The efforts to bring greater sanity in the lucrative Auckland property market are on. They are being spraeheaded by the Reserve Bank of New Zealand and the Government, as outlined in its budget presented in May. The Reserve Bank is moving ahead with its proposals to restrict investor-buyers from availing big mortgages and using such funds to price out the needy, which include first time buyers. The RBNZ hopes that it can take the heat out of the city's housing market and insists on bankers to have an asset sub-class for making property investors qualify for loans. It will also require higher levels of capital and precise definition of "borrowers" who are not to be owner-occupiers, reports 3 News.

In May, Governor Graeme Wheeler announced new limits on lending to property investors in the Auckland Council area, making borrowers to have at least a 30 percent as deposit. For banks, creating the new sub-class will invite new costs ranging between $250,000 and $500,000 for smaller ones, and between $1.3 million and $5 million for larger banks, in making changes to IT systems, staff training and also for introducing new processes for lenders. The new rule will come into force from October 1 as banks have to put in place the systems to comply with the new regime.

Risk Profile

The Reserve Bank is led by by the belief that residential property investor loans carry a different risk profile and they need to keep aside more capital as hedge, as the higher gearing they expose to, compared to ordinary home-owners in the matter of loan, is fraught with more risk, during economic downturns.

But Reserve Bank’s proposals faced resistance from most submissions against creating a separate asset class, arguing that property investor status does not contribute to the riskiness of a mortgage loan book. However, the regulator stuck to its guns citing the experience in the U.K. and Ireland where buy-to-let borrowers were defaulting more and going deep in arrears.

Economists’ Concern

Meanwhile, The Guardian reports that many economists in New Zealand are alarmed at the heating up of the housing markets, particularly Auckland, where average prices of property have crossed the $1million mark. In Auckland, the cost of an average domestic property has jumped from $550,000 in 2007 to nearly $810,000 in 2015. In 2014, house prices increased 14 percent, while the rest of the country’s index remained static.

In the budget presented on May 21, the government announced a $52 million investment for developing 500 hectares of state land in Auckland. It also unveiled a tax on property speculators to stop selling of houses within two years of purchase and mandated that foreign buyers must have a New Zealand bank account and tax number.

(For feedback/comments, contact the writer at k.kumar@ibtimes.com.au)

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