Philip Macalister: Market activity to rise

Photo / APN

Opinion

Kiwi investors are set to flock back to the property market, according to the economic outlook included in this year's Budget, although that is not expected to affect prices dramatically.

The pick-up in activity is not just tied up with the Canterbury rebuild.

"Indicators of residential building activity show activity is likely to remain at a low level in the short term," according to the Treasury's advice attached to Finance Minister Bill English's fourth Budget.

"Household credit growth is weak and building consents are rising, but the level remains low. Treasury forecasts assume a large increase in residential investment from the middle of 2012. The pace of activity is forecast to continue to rise, reaching a peak growth rate of over 40 per cent in the year ending March 2014.

"But the growth rates slow to 15 per cent in the year ending March 2015, and 5.2 per cent in the year ending March 2016."

The initial burst of activity is mostly Canterbury-driven, but beyond that the pick-up is more widespread. "Activity in the rest of the country is forecast to become increasingly significant over 2013," said the forecasts.

"The national demand for housing is supported by past population growth, expected future population growth, rising household incomes, falling unemployment and repair of leaky homes."

That is against a backdrop of many New Zealanders' continued wariness about extra debt: "Ongoing household caution is reflected in the subdued outlook for house-price inflation. The forecast for rapid growth in the supply of houses also helps to temper gains in house prices.

"House price growth of around 1.5 per cent per year is forecast, less than the rate of consumer price inflation."

The Budget was devoid of new tax measures affecting the property market. The crackdown on people renting out family baches for short periods and claiming tax losses for the whole bach was announced in last year's Budget, but was reannounced this year.

There had been speculation the Government would tighten some tax rules relating to property - ring-fencing losses or "bright lining" existing rules relating to taxing the capital gain when the property is sold - but none of these eventuated.

English said on Budget day that major changes were not possible because Inland Revenue's IT systems would not be able to cope with them. But the IRD is in the process of a major systems overhaul.