Last month we witnessed two key reforms come into effect designed to take the steam out of New Zealand’s inflating property market.
First, the Reserve Bank of New Zealand (RBNZ) reintroduced loan-to-value ratio (LVR) mortgage restrictions, which from 1 March 2021 required both investors and owner-occupiers to hold bigger deposits:
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Second, and more importantly, the New Zealand Government on 23 March announced major property tax reforms targeted at investors, specifically:
- extending the term of the Bright Line Test for taxing capital gains on investment property from five years to 10 years; and
- fully removing the tax deductibility of mortgage interest payments on residential investment properties.
Despite these reforms, the Real Estate Institute of New Zealand (REINZ) reported that the nation’s median house price soared by $46,300 (+5.9%) in March to a new record of $826,300, which follows February’s scorching $50,000 increase.
Over the 12 months to March 2021, New Zealand’s median house price soared by 23.6%, with new price records set in 12 of the REINZ’s 16 regions throughout the country:
The number of properties sold in March was also the highest in 14 years, up 31.2% year-on-year – a result which shocked REINZ acting chief economist, Wendy Alexander:
“The number of properties sold in March was the highest we’ve seen for a March month in 14 years (March 2007), with 2,313 more properties sold when compared to March 2020 – an additional 75 properties per day…
“March’s result is much higher than many commentators would have expected, as on 1 March the first tranche of the LVR restrictions came back into effect with investors requiring a 30% deposit and owner-occupiers requiring a 20% deposit. Therefore, we would have expected sales volumes to slow a little as buyers took this into account, however, it might just be that we need a few more months for this to really start to take effect,” points out Alexander….
“March was another incredibly strong month from a price perspective with 12 regions and 32 districts across the country seeing record median prices. The national median also reached a new record, increasing by $46,300 since last month…
“Additionally, we’re seeing houses sell at their fastest pace in a March month ever”…
Nevertheless, the market does appear to be cooling with auction clearance rates – typically a leading indicator of price growth – falling materially from mid-March:
Logically at least, the LVR and tax reforms should knock the wind out of the property market’s sails.
Next months housing market data should tell the tale.