The price of residential homes in New Zealand started to rise mid-year 2020 and is predicted to continue to soar this year. Why is this happening?
Real estate professionals have been looking into the reasons how house prices rose up to 17.4% on average late last year up to mid-February. And it seems there’s no let-up in the increase of prices, whether for mid-range or high-range residential properties.
The primary reason: record-low mortgage interest rates and low supply of housing. This has spurred a growth in housing demand which posted 6.1% growth in the final quarter of 2020. The lack of housing supply has been regarded by the government as alarming because it causes a wider gap between ‘rich investors’ and those just looking to have decent shelter.
The price of an average home in New Zealand now ranges from NZ$750,000 to NZ$780,000.
The limited housing supply is mainly due to the lack of investments in the construction of new housing. Investors are putting on hold any investment in construction as a result of the overall slump in the national economy. In December 2020, only 12,932 units were made available for selling, the lowest number of units for sale ever recorded, according to the Real Estate Institute of New Zealand (REINZ).
Meanwhile, the number of new dwelling consents is almost at a stand-still, with only 3% year-on-year growth last year, a sizeable drop compared to 14% average growth over the past eight years.
Another bit of information shared by REINZ, and supported by real estate professionals, is the fact that a large number of home buyers are first-timers. This means that the old homeowners are keeping their abode as they prefer to sit and wait. This attitude is more a reaction to the pandemic and the health and travel restrictions than anything else. When old homeowners refuse to sell, it could very well result in the absence of supply which could spell disaster to the housing sector.
On the other hand, buyers taking an interest to invest in new, or old, real estate may also be stumped with the new law on property deposits. Based on the analysis of senior property managers, while investors may feel fortunate about the soaring prices of homes, they must not forget the higher percentage of deposit required of them. People buying homes today may have to pay up to 40 percent in deposits if this situation worsens.
It is not likely that the government will increase mortgage interest rates which are now at its lowest in recorded history; even though it has yet to attract investments to increase the supply of houses. Some sectors in the housing industry noted that if New Zealand’s Reserve Bank continues to be apprehensive about the country’s financial stability, it might decide to remove deposits required from those who are getting credit or loans from banking institutions.
Calls for the New Zealand government to find ways to regulate housing prices come largely from the younger generation, who want a fair chance of finding a home to buy based on their current income level.
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