lift their rents. Just 33% say it would be a factor, compared to almost half in July last year. Auckland Property Investors’ Association president Andrew Bruce says it is virtually certain the city’s investors will implement a wave of rent rises over the coming months.
He says as students return to the city in January, demand will increase and there will be a shortage of rentals available. Bruce says many investors do not pay enough attention to the rents they charge and will go years without adjusting them.
“Not a lot of private investors treat it as a true business, they set and forget. Yes, it’s an investment but as long as the tenant isn’t causing any problems, they don’t worry about it. But it gets to the point where rents will move.”
It is preferable to introduce a number of small shifts in rents, he says, rather than a big increase to catch up when a property has been forgotten about. “There needs to be a higher number of people treating it as a real business.”