A stark warning has been delivered about the Auckland property market – the price rises of the past four years could be just the start.
BNZ chief economist Tony Alexander said there were a number of things that were putting pressure on Auckland's house prices, and showing no sign of letting up.
"Enjoy if you have already bought. Despair if you have not," he said.
"And if you have put off buying because of one of the many incorrect forecasts that house prices were about to fall – whoops a daisy."
Chinese buyers, who have been credited with fuelling some of the heat in the Auckland market in particular, were likely to enter the city's housing market in even greater numbers, he said.
"We really don't know the proportion of sales going to offshore Chinese and we never will because people often buy on behalf of Chinese people back in China," he said.
"Millions of people in China want to buy offshore assets partly to get their funds off the mainland. Currently there is a legal limit of US$50,000 per adult per annum of funds which can be taken out of China. The ability to get around this rule has been constrained for the past two years by a massive anti-corruption drive. Eventually that drive will fade. Also, eventually the rule will be relaxed. In coming years there will continue to be strong demand for New Zealand, predominantly Auckland, property, by Chinese buyers."
Not enough houses had been built in the city since the mid-2000s. It had gone into the global financial crisis with a housing shortage that had then got worse, Alexander said. He said there was a huge and still growing backlog of people who wanted to buy but had put the decision off over the past few years.
Population growth, particularly in Auckland, was also likely to continue.
"There are one million Kiwis offshore increasingly favourably comparing New Zealand with other countries, and 4.7 million people here who are feeling they same way and may not leave."
More people realised that interest rates were likely to stay lower for longer, he said, and the country's housing stock had been repriced to reflect permanently reduced borrowing costs.
Low interest rates were also forcing retirees and those nearing retirement to look for investments that would produce income, such as rental property.
"Plans of the baby boomers to retire and live off a conservative yet well-yielding portfolio have evaporated with low interest rates," he said.
"[They] are seeking assets and buying investment properties. They are also seeking assets they can hold and live off of for three decades in retirement rather than just 15 years given advances in health and medicines."
New Zealand's economy was strong, flexible and stable, he said, and all predictions of a large house price corrections had so far proved incorrect. During the global financial crisis, prices only fell 10 per cent over 2008 and recovered by the end of 2011. They fell 7 per cent during the 1998 Asian Crisis.
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