Sharechat Logo

NZ doesn't face US-style property bubble though price growth eyed, says S and P

Thursday 6th March 2014

Text too small?

New Zealand's housing market is unlikely to mutate into a US-style bubble, says Standard & Poor's, although rising prices are at the upper level of the credit rating agency's tolerance, it told a briefing in Auckland today.

"We continue to believe there's some underlying demographic features that mean we don't have a US-style bubble in the property market," S&P senior director Peter Sikora told the NZ Capital & Credit Markets briefing.

He said annual growth in property values of 9.6 percent, was "the upper range of our tolerance" but there were signs the market has stabilised, helped by the Reserve Bank's speed limits and higher capital requirements for banks.

Last month state-owned valuer Quotable Value said the annual pace of property values slowed to 9.6 percent in the year ended Jan. 31 from 10 percent a month earlier, and suggested restrictions on low-equity home lending may have started to bite.

The Reserve Bank introduced loan-to-value mortgage lending restrictions from Oct. 1 on concern rapidly accelerating house prices in Auckland and Christchurch may lead to an asset bubble and cause financial instability. The central bank is expected to start hiking interest rates from next week to cool the economy as inflation accelerates.

S&P still has what Sikora called a 'negative risk trend' on New Zealand because of "the material dependence of the economy to external borrowing." Yet the nation was unlikely to be punished for running a high current account deficit in the same way India or Indonesia have, he said.

New Zealand's current account deficit widened to $8.8 billion, or 4.1 percent of gross domestic product, in the year ended Sept. 30, according to government figures, and is expected to deteriorate over the coming three years as households recover appetite for credit, forcing banks to seeking funding overseas.

S&P's Sikora said key risks from offshore were a hard landing for China's economy, which had a low probability but with "a potential impact that could be material." There was also a chance of Eurozone crisis contagion though that wouldn't have such an impact on New Zealand, he said.

Last year Reserve Bank governor Graeme Wheeler singled out a potential downturn in China's economy as the biggest threat to New Zealand, due to the increasing reliance by local exporters on the world's second biggest economy.

Government figures last week showed a trade surplus of $306 million in January, a record for that month, as exports into China almost doubled, cementing its status as New Zealand's biggest market.

 

NOTE: please be advised to read full articles from Business Desk Website, you will have to pay a subscription fee on their website.

BusinessDesk.co.nz



  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comment:
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

NZ dollar holds gains on improved dairy, bank capital outlook
MARKET CLOSE: NZ shares gain; banks rally on Reserve Bank capital decision
NZ dollar rises; bank capital rules less harsh than expected
RBNZ relaxes capital requirements, allows preference shares, extends phase-in
NZ dollar extends gain amid mixed US data, possible trade progress
MARKET CLOSE: NZ shares dip on eve of major regulatory decisions
NZ dollar sees off global headwinds, holds above 65 US cents
NZ dollar holds above 65 US cents; dairy auction prices mixed
Dairy index falls on weaker butter, milk fat demand
MARKET CLOSE: NZ shares join global decline; US tariff move weighs on exporters

IRG See IRG research reports