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NZ: Housing conditions to remain subdued for an extended period – Westpac

On the New Zealand data front, the main news over the past week was the release of the REINZ house sales figures for October. Recent weeks have seen some easing in mortgage rates, which has given the housing market a bit of a boost, explains the research team at Westpac.

Key Quotes

“We’ve seen this most clearly in Auckland, where house prices have been creeping higher again after moderating in the early part of the year. And we could see this continue for while.”

“But despite the recent pick up, New Zealand’s housing market is still looking a lot softer than it did this time last year. Sales are down 15% since last October. At the same time, the double digit house price growth we saw in previous years has given way to a period of quite subdued gains. A range of factors has contributed to this slowdown. This includes the creep higher in mortgage rates in late 2016 and early 2017, as well as the tightening in lending restrictions by the RBNZ. Pre-election uncertainty also appears to have had a dampening impact.”

“We think the New Zealand economy is in for an extended period of weak house price inflation. The new Government is planning on rolling out a suite of regulatory changes over the coming years that will dampen housing market conditions. First off the block will be a ban on non-resident buyers of existing properties. The ‘bright line’ test for taxing capital gains on investment properties will also be extended from a two-year minimum holding period to five years. Such changes will be reinforced by tighter migration settings that will reduce the rate of growth in demand for housing.”

“Longer-term, the new government has signalled that it will also remove negative gearing (the ability to use losses on rental properties to offset taxable income from elsewhere). Finally, the Government plans to review New Zealand’s tax base, which could see further changes to the tax treatment of capital gains from housing.”

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