New reports offer no comfort for new home buyers or
sellers. Photo by James Beech.
Two reports out yesterday provided mixed views about New
Zealand's property market, with neither report likely to give
relief to new home buyers or existing property owners.
Rating agency Standard & Poor's says New Zealand is at
risk of a sharp fall in property prices. The agency
highlighted the ''significant risk'' of a sharp correction in
property prices in its latest report on New Zealand's banking
S&P said the most likely scenario was that real estate
prices would continue to stabilise at current levels over the
''That said, given the uncertain short to medium-term outlook
for the global economy, we are of the opinion there remains a
significant risk of a sharp correction in property prices,''
Bank of New Zealand chief economist Tony Alexander said an
upturn in the housing cycle in New Zealand had only just
started and it would probably run for another three years.
''It bears greatest resemblance to the 1990s cycle, which was
also led by Auckland, rather than the 2000s cycle which came
out of the regions.''
The 1980s cycle was a mish-mash of everything, with massive
structural changes in the economy, meaning care needed to be
taken about extrapolating anything out of that decade, he
One of the phenomena of the 1990s cycle was that it spread
out of Auckland to the rest of the country. Commentary during
the past three weeks had started to revolve around that
Data produced by the Real Estate Institute took the average
dwelling sales price over the three months to January and
compared it with the low point in 2009 and the previous peak
in late 2007 - except sections, for which the peak was early
Auckland house prices were up 27%, Christchurch 23% and
Wellington just 11%. Compared with the 2007 peaks, Auckland
prices had advanced by 12%, Wellington was the same and
Christchurch was ahead by 9%. The rest of New Zealand was up
Mr Alexander said the data suggested Wellington was due for a
Responding to recent talk about foreigners buying up New
Zealand houses, Mr Alexander said there were literally
hundreds of anecdotes flying around regarding Chinese buying
residential property in Auckland.
''In two to three weeks, we will have some solid data on the
presence of offshore buyers generally in the New Zealand
One of the emails received by the BNZ from a housing
builder-developer in Auckland complained about being shut out
of tenders from ''what I am told were all Asian investors''.
Every developer was complaining of being outbid by Asian
investors on development land, the email said.
Mr Alexander said there was a lot of speculation those
investors were using the purchase of development land to gain
entry to the country under the investment route somehow -
either directly or through an already established development
''If that was the case, it would not only be unfair
competition, as they are paying a premium for the land to
purchase residence, but also has implications to the housing
market and surely won't be helping affordability,'' he said.
S&P said that with New Zealand banks funding about 37% of
their lending from sources offshore, the country remained
vulnerable should global financial markets seize up in
S&P warned about a scenario where the world economy
struck trouble and the New Zealand dollar, along with export
prices, fell sharply.
It believed such a scenario, in conjunction with a rise in
unemployment, could increase the risk of a significant rise
in banks' credit losses after a build-up in housing prices
and domestic credit in the period preceding the global
Such a turn of events would have a material impact on the
financial strength of the balance sheets of New Zealand
banks, although the four largest banks were all subsidiaries
of Australian banks and retained their owners' AA-minus
New Zealand-owned Kiwibank was rated A+, while The
Co-operative Bank and Heartland Bank carried BBB-minus rates.
TSB Bank was slightly stronger, with a BBB-plus rating.
S&P's assessment comes at a time of growing government
concern about a pick-up in residential housing prices, which
is worsening New Zealand's housing affordability problem.
Finance Minister Bill English used a speech this week to
outline the Government's desire to see the Reserve Bank of
New Zealand use new macro-prudential tools to control banks'
lending and capital adequacy ratios.
Labour Party finance spokesman David Parker said yesterday Mr
English did not understand the housing problem. There were
not enough modest affordable homes.
''The new tools are a necessary addition to the Reserve
Bank's tool kit but they require finesse and subtlety in
their design. Otherwise, they risk doing more harm than