* RBNZ sweating on housing bubble as prices hit records
* RBNZ mulls bank lending restrictions
* Rate hikes might be needed but would fuel soaring kiwi
* Loose global monetary policy pours capital into NZ
* Asian buying of NZ homes risks public backlash
By Gyles Beckford
WELLINGTON, April 12 A surging New Zealand
housing market that has sent prices to record levels is jangling
nerves at the central bank, prompting warnings of asset bubbles
that may need rate rises and moves to rein in bank lending.
The Reserve Bank of New Zealand's growing worries about the
bubbling property market were obvious this week when the deputy
governor bluntly stated the rise in house prices was increasing
inflation and financial stability risks in the economy, and
might force faster hikes in RBNZ interest rates.
"The Reserve Bank's flat interest rate outlook in our recent
monetary policy statement would need to be revisited," said
Grant Spencer, RBNZ deputy governor and head of financial
The bank has kept its official cash rate (OCR) on hold at a
record low 2.5 percent for the past two years, and last month
indicated it expected to hold the rate through the rest of 2013.
It has no need to start hiking yet, given the benign
inflation outlook, and will also be mindful against further
boosting the rocketing New Zealand dollar, which has gained 5
percent against a basket of currencies in a month to a
record high, adding to the headwinds for the export-dependent
economy's recovery from the global financial crisis.
Efforts to keep a lid on the local currency, nicknamed the
kiwi, were further complicated by the Bank of Japan's move this
month to flood the economy with $1.4 trillion of monetary
Offshore investors able to borrow cheaply at home have long
targeted New Zealand for its high-yielding assets, with 10-year
government bonds paying a tempting 3.4 percent even when
benchmark interest rates are at record lows.
Analysts say the central bank has a delicate balancing act
between imposing higher rates and the impact those rates would
have on the economy and currency, which is currently a major
factor in keeping a lid on inflation.
"Their (the RBNZ's) comments suggest they have incorporated
current strength in the housing market. Given the currency
strength they're not considering hiking the OCR soon, they're
considering sometime in 2014," said ASB Bank senior economist
Earlier this year, RBNZ Governor Graeme Wheeler largely
dismissed any prospect of the bank bringing down the overvalued
POCKETS OF PEAK DEMAND
In an attempt to counter the spike in house prices, the RBNZ
is busy finalising a set of macro-prudential tools, including
loan-to-value ratios and increased bank reserves, which could
supplement the more blunt weapon of raising the OCR.
Bank lending standards, which had tightened markedly after
the global crisis, have started to relax with variable mortgage
rates at their lowest in decades as lenders chase market share.
That prompted the Fitch ratings agency this week to warn of
the dangers of asset bubbles, saying any significant downturn
would be a risk to the AA-minus rating for the four major,
Australian-owned banks, which have around 85 percent of the home
The surge in prices has been led primarily by gains in the
biggest city of Auckland and the earthquake-damaged region of
Canterbury, with shortage of supply a key factor.
Auckland's median price has risen 11 percent in the past
year, with some parts of the city now nearly 20 percent above
the last market boom in mid-2007.
One factor being singled out for stoking the Auckland market
in particular is a perceived increase in the number of Asian
buyers, notably Chinese, who are said to be outbidding "locals"
and forcing up prices.
Part of the increased Asian interest is said to have been
prompted by moves in Singapore and Hong Kong to cool their
markets with higher taxes on house purchases, increased
down-payments on loans, and controls on foreign buyers.
There are no restrictions on foreign buying of houses or
urban property in New Zealand, which only fuels the talk of
Asians filling auction rooms and winning most bids.
Bank of New Zealand chief economist Tony Alexander said the
anecdotes are likely to be exaggerated and ignore the fact that
New Zealand has a significant Asian population.
A survey of real-estate agents last month suggested
foreigners made up around 9 percent of buyers, with British
outnumbering Chinese, closely followed by Australians.
"It would seem better to address the issue now before the
anecdotes coalesce into a nationalistic backlash and outright
blaming of Chinese buyers for the housing crisis," said
The real estate industry is keen to stress that localised
housing shortages are driving much of the rise in prices.
Helen O'Sullivan, the chief executive of the Real Estate
Institute of New Zealand, said around 90 percent of the rise in
the national median price over the past year was from the two
main cities, both of which have significant supply shortfalls.
New Zealand has 1.8 million homes for its 4.4 million
people and has been failing to keep up with demand growth,
building around 18,000 new dwellings a year.
"Across the rest of the country while activity is picking
up, price gains are far more modest.
"Regions, representing 24 percent of sales in March,
recorded annual price increases of less than 1.0 percent,"
(Editing by Lincoln Feast and Eric Meijer)