New Zealand is considered by most experts to be the world’s safest property market and this is why buyers from Europe, Australia, and Asia invest in the country. But if you’ve New Zealand real estate for sale, we can only suggest that you should hurry up when times are good, because it may not take long for the market to turn. New Zealand shows classic signs of a property bubble and there are several reasons for this.
Interest rates in New Zealand are at a historic low. Now this is generally good news for the public, but it is great news for property speculators. This should inflate property prices more than normal and lead to people buying more than they can really afford to. Looking back with the benefit of hindsight, low interest rates are what led to the housing bubble in the United States in 2006.
Indeed, New Zealand one of the most overvalued housing markets in the world. The home price to rent ratio in New Zealand is almost 80% higher than its historic average, and the home price to income ratio is 26% over its historic average. This shows that the market in New Zealand is clearly overvalued.
New Zealand’s housing market is built on the back of a mortgage bubble. Mortgages in New Zealand have grown from $70 billion in 2002 to over $200 billion in 2022, which is a phenomenal rise of close to 175%, which is much higher than the growth of New Zealand’s economy in the same period.
What’s interesting is that over 50% of the mortgages in New Zealand have floating interest rates. Indeed, New Zealand’s low interest rate regime has caused homeowners to make the same mistakes as those made by property owners in America before the housing crash. Nothing leads to more damage in when a housing bubble bursts than an adjustable or floating rate mortgage.
This can very quickly be converted into a higher interest rate later when the economy takes a turn for the worse. Alarmingly, in New Zealand, over 50% of the outstanding mortgages have floating interest rates. This is dangerous for the economy, particularly because mortgages account for over 60% of the loan portfolios of most banks in New Zealand. This means the banking sector in New Zealand is badly exposed to a possible housing bubble.
For decades, New Zealand was known for its farms, sheep, and agricultural sector. But today, things have changed in New Zealand. Agriculture accounts for just 5% of New Zealand’s GDP, while the financial sector contributes almost 30%. Banks own 80% of the assets in New Zealand. So, the banks are completely exposed to a possible housing bubble, and this can have severe consequences for the real estate sector in the country.
New Zealand is also closely connected to Australia, especially as far as the financial sector is concerned. Four of the biggest banks in New Zealand are of Australian origin. So anything that happens in the Australian economy will have consequences in New Zealand.
Australia has witnessed one of the highest increases in property value seen anywhere in the world over the last couple of years and today has the world’s fifth most overvalued real estate market. So, if the property bubble bursts in Australia, it will have a lasting effect on New Zealand as well.
Indeed, Australian buyers, along with Chinese investors are among the biggest speculators in the New Zealand property market. They account for 42% of all foreign buyers, so anything that happens in Australia and China will leave an aftereffect in New Zealand. So, if you are thinking about selling your property in New Zealand fast end now on a high rather than wait for things to take a turn for the worst.