NZ residential rental market news, April 28

LVR restrictions easing, DTI ratios incoming and April's Property Investor Insights broken down

The bullet points from this week:

RBNZ proposes to ease LVR restrictions

Current LVR settings were put in place in November 2021 due to elevated risks. 
The restrictions have increased the resilience of the financial system – house prices have fallen without widespread impacts on financial stability in the past year. 
The current restrictions may be unnecessarily reducing efficiency and restricting credit to some otherwise creditworthy borrowers is not proportionate to the level of risk. 
National house prices have fallen towards a more consistent level with medium-term fundamentals. 
The probability of a large correction in house prices has reduced. 
Lending conditions have tightened significantly. 
The proposal is to ease LVR restrictions from 1 June 2023. 
The limit for loans with LVR above 80% for owner-occupiers will increase from 10% to 15%. 
The limit for loans with LVR above 60% for investors will remain at 5%. 
Read the report

DTI ratio restrictions expected

The Reserve Bank of New Zealand (RBNZ) is expected to impose restrictions on debt-to-income (DTI) ratios from March 2024. 
It is unclear what the DTI limits will be, but the RBNZ already has permission to impose them. 
Banks will consider all income and debt when calculating DTIs, including existing loans and potential new mortgages. 
The rules will not apply to non-bank lenders. 
Property investors are expected to be impacted more than other buyers due to their higher risk profile and tendency for higher DTIs. 
The recent announcement by the RBNZ to loosen loan-to-value (LVR) ratio restrictions may benefit investors, but it is unlikely to offset the impact of DTI caps. 
High DTI lending has already fallen sharply over the past 12-18 months due to factors such as falling house prices and increased mortgage rates. 
Tighter DTI rules are aimed at restraining the 'next cycle' for house prices and improving long-run financial stability. 
The RBNZ's modelling suggests that a DTI system could prevent some investors from securing their next property for several years. 
The impending system changes could prompt investors to bring forward their purchasing decisions or turn to non-bank lenders to fund future purchases. 
DTIs will likely dampen any future cycles in house prices, while mortgage rates are also likely to be 'higher for longer' in the next few years. 
It is unlikely that house prices will boom again, even if they stabilise soon. 
Read the article

Could the RBNZ announcement indicate sustainability?

Christian Hawkesby, the deputy governor of the Reserve Bank, stated that national house prices have fallen towards a more sustainable level. 
This is the first time the Reserve Bank has suggested that house prices are nearing sustainability after previously stating that they were above their sustainable level for a year. 
Despite being expensive, the Reserve Bank's suggestion that house prices are at a medium-term sustainable level is a positive sign. 
This could signal that the end of the house price downturn is near. 
Changing LVR (Loan-to-Value Ratio) restrictions may also help in this regard.
Receive the Opes Partners newsletter

Monthly Property Investor Insights

13% of investors report that it is getting easier to find good tenants. This is the highest reading since March 2022.
For investors, preference is shifting away from townhouses to standalone dwellings. 
New interest rate uncertainty has led to a slight rise in the average term investors plan fixing their rate for.
Removal of interest expense deductibility is becoming a more important factor for those investors looking to sell.
There is a downward trend in the proportion of investors selling in order to finance the purchase of another property.
Fewer investors are contemplating selling because they are concerned about future house price falls.
Read the full report

Govt.'s increase in First Home Grant's price cap

The government is making changes to First Home Grants and Loans to help more first home buyers become homeowners. 
Changes included an increase in the minimum First Home Grant price cap for new builds and a reduction in the First Home Loan insurance premium to 0.5% of the loan. 
Housing Minister Megan Woods said changes recognised the change in prices since the caps were last updated in May 2022. 
Before the changes, the minimum new build cap was $500,000, but it had now been lifted to $650,000. 
In some areas, such as Auckland, Wellington, and Queenstown, where the minimum cap was already at that level or significantly higher, there was no change. 
Overall, the price caps for new build homes had increased in 37 areas. 
The increase to the new build caps reflected the rising cost of construction and gave more eligible first home buyers a choice between buying an existing or new build home. 
Small changes to the Kiwibuild price cap for three-bedroom homes in some areas were also announced. 
Changes to the First Home Grant and KiwiBuild caps would take effect from May 15, and the change to the First Home Loan insurance premium would be in force from June 1. 
Changes to the new build minimum price cap joined other incentives to buy new builds, such as lower deposit requirements. 
The changes came at a time when builders were reporting demand for new builds had declined. 
The previous increase to the price caps on the First Home Grants had led to a strong increase in delivery of the grants. 
The number of grants paid monthly increased from 583 in December 2021 to 1051 in December 2022, while the number of home loans each month rose from 70 to 296 over the same period of time. 
Read the article

Home loan interest rates higher for investors

Property investors face higher home loan interest rates than owner-occupiers which may be due to banks perceiving investor borrowers as being more risky. 
Canstar's analysis showed that investor rates were up to 0.47% higher than owner-occupier rates. 
The market may see more investor-specific interest rates introduced, making the market less attractive to investors. 
Previous market downturns have shown that investors are more likely to walk away from bad property deals than owner-occupiers. 
Mortgage advisers can help investors get an owner-occupier rate by negotiating with the bank. 
Investor rates are usually applied when an investor has five or six properties, as the portfolio could be seen as a commercial enterprise. 
Westpac is advertising a special three-year rate of 5.99%. 
The bank's forecast suggests that interest rates will not stay high for a prolonged period.
Read the article

The suburbs wherein every resale is making a profit

The latest "Pain and Gain" report by CoreLogic shows an increase in the number of properties sold at a loss in the last three months of 2022. 
Most resales still made a profit, and CoreLogic identified the top 10 suburbs where 100% of resales were for a profit. 
Rolleston and Halswell in the greater Christchurch area topped the list, followed by Fielding in Manawatū, Rangiora in Canterbury, and Wainuiomata in the Wellington region. 
All the suburbs on the list, except for Rolleston, had a median hold period of at least six years. 
The median hold period for profit making resales was 8.2 years, while the median hold period for loss making resales was one to two years. 
Wainuiomata had a median price gain of $397,000, with a median hold period of 15 years. 
The analysis only measured resales, so some people may be sitting on paper losses in the suburbs listed. 
Canterbury had the most suburbs on the list, reflecting the relative resilience of the region's market in the downturn. 
Rolleston and Halswell were both active and competitive markets, with strong demand for well-priced and well-presented homes.
Read the article

Property owners opting for STRs to get a better ROI

Property owners in Hamilton, New Zealand are renting out their properties on Airbnb for short-term rental to get a better return on investment. 
This is due to a shortage of available accommodation in the city caused by motels being used as emergency accommodation. 
Demand for accommodation in Hamilton is high due to popular events such as Fieldays, Women's World Cup, and rugby games. 
This trend is not limited to Hamilton, as Auckland apartment owners are also switching some of their properties to short-term rentals to capture overseas visitors. 
Resource consents for tenancies up to 90 days are common for temporary accommodation. 
Landlords have been rolling the tenancies over every three months, but many of these properties are now appearing on Airbnb as the city council is cracking down on these landlords. 
Finding people to stay is not currently a problem in Hamilton, according to apartment salesperson Rory Hunt. 
The occupancy rate of some apartments is around 98%.
Read the article

Tony Alexander's market overview

During the pandemic, many short-term rental properties in New Zealand were made available for long-term tenants. 
Units are being rented to students and tourists again, with better returns than renting to Kiwi families and individuals. 
Investors are planning to raise rents, with the average rent rise increasing. 
Rising rents contribute to inflation rates, which the Reserve Bank does not want. 
Rising rents and falling prices make buying more favourable for renters, leading to catch-up buying in the future. 
Population growth will accelerate because of the migration boom, leading to more demand for housing. 
New build supply growth is set to slow down. 
When potential buyers are confident that interest rates will decrease, there will be a strong period of cyclical catch-up buying. 
Debt to income maximum ratios may affect investors more than first home buyers. 
Many people who signed up for new off the plan units when prices were higher may not get the necessary finance.  
Read the article, Read Tony's newsletter