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New Zealand Clamps Down on Property Investors as Prices Soar

Matthew Brockett
·2 min read

(Bloomberg) -- New Zealand is clamping down on property investors in an attempt to rein in spiraling house prices.

The central bank said Tuesday it will reinstate mortgage lending restrictions on March 1 and tighten them further for investors from May 1. Finance Minister Grant Robertson also said today the government will unveil measures soon to curb housing demand, “particularly from those who are speculating.”

“A growing number of highly indebted borrowers, especially investors, are now financially vulnerable to house price corrections and disruptions to their ability to service the debt,” Reserve Bank Deputy Governor Geoff Bascand said in a statement. “Highly leveraged property owners, in particular investors, are more prone to rapid ‘fire sales’ that potentially amplify any downturn.”

The RBNZ removed lending restrictions last year to ensure they didn’t get in the way of policy responses to the coronavirus pandemic, but predictions of falling house prices never came to pass. Instead, prices soared as New Zealand’s economy performed much better than expected and record-low mortgage rates encouraged demand.

The reintroduced lending restrictions mean that most owner-occupiers will need a 20% deposit to get a mortgage, while investors will need 30%. From May 1, the required down-payment for investors will rise to 40%, the RBNZ said.

New Zealand Housing Frenzy Exposes Perils of Ultra-Low Rates

New Zealand house prices continued to soar in January, gaining 12.8% from a year earlier. That’s the fastest pace since March 2017.

Several banks have already moved to tighten requirements for investors amid concerns about the rapid growth in lending volumes.

“We are now concerned about the risk a sharp correction in the housing market poses for financial stability,” Bascand said. “There is evidence of a speculative dynamic emerging with many buyers becoming highly leveraged.”

The red-hot housing market has become politically charged as first-time buyers are locked out, widening social inequalities. The government last year called on the RBNZ to take house prices into account when setting monetary policy -- a suggestion the central bank has rebuffed.

Robertson said today that the government will soon unveil and range of measures to address the housing crisis.

“The first of those will be on the demand side measures which will come in late February,” he said in a speech. “We all know that building more houses, particularly affordable houses, is critical. But we also can do more to manage demand, particularly from those who are speculating.”

Possible measures include extending the period in which profits on the sale of investment property are taxable, and making changes to tax deductibility of rental property expenses to make them a less attractive investment vehicle.

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