Potential impact of policies to address the 'hot' property market

Real estate agents might be urging the government to "be careful what you wish for" in regard to any government or fiscal intervention  in the NZ property market -  especially if they have read about their colleagues in Hong Kong.

With further evidence that the NZ property market is building up a significant pressure bubble, the ever-present question is whether that bubble will see the pressure released slowly or just simply burst with negative repercussions. 

Measured on a five-year basis, the REINZ Stratified house price index shows a 17% increase, with over half of that gain in the past 12 months.

This has prompted extensive calls for some form of non-monetarist intervention via the Reserve Bank to focus on LVR (loan-to-vaulation ratio) and also calls for controls on overseas buyers.

With this as a backdrop, it is worthwhile to compare and contrast the NZ market with the Hong Kong market given its topicality.

Accepting the Hong Kong market is a very different market; the choice is a result of the fact that the local government has recently introduced far-reaching controls to bring some reigning in of a super hot market that has seen property prices rise 120% since 2008.

These new measures coupled with the tightened of existing policies is an attempt to make property, especially apartments more affordable – now where have we heard that cry before?

However, to begin with there is an important perspective that needs to be seen when comparing the Hong Kong market with the NZ market.

We are so often told that NZ and again particularly Auckland has some of the most unaffordable property in the world when comparing house prices to salary. The NZ ratio has house prices close to 5 time the average salary – that pails into insignificance as Hong Kong sits at a whopping 12.6 times average income.

The measures brought in include a doubling of stamp duty to 8.5% for property over $HK2 million ($NZ330,000) .

I was interested to read in the South China Morning Post article of what I would consider as the most appropriate measure, being the requirement for banks to assess the ability of borrowers to manage a three percentage point increase in mortgage rates, up from the prior test at two percentage points.

Additionally, a stamp duty has been introduced to curb speculation payable by sellers if properties are sold within three years – the duty is now between 10% and 20% of the selling price. Lastly the measures also include (which will be of interest to NZ) a 15% levy on non-local property buyers.

All in all some very stringent measures, which from the data published in the article shows the policies appear to be making an impact as property sales collapse.