LVRs squeezing housing market

House prices in Oamaru have risen 12% on a year ago, but quarterly data reveals growth slowing to...
House prices in Oamaru have risen 12% on a year ago, but quarterly data reveals growth slowing to about 2%, replicating what is happening throughout Otago. Photo: Peter McIntosh
Otago median home values are sustaining their value gains on a year ago.  Simon Hartley talks to Quotable Value spokeswoman Andrea Rush about the latest QV data which tells another story.

House values across Otago remain 10% to 20% up on a year ago, but closer scrutiny of the more recent quarterly data reveals a pronounced slowing, to gains of about 2%.

Queenstown, Arrowtown and Wanaka retain Quotable Value estimates of more than $1 million and only three of 23 townships or Dunedin suburbs have gone backwards in the quarter to June.

Andrea Rush.
Andrea Rush.
QV data showed the lowest number of residential property sales in Dunedin and its surrounds since August 2015. Central Otago and Queenstown Lakes were replicating the 2014 election period, with a flat market and activity levels dropping significantly.

Not only is it getting tougher for New Zealanders to secure finance, but anecdotally, foreign investors are also coming under increasing bank scrutiny.QV’s national spokeswoman Andrea Rush said the levelling off of growth in the housing market was in part due to fewer homes being listed for sale.

"Contributing factors include the constraints on access to finance for buyers, including the impact of the LVR [loan to value ratio] restrictions on investors and also stricter lending criteria from retail banks making it harder for buyers to get the finance to purchase," Ms Rush said.

During the week, economists scrutinising the "underwhelming" 0.8% gain in economic activity, or gross domestic product, noted the effect slowing house prices were beginning to have on GDP and on associated services activities such as suppliers and some retailers.

Coming out of winter and with the election under way today, consumer sentiment on housing was always expected to be sluggish, but that had been compounded by the Reserve Bank’s lending restrictions on banks and recent interest rate increases.

Arrowtown, which has had a more than 70% gain in median house values since 2014, maintains Otago...
Arrowtown, which has had a more than 70% gain in median house values since 2014, maintains Otago’s highest median value, at $1.21 million. Photo: Todd Weeks.
"Queenstown continues to have a strong overseas investor presence; however, reports are that it’s also now harder for overseas investors to secure finance," Ms Rush said.

The two-year "bright-line test" might also be playing a part in slowing investor activity, she said.

Some buyers had been taken out of the market because of LVRs, high prices and banks’ stricter lending requirements.

"This has seen a drop in the number of sales and activity in the market which has caused an overall slowing in the market over the winter months," she said.

Ms Rush said growth had slowed in all of New Zealand’s main centres, and that trend was now being seen in Queenstown and Wanaka.

"However, high sales prices were still being achieved. It’s just the rate of growth that is slowing," she said.

The Queenstown Lakes District Council was carrying out its general revaluation for rating purposes so the large percentages changes were likely to be reflected in new rating values set as at July 1, 2017, Ms Rush said.

"Values have risen extremely quickly in Queenstown and Wanaka over the past three years, with properties now selling for between 55% and 83% higher than in 2014," she said.

The average value for both areas is now more than $1 million.

"This huge jump in values means many buyers have been priced out of the market and with higher deposits required as well as stricter lending criteria for loans, sales volumes have dropped."

The Queenstown market rose immediately after the 2014 election, but the market had been relatively flat since the previous peak of 2007, she said.

"While there has been huge growth in the period since the last election, this rate of growth is not sustainable and values are likely to rise, but at a more moderate pace," Ms Rush said.

When asked if there had been a withdrawal of investors from Queenstown, Ms Rush said some investors might be taking a "wait-and-see approach" until after the election.

"For others, the LVRs coupled with banks’ stricter lending criteria may mean they cannot gain finance to purchase or develop property at this time," Ms Rush said.

Ms Rush expected it would take four to six weeks to determine how the market reacted to the election.

QV’s Dunedin-registered valuer, Aidan Young, said the slower sales in Dunedin were likely to have been a factor in a slower rate of growth compared with previous quarters.

"The property market typically slows during the winter months, so it’s not unusual to see a slowing during the June quarter," Mr Young said.

As in Central Otago, LVRs were affecting some purchasers’ ability to obtain finance.

"Some clients are reporting that they are having to shop around  to obtain lending in some situations," Mr Young said.

Demand still outweighed supply for residential properties, which indicated the market was not saturated, he said.

Demand also remained strong for Dunedin rental properties. 

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