Property Report: Buyer hysteria encourages Auckland price surge

Jonno Ingerson, Director of research at Corelogic.

There has been a great deal of exaggerated reporting about the Auckland property market. Stories such as Auckland prices rising $1000 a day. What a load of rubbish. What is true is that Auckland prices have been rising faster than elsewhere in the country, and that is the cause of recent action by the Reserve Bank and the Government.

The Reserve Bank has loosened the Loan to Value (LVR) speed limits outside Auckland so that banks can now have up to 15 per cent of their new lending to customers with a low deposit. That makes sense as almost everywhere outside Auckland has a flat property market. The limits stay at 10 per cent in Auckland.

The Reserve Bank also requires investors to have at least a 30 per cent deposit.

Our analysis of different buyer types in the lower 30 per cent of the value range shows investor activity has gone from strength to strength, largely at the expense of first home buyers.

Rent increases have not kept pace with property prices so rental yields are low, suggesting these investors are counting on future capital gains. Many of these investors have plenty of equity in other properties so the 30 per cent deposit requirement may not have a great deal of impact, but at least it is something. I don't think it will slow investor activity dramatically.

The Government is also stepping in to help the Reserve Bank.

It is said that we don't have any capital gains tax on property. However, we do have tax laws to cover gains on properties purchased with the intention of selling for gain. The catch: the IRD has to prove the intent of an investor buying for capital gain.

Reserve Bank Governor Graeme Wheeler. Photo / Mark Mitchell

The new rules make things simpler. Any property that isn't your home and is sold within two years will attract capital gains tax. That removes the need for the IRD to prove intent. This will slow down short-term investor speculation, but that is not a massive part of the market.

Then we have the foreign buyer situation, although we have no hard facts to support how many there are, where they are buying, and what they are paying. There are anecdotes about foreign buyers paying way over the asking price. But are they foreign buyers or residents?

The new rules will require foreign buyers to have a New Zealand bank account and an IRD number. This makes the identification of foreign buyers and the collection of income tax on the property easier.

But will all these measures slow the Auckland market? Not much.

The Auckland market will continue to increase for at least the next year, largely because of a lack of supply to meet strong demand.

What concerns me is the hysteria among buyers. While that continues, prices will continue to surge. I just can't see anything on the horizon that will change that in a hurry.