Bollard guarded on property slowdown

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In a classic “on the one hand/on the other” approach, the Reserve Bank’s monetary policy statement is projecting “a sharp decline in house price inflation over the coming years,” although the central bank says there are “considerable uncertainties around this projection.”

He pointed to low rental yields which is likely to make property investment much less attractive as the large capital gains of recent years starts to slow.

“However, the projected downturn in residential investment is reasonably muted by historical standards. Unlike previous cycles, net immigration is expected to remain positive, underpinning residential investment activity to some extent.”

Also keeping the residential property market buoyant is consumer credit growth, despite the interest rate hikes over the past 18 months.

“If this credit growth remains strong, this may point to housing market activity holding up for longer than expected.”

The Reserve Bank notes that about 40% of existing fixed-interest rate mortgages roll off this year, and the average interest rate of these is just below 7.3%.

This should cause a further slowing of the market, although the Reserve Bank adds the caveat that this depends on whether the recent fall in interest rates does not continue.