Reserve Bank injects much-needed ‘hope’ for property buyers

Wednesday, 14 August 2024

A 25 point cut in the official rate couldn’t come soon enough for property investors and first-home buyers who say the Reserve Bank Te Pūtea Matua’s decision is “good news”.

Wellington local Suha Wahab and her husband Ali Simwinga have been looking to buy a home for the last few months and were prepared to move to Australia to find one.

“I feel so relieved and excited. There’s hope after all to buy a decent house, even in Wellington,” Wahab said.

The RBNZ cut the official cash rate to 5.25% after what bank economists had described as a cliffhanger decision.

Addressing the media, Orr said it had not been a difficult decision and it represented a “low risk start” to rate cuts.

With unemployment at 4.6% and inflation edging closer to the 1-3% target, the RBNZ said: “The pace of further easing will depend on the Committee’s confidence that pricing behaviour remains consistent with a low inflation environment, and that inflation expectations are anchored around the 2% target.

“It was starting to look quite impossible — there were high interest rates, high house prices, high cost of living. It feels so good that things are actually getting better,” Wahab told The Post.

She said the rate cut was especially good news for young Kiwis.

The couple, both 29, are among many young people planning to leave or in the process of leaving the country due to high costs of living and severe youth unemployment.

“We were exploring the option of moving across the ditch — it was the best option employment-wise and for buying a house.”

“When we started looking, it felt like we could never afford a house in New Zealand because interest rates were so high,” Wahab said.

The rate cut gives the couple “more flexibility and options” to settle close to their family in Aotearoa.

“Now it feels like we can actually settle in NZ where our family is,” she said.

Property market ‘can’t get any lower’

Paerata Rise developer and property seller Chris Johnston said it was an “anxious” build up to RBNZ’s announcement.

“My hope is that it stimulates [business] confidence,” Johnston said. “This is positive and the more positive the better.

“The market can’t be any lower than it is now. The market is likely to go up and the potential is there.”

“As a developer, sales are very slow. We’re keen to get builders working.”

Johnston said he was still seeing sales come through for property development, which was helping builders pick up more contracts.

“Having an end purchaser helps builders because it means they have [financial] security. If a builder can have a purchaser, it’s a win-win.”

He said that while inflation was going in the right direction, the property market was cracking under the pressure.

Auckland-based commercial property investor Sang Cho said that while the OCR slash was good news, it could take a while to take effect in the commercial sector.

“Businesses are all suffering at the moment, and 25 basis points won’t have a huge effect. It will take at least three to four months to triple down,” Cho said.

“We will wait and see.”

He said the push from banks to cut wholesale rates was also good news, but strict lending criteria were slowing down plans for residential and commercial investors.

“The borrowing terms and conditions for getting approval are still harder due to tightening rules, but the OCR could still impact borrowers.”

But Cho said growing confidence in the real estate market might be enough of a boost in the short-term.

Even as the RBNZ makes its biggest change in monetary policy stance, Cho said the cut came too late for the industry and for Kiwis.

“More young Kiwis are moving to Australia and tourism is down. It’s not a good sign for the economy.”

Consumer confidence means business confidence

Auckland Property Investors Association general manager Sarina Gibbon said the OCR cut was in line with investor expectations but interest rates are “only one part of the equation”.

“What happened today shows conditions are tracking in right direction,” Gibbon said.

But she said while there is growing confidence in the investment property sector, better consumer confidence is needed for the market to fully rebound.

“Credit is getting cheaper since the Covid crash, but we need more confidence back in market.

“It’s not just about the property price. Rental affordability and consumer confidence are all part of the calculation for landlords,” Gibbon said.

She said changes to lending criteria should make it easier for Kiwis to get a loan.

“Banks are sending a clear message that they’re out for market share.”

But Gibbon said ongoing job losses and business closures were “unsettling”.

“Whether home owners and investors will see any money in their back pocket will depend on the person.”

Meanwhile, Auckland property investor Sarah Wilson said while she was very pleased with the cut, it was not what she expected after the RBNZ’s conservative approach so far.

“Even though we’re not technically in recession, the numbers have been very flat,” Wilson said. “This will turn things around sooner and stimulate economy which is what we need.

“There will be more activity from more investors, owner-occupiers and first home buyers as well because it’s been so difficult for people to make the numbers work,” Wilson said.

She said the move could calm growing unease in the property sector due to more liquidations and job cuts.

“It’s very tough for people so it’s good to see things might change sooner than expected.”