In March 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:
New data released by the Reserve Bank of New Zealand (RBNZ) also reveals that new mortgage commitments surged in March to the highest level on record:
$10.5 billion worth of mortgages were issued in March, up 70% year over year. Both owner-occupier (+71%) and investor (+76%) boomed, with the former easily hitting its highest level on record.
Separate data compiled by Interest.co.nz also showed that mortgage credit has boomed while all other forms of lending have gone backwards:
This data suggests that Kiwis rushed to beat the new policy restrictions, generating a blow-off top.
CoreLogic also expects the total number of residential property sales to be lower this year than it was last year, as the market starts to cool:
“Overall, the recent strength of the property market was always going to be unsustainable and a slowdown [is] likely to occur in the second half of 2021 – the Government changes just reinforce that”.
It will be interesting watching how the housing market reforms play out over the remainder of the year.
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