Dunedin will probably escape the worst effects of the imposition of the Reserve Bank’s loan to value ratio (LVR) restrictions and rising mortgage interest rates — for the time being.
Quotable Value’s national spokeswoman Andrea Rush said the LVRs, requiring a minimum 40% deposit for investment properties, had led to a slowing in the rate of house value growth as well as in activity and demand in the residential property markets in many of the main centres.
That included Auckland, Hamilton and Tauranga and, more recently, the impact has been felt other markets such as Wellington, Hawke’s Bay and Christchurch.
Queenstown, having recently mirrored Auckland in having median values around $1 million, has also become a nightmare for first-home buyers, further compounded by a housing shortage.
However, QV’s Dunedin registered valuer Duncan Jack said so far there had been no evident slowing in the Dunedin market because of the new LVRs. Value levels were continuing to increase and sales activity remained strong.
"This is likely to be due to the fact the Dunedin housing market offers a much lower entry level and price point than the other main centres in New Zealand.
"It’s easier for investors to find a 40% deposit to purchase here and investors have remained active in other markets with entry level properties under $300,000 around the country, too," Mr Jack said.
While there was "not much evidence", Mr Jack noted the LVR restrictions may have seen some less established "Mum and Dad" investors locked out of the market, because their smaller portfolios might not carry the 40% equity required.
Nationally, Ms Rush said the expectation was for mortgage interest rates to rise during 2017, which would probably reduce demand from investors "looking for quick capital gains", because higher interest rates may prompt value growth to plateau or even decrease.
"However, for long-term investors, rates are likely to still remain relatively low, so it’s not likely to affect this type of investor too much, as long as they are not too highly leveraged," she said.
Mr Jack said he believed the rise in interest rates "would need to be significant" to affect the local Dunedin market.
On the question of dealing with a developing housing bubble, Ms Rush believed migration and undersupply would continue to fuel demand, while in Dunedin, Mr Jack said prices being at lower levels than elsewhere were sustainable.
Ms Rush said: "The New Zealand residential property market is still being driven by strong net migration, relatively low interest rates and a lack of supply compared to the demand.
"That’s particularly so in the Auckland region and is likely to mean there will still be continued demand for housing in most parts of the country, even if there is a decrease in demand from investors looking for a quick capital gain."
Mr Jack said any slowdown in the Dunedin market seemed more likely to result in a plateau of current value levels.
"While the recent increase in values and sale prices is significant at a local level, it is less so, relative to other national centres and therefore perhaps more sustainable," he said.
