Hot property market poses problem for NZ policymakers

A house with million dollar views sold at auction for nearly a million dollars in Wellington yesterday, which on the face of it doesn't sound any warning for policymakers.

Except that there was a stunned silence when the first bid went in at $910,000 on the property with a capital value of $810,000. The hammer went down at $975,000.

"Sir, he's got his car parked in your driveway. What are you going to do about it," the auctioneer said when it got down to two bidders.

Those following the Wellington property market were not surprised that a 310sqm home situated for sun, minutes from the city it overlooked went for a good price.

Well-located family homes have been selling for good prices for a while in Wellington even though the New Zealand economy has notched up six quarters of negative growth.

The numbers at the auction of 5 Puketiro Avenue in the suburb of Northland were such that the auction was moved outside.

The auction result was evidence of what two commentators have pointed out this week. A shortage of supply is pushing up prices.

Realestate.co.nz noted a shortage in Auckland, Wellington and Christchurch.

While Harcourts International managing director Mike Green said many would-be sellers stepped back six months ago.

"Rather quickly the situation has changed and the fewer properties that are on the market are often receiving multiple offers, with some selling over the asking price. Auctions are also achieving great success in many marketplaces."

Members of Parliament holding an inquiry into bank pricing were told during the first day yesterday that New Zealand's obsession with property was the cause of most economic problems.

BERL chief economist Ganesh Nana said the economy must move from property to production.

New Zealand is travelling again on a well worn path, according to report by economists at Goldman Sachs JBWere today.

"Low interest rates spark a housing market cycle that re-energises borrowing growth and ultimately leads to further deterioration in external balances."

The Reserve Bank of New Zealand is not expected to change interest rates when it considers them next week.

The central bank has said it will keep the official cash rate at or below the current 2.5 percent until the latter part of 2010.

"If the housing market recovery continues on anywhere the trajectory of recent months, the RBNZ will arguably be adding to cyclical volatility by deferring rate hikes," Goldman Sachs JBWere said. Imre Speizer, Westpac's senior market strategist, said it will be interesting to see if Reserve Bank governor Alan Bollard takes the prospect of further interest rate cuts off the table next week. "He should given all the data," he said.


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Come on, what else will the banks lend on? Try and get a $5K overdraft on a solid business with great cashflow ?? ha ha ha ha - not unless you have bricks and mortar to secure it! How about borrowing to invest - LOL, only if you have a house to put against it! Want to borrow 80-90% of a million dollar house as a rental - no problems sir, walk this way and lets sign the deal! The fundamental problem is banks will only leand on property, so in all honesty, what is the average investor supposed to do if they want to borrow to increase their investments? Not as though we want to buy more damn houses or commercial property with lousey returns ( compared to some stellar stocks that are around! ) and tedious tennants!!

If anyone can supply some glaringly obvious alternatives, I am all ears!

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George Bang on! I will continue to buy investment properties as that is all our very helpful Aussie banks will lend on without alot of hassle and the third degree. My business would have been in dire straights if it was not for the strengths of my investments. Until there is an alternative for small business owners and Ma and Pa out there where - Investment Property will have to do.

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bollard is making a big mistake in keeping interest rates so low
they should be allowed to rise to encourage savings and thus to build investment capital
bollard's focus is too short term
he must raise his sights and start thinking longer term

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Bollard is serving the money masters of the world.

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It is very simple to borrow against shares to leverage your investment in the share market.

Too risky? Lets see what we say about 90% leveraged investment property in 10 years.

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It is through debt that the banks control you and that is exactly what they are doing - get those sheeple into more debt through the enticement of a supposed rise in the real estate market. C'mon and get your shackles.

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What is safer. A home, reasonably priced for a family of a dcky bussiness that seem to have a myriad of dangers. I invest in my home . This is safe for our family and New Zealand people. Keep out home safe. Home ownership is an honest investment which needs protection for a stable New Zealand people.

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I can't believe this, it's like a rerun of a bad movie.
Bollard needs to sort it out once and for all.

House mortgages will be a maximum of ten times the annual rental. No ifs, buts or maybes .
Cheers,
David

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Kevin, I hear you loud and clear - our business in the same position - if it wasn't for the equity in proprty, we would have folded and more unemployed people as we would have had to get rid of everyone - banks agreed business was strong, excellent supply agreements but there was no way they were going to provide short term funding - as it worked out, we only needed that funding for 30 days due to multiple blue chip clients delaying payment.

Whilst I am sure it is easy to leverage shares to invest more, banks won't lend on equity in the sharmarket

I have no doubt that is why the government is also not going to introduce a capital gains tax as the impact isn't just on mum and dad investors, they also know alot of small to medium enterprise underpin and secure themselves through residential and property investment

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Kevin and George, you are not alone.

My business is in computer software (development, maintenance, support, services the whole 9 yards) and it was after the 87 crash that we bought a building in Ponsonby. The mortgage repayments were less than the lease we were paying elsewhere.

Over the years the growth in equity allowed us to borrow more, it was used to secure a working overdaft as we grew.

In so many ways it was the foundation for the business. However, what is needed as I've posted many times on NBR is a new framework that changes the way we all behave in respect to property and the way Banks favour houses over business.

A heated up property market will do no good for NZ in the long run, we will continually be subjected to cyclical bust/boom as reversion to mean deals to market over valuations. Some time in the next 18months there will be other businesses that take advantage of the low valuation in commercial property to lower their costs. Good on them.

I'll still push for reforms in the investment framework though because it will help NZ as a whole.

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