RBNZ Eases Macro-Prudential Measures, Further Easing Likely

By Sophia Rodrigues

     SYDNEY (MNI) - A slowing in the housing market since mid-2016 and

expectations that the new government's policies would act as further dampener on

housing market has prompted the Reserve Bank of New Zealand to slightly ease its

macro-prudential policy.

     In the Financial Stability Report published Wednesday, the RBNZ said that

financial stability risks associated with the housing market have eased and

hence it is adjusting the loan-to-value restrictions on mortgage lending. The

RBNZ would gradually adjust the policy further if financial stability risks will

remain contained.

     --From January 1, banks will be allowed to make up to 15% of their new

mortgage lending to owner-occupiers with loan-to-value restrictions of more than

80%. Previously the maximum lending was 10%.

     --Banks will also be allowed to up to 5% of their mortgage lending to

housing investors with loan-to-value ratio of 65%. Previously the maximum LVR

was 60%.

     The RBNZ noted that a range of factors have contributed to the slowdown in

the housing market since mid-2016 and it expects conditions to remain soft for

some time. Factors leading to slowdown include a tightening in the LVR policy in

October 2016, an increase in mortgage rates in early 2017, uncertainty ahead of

the general elections, reduced demand from foreign buyers and tightening in

banks' lending standards.

     And while there will be factors that would support housing market, the RBNZ

expects conditions to remain soft as banks further tighten lending standards in

the next six months, mortgage rates rise and the impact of housing policies of

the new government is felt.

     "While some factors continue to drive housing market pressures --high net

migration, low mortgage rates and a housing supply shortfall -- on balance,

house price inflation is expected to remain modest in the near term," the RBNZ

said.

     The precise nature of the government policies and the timing of their

implementation are uncertain but they are likely to reduce housing demand and

increase housing supply, the RBNZ said.

     The Government's KiwiBuild programme will ramp up gradually, with 100,000

affordable homes planned to be built in the next decade. The Government has also

announced its intention to restrict non-residents -- other than New Zealanders

and Australians -- from purchasing existing houses, to extend the bright-line

test for the assessment of capital gains tax from two to five years, and to not

allow property investors to use tax losses on rental properties to offset tax on

other income.

     "While some of these policies may take time to be implemented, they are

likely to reduce house price inflation expectations and weaken demand for

housing, particularly from investors seeking capital gains," the RBNZ said.

     It noted recent surveys showing a decline in the expected rate of house

price inflation over the next year and a fall in the share of respondents who

expect house prices to rise in the next year.

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

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