Auck­land's prop­erty boom com­pli­cates cen­tral bank's next move

The Pak Banker - - 6BUSINESS -

Welling­ton real es­tate agent Gareth Robins says he's taken more calls from Auck­land in­vestors in the past six months than he has in the past six years.

With the hous­ing boom in Auck­land, New Zealand's largest city, show­ing signs of com­ing to an end, in­vestors there are look­ing fur­ther afield, and they have more buy­ing power than own­ers in other cen­ters. Since 2007, the av­er­age value in Auck­land has jumped 70 per­cent to NZ$926,000 ($630,000); in cap­i­tal city Welling­ton, it's gained just 10 per­cent to NZ$584,000.

"They can come down here and buy three in­vest­ment prop­er­ties, and that's what a lot of peo­ple are do­ing," said Robins, who es­ti­mates 20 per­cent of his sales this year have been to cashed- up Auck­lan­ders. "They're a lot more blasé about price, al­most like it's not an is­sue." Auck­land's spread­ing prop­erty bo­nanza is one of the rea­sons Re­serve Bank Gov­er­nor Graeme Wheeler may tread care­fully as he con­sid­ers cut­ting in­ter­est rates to a fresh record low on Thurs­day. Even as the case for more mon­e­tary stim­u­lus mounts, the bank is wary of fu­el­ing de­mand for hous­ing with lower bor­row­ing costs.

"Sure, Auck­land seems to be sta­bi­liz­ing -- but sta­bi­liz­ing at grossly over­val­ued lev­els," said Stephen To­plis, head of re­search at Bank of New Zealand in Welling­ton, who ex­pects Wheeler to keep rates on hold this year. "The re­main­der of New Zealand is now pick­ing up a head of steam that is prob­a­bly con­sid­ered un­wel­come."

While Auck­land house prices fell 0.7 per­cent in the three months through Fe­bru­ary, and the an­nual pace of in­crease slowed to 18 per­cent from 24 per­cent in Novem­ber, prices in other cities are surg­ing, Quotable Value New Zealand data show. House-price in­fla­tion ac­cel­er­ated to 22 per­cent in Hamil­ton and Tau­ranga, while in the long-dor­mant Welling­ton mar­ket, prices gained 4.7 per­cent in the past three months and 7 per­cent in the year.

Only two of 17 econ­o­mists in a Bloomberg sur­vey pre­dict Wheeler will loosen pol­icy on March 10, with the re­main­der ex­pect­ing him to hold the of­fi­cial cash rate at 2.5 per­cent. Fi­nan­cial mar­kets have re­duced bets on a cut, pric­ing a less than 30 per­cent chance at 5:30 p.m. in Welling­ton, swaps data com­piled by Bloomberg show.

Wheeler is nev­er­the­less ex­pected to re­duce the cash rate to 2.25 per­cent in June, ac­cord­ing to a ma­jor­ity of econ­o­mists. Sev­eral see it at 2 per­cent by the end of the year.

Slump­ing oil and dairy prices and a firm New Zealand dol­lar have con­spired to keep in­fla­tion below the bot­tom of the RBNZ's 1-3 per­cent tar­get band for more than a year, and below the 2 per­cent mid­point since late 2011. In­fla­tion slowed to 0.1 per­cent in the fourth quar­ter, the low­est since 1999.

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