NZ residential rental market news, May 26

365 day banking, the OCR is at 5.5% and LVR restrictions easing.

The bullet points from this week:

A reminder of the changes in bank transfers

Beginning today, Kiwis are able to transfer money between different banks 365 days a year including weekends and public holidays. 

ASB, Bank of China, BNZ, ANZ, Citi, HSBC, ICBC, Kiwibank, Westpac, TSB and The Cooperative Bank will all be making the switch to allow the transfers. 

The move to 365-day payments will impact direct credit transactions, direct debits, automatic payments, and bill payments. 

Important things to note:

This is not 24-hour banking. Different banks will continue to operate within different time windows. Using Westpac as an example, Online payments made after 10pm will be sent to other banks at 9:30am on the next day. 
Loan repayments will be processed on the day they are due, including weekends and public holidays. So, if you have a Home Loan repayment due Saturday, be aware that it will process Saturday. 
Notice period legislation has not changed. Even though rent will be processed on weekends and holidays, Notices of Overdue Rent can still only be issued after 5 working days of arrears, for example. 

LVR restriction easing confirmed

LVR restrictions aim to promote financial stability by limiting high-risk mortgage lending. 
Feedback was gathered from registered banks regarding the implementation of the proposal. 
After reviewing the feedback, the decision has been made to proceed with easing the restrictions. 
Deputy Governor Christian Hawkesby expressed gratitude for the constructive feedback received. 
The easing of LVR restrictions is deemed necessary as the risks associated with high-LVR lending have reduced. 
Previously, restrictions set a limit on low-deposit lending banks could engage in. 
Starting from June 1, 2023, the new LVR limits will be: 
15% for loans with LVR above 80% for owner occupiers. 
5% for loans with LVR above 65% for investors. 
The previous LVR settings were implemented in November 2021 when risks were high, and they contributed to the resilience of the financial system during the recent decline in house prices. 
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Tony Alexander's Property Report

Key points of interest from this month’s survey: 
• There has been a noticeable improvement in access to bank credit in recent months.  
• Perhaps assisted by the migration boom landlords are increasingly finding it easy to secure good tenants.  
• A rising proportion of investors selling say they are motivated by removal of interest expense deductibility.  
• Investors are increasingly net sellers of property.  
• The average term for which investors plan retaining their property is declining.  
• Concerns about house prices falling are easing and fewer investors cite expectations of falling prices as a reason for selling. 
The proportion of investors expressing worries about price declines has gradually decreased from a peak of 7.8% in December to 6.1%. 
The declining concerns about price falls align with a decrease in the number of investors planning to sell within the next 12 months to avoid price drops. 
However, despite the easing worries about falling prices, investors are not planning to re-enter the market for property purchases. 
The net buying intentions of investors have decreased to the second lowest level on record at -4%. 
The survey also shows a trend of investors intending to hold their properties for shorter periods, with a decline from 69% in 2021 to 56% in the current month. 
Good tenants are now easier to find, as reported by a net 15% of investors, indicating a record high compared to previous years. 
The improvement in finding good tenants correlates with the increase in net immigration to New Zealand. 
Investors are less concerned about falling net migration, suggesting they believe a new migration boom is underway. 
The motivation to sell among investors is primarily driven by the loss of interest expense deductibility and rising insurance costs. 
Investors exiting the market combined with rising tenant demand may lead to rising rents, difficulties in finding suitable accommodation, and potential upward pressure on house prices as renters shift their preference towards buying. 
Banks are eager to lend as house prices have fallen significantly in Wellington and Auckland, and there is weak real estate turnover. 
The survey indicates improved access to credit, with fewer respondents reporting that banks are getting tougher. 
There may be caution about house prices due to potential monetary policy tightening resulting from the Finance Minister's easing of fiscal policy. 
Factors influencing the housing market include a two-year queue of buyers waiting for prices to bottom out, a migration boom, the disappearance of recession talk, a decline in new house construction, and a falling stock of listings. 
The survey suggests a decrease in the availability of rental accommodation, supporting the idea of rising rents. 
When the Reserve Bank signals acceptance of lower interest rates, buyers who have been waiting will likely re-enter the market. 
Borrowers should consider opting for short-term interest rates rather than long-term rates. 
The Reserve Bank's recent monetary policy decision indicates a slower than expected economy and weaker inflation, potentially leading to future rate cuts and a positive impact on the housing market in the coming years.
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The OCR is up to 5.5%

The official cash rate (OCR) was increased by 0.25% as expected. 
Inflation slowed in Q1 this year, and future inflation forecasts have also decreased. 
The budget announced last week was more stimulatory than anticipated and could impact inflation. 
The Reserve Bank (RBNZ) expects inflation to return to the target range by Q3 2024. 
The RBNZ forecasts a modest economic recession later this year. 
Employment remains high, and the unemployment rate is expected to peak lower and sooner than previously predicted. 
The RBNZ predicts a further drop in house prices by 3.5% by Q1 2024. 
The OCR track remains at a forecast peak of 5.5%, with cuts expected to be brought forward. 
Short-term mortgage rates are unlikely to change significantly in response to the OCR shift. 
The housing market may remain neutral, with affordability concerns and upcoming debt-to-income ratio caps limiting a fast rebound.  
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Resale losses at 7-year high

New Zealand has experienced a significant increase in properties being resold for a gross loss. 
In the first three months of 2023, 6.1% of property resales resulted in a price lower than the previous transaction. 
The median profit on resales that sold for a gain has decreased from its peak in Q4 2021. 
The Chief Property Economist at CoreLogic NZ, Kelvin Davidson, noted a softer trend in resale performance across different owner classifications, property types, and geographies. 
The length of time a property is held influences the size of the resale profit or loss. 
Owners who have held property for several years still tend to see large gains at resale time, even in a down market. 
Owner-occupiers generally use their equity to make the next property purchase rather than making a cash windfall. 
Properties resold for a gross profit in Q1 2023 had been owned for a median of 8.3 years, while loss-making resales had a shorter hold period. 
Loss-making resales were more likely to be properties purchased around the first half of 2021 when the market was strong. 
The pain and gain figures reflect current trends in home values across the main centres in New Zealand. 
Auckland experienced the highest proportion of resales made below the previous purchase price. 
The apartment market saw an increase in loss-making resales, although the number of sales remained relatively low. 
House resales making a gross loss have increased since Q1 2022, reaching the highest level since mid-2016. 
Both owner-occupiers and investors saw an increase in loss-making resales in Q1 2023, but major signs of panic selling were not evident. 
House prices are expected to remain lower, leading to further weakness in resale performance, but a return to past levels of mortgage repayment problems is unlikely.
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RBNZ: Smaller decline of house prices than expected

The Reserve Bank of New Zealand (RBNZ) has revised its forecast for house prices, now expecting a smaller overall decline compared to its previous forecast. 
In February, the RBNZ projected a peak-to-trough decline of 23% in house prices, but it has now revised it to a 17% decline. 
The latest Monetary Policy Statement (MPS) from the RBNZ indicates that the decline in house prices will occur at a slower pace in the second half of this year and will be mostly finished by the beginning of 2024. 
According to the RBNZ's latest MPS, house prices have already fallen by 15.3% since their peak in November 2021, measured monthly. 
Factors such as the return of net immigration, increased residents due to a one-off visa, strong wage growth, stable mortgage interest rates, and low inventory levels have contributed to a smaller decline in house prices than expected. 
The decline in house prices is anticipated to have an impact on household spending as aggregate household wealth has decreased significantly. 
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Entry-level house prices drop

Entry-level house prices have experienced larger annual declines compared to top-end prices, according to Quotable Value (QV). 
QV's quartile index reveals a 14.6% drop in lower-end prices, averaging $452,129, while upper-end prices fell by 12% to an average of $1.063 million. 
Lower-end property prices declined in 12 out of 19 main centers and in over half of the country's council areas. 
Lower Hutt saw the largest annual price decrease for entry-level properties at 22.5% to an average of $516,031. 
Napier and Wellington City followed closely with falls of 21.7% and 21.1% respectively. 
Rotorua and Porirua experienced entry-level price declines of 19.2% and 17.8%. 
Among the main centres, Dunedin had the most resilient lower-end market with a 6.1% decrease. 
Auckland region and Christchurch witnessed entry-level price drops of 14.1% and 9.1%. 
QV's analysis reflects the impact of increased first-home buyer activity, leading to more sales and a downward pressure on prices. 
While the recent increase in the Official Cash Rate (OCR) may affect investor activity, the expectation of stable mortgage rates could encourage some buyers to enter the market, including investors waiting for the price curve to reach its bottom. 
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BNZ: Decline in house prices nearing end

Average house prices in New Zealand have dropped by 16% from their peak in November 2021. 
BNZ predicts that the total decline in house prices will be around 20%, indicating a further 4-5% decrease. 
These estimates are approximate and should be used as a general guide. 
The housing market correction is nearing its end, and signs of stabilisation may emerge in the coming months. 
Forecasting house prices is risky, with a higher likelihood of prices falling due to affordability issues, labor market instability, and recent weather-related damages. 
If house prices level out by mid-year, the focus will shift to the recovery, which is expected to be modest with a projected 3% increase in prices throughout 2024.
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Luxon makes U-turn on MDRS

National leader Christopher Luxon admits the party made a mistake with the Medium Density Residential Standards (MDRS). 
Luxon has said he prefers greenfields developments over densification and wants densification around transport corridors, with more discretion for councils in other areas. 
National acknowledges the need for changes to the MDRS based on community feedback. 
ACT calls for housing standards that allow intensification with sympathetic design standards. 
The MDRS allowed three-storey construction without resource consent in major cities and brought forward the timeline on a ban on council limits lower than six storeys. 
Luxon and Chris Bishop, the party's housing spokesperson, will provide more information in the coming weeks. 
Councils have expressed their disapproval of the Medium Density Residential Standards (MDRS) by watering down the rules. 
Christchurch Council does not adopt the MDRS and creates its own set of standards. 
Auckland Council excludes affluent suburbs from medium density builds using a "special character" loophole. 
Hamilton City Council is seeking exemption for the entire city, citing environmental concerns. 
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Property manager stole $9,000 in lodged bonds

Shelley Ann Cockburn, a rental property manager, stole over $9000 from her employer LJ Hooker Alexandra over two years 
She occasionally kept cash bond and rent payments for her personal use and falsified records to receive $3000 in incentive bonus payments she was not entitled to 
She disabled an automatic feature in the software system to hide the fraud 
Another employee uncovered the anomalies while she was on leave and she was later fired after admitting her offending 
She was sentenced to six months' home detention and ordered to pay $6410 in instalments of $20 a week 
The company assessed the full financial loss arising from the offending at $160,000, but the judge could only sentence the defendant on the $9410 specified 
Cockburn had been convicted of four charges of theft from a previous employer in 2009.
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