UPDATE 2-NZ flags property cooling measures as IMF warns of sharp correction risks
(Adds comment from finance minister)
WELLINGTON, March 12 (Reuters) – The New Zealand government on Friday reiterated plans to introduce property cooling measures after the IMF warned that “unsustainable” house price rises could trigger a pronounced correction.
Finance Minster Grant Robertson said the government will address the issue of the elevated house prices in the coming weeks and in the 2021 budget later this year.
The country’s success in managing COVID-19 has enabled a faster economic recovery than other countries, but a slew of monetary and fiscal stimulus measures has super-charged property market values.
The International Monetary Fund’s warning, in a staff report released on Friday, comes as New Zealand’s median prices for residential property rose by a record 22.8% year-on-year in February, according to the latest data from the Real Estate Institute of New Zealand (REINZ).
Median house prices in its biggest city, Auckland, jumped a record annual 24.3% to NZ$1,100,000 ($794,750.00).
The IMF said financial stability concerns have been heightened by speculative demand for housing, which along with historically low interest rates and structural housing supply shortages are amplifying the house price surge.
“Unsustainable house prices relative to income, a tightening of credit standards, or a sharp rise in mortgage rates could trigger an eventual, pronounced correction,” the IMF said, but added the government should resist prematurely withdrawing economic stimulus.
A comprehensive policy response is needed, including measures to unlock supply and dampen speculative demand, the report said.
In a statement, Robertson signalled the government is readying measures to temper the housing market. He didn’t specify the steps but authorities have recently suggested that curbs could include debt-to-income ratios and interest-only mortgages.
“The (IMF) report also acknowledges that a comprehensive policy response should include demand measures to cool demand and tilt the balance in favour of first home buyers. We will have more to say on this in coming weeks and Budget 2021,” Robertson said.
Critics have slammed the government and the central bank saying its fiscal and monetary stimulus have indirectly fired up the property market by letting investors pick up more investment properties while cutting off first home buyers.
The growing political pressure prompted the government last month to ask the Reserve Bank of New Zealand (RBNZ) to consider the impact on housing while formulating monetary policy decisions.
The RBNZ bought back mortgage lending curbs this month, and also lifted some liquidity facilities it had put in place.
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