ISCOVER
Australian regulators could be keeping a close eye on New Zealand after new investor rules were introduced by its central bank to combat a “growing housing market risk”.
The changes apply specifically to Auckland, which has been experiencing a Sydney-like boom.
The Reserve Bank of New Zealand has announced that residential property investors in the Auckland Council area will need deposits of at least 30 per cent from 1 October.
This has been done “in response to the growing housing market risk in Auckland”, although the Reserve Bank said that New Zealand’s financial system remains sound.
Governor Graeme Wheeler said the new rules have focused on Auckland because house prices relative to incomes and rent are far higher than elsewhere in New Zealand.
“The objective of this policy is to promote financial stability by reducing the rate of increase in Auckland house prices and to improve the resilience of the banking system to a potential downturn in the Auckland housing market,” he said.
Mortgage Choice’s outgoing chief executive, Michael Russell, said it would be foolish for APRA to introduce similar regulation across Australia, although he added that a case could be made for regulation specific to NSW.
“When we look at the Sydney market, which is showing signs of overheating, there is an argument to look at some sort of macroprudential intervention on a geographic basis,” he said.
However, Mr Russell told The Adviser that it made no sense to try to reduce economic activity outside Sydney given the weakness of Australia’s economy.
Domain Group senior economist Andrew Wilson went further than Mr Russell, claiming it would be wrong to introduce investor lending restrictions even in NSW.
“What is the problem we're trying to solve here in Sydney? We have strong price growth but we're already starting to attract higher vacancy rates and the market will adjust as it does,” he said.
“Where are the signs of stress? We have minimal levels of mortgage defaults. Of course it is difficult for first home buyers, but first home buyers usually work against the cycle – the number of first home buyers rises as prices fall.”
Mr Wilson told The Adviser that Sydney has previously experienced higher levels of price growth, yet has made “orderly adjustments” once the boom ended.
Banks are also being careful with their lending and are operating in a “very strict financial regulatory environment”, he said.
[Related: Brokers to feel effects of APRA investor crackdown]
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