Auckland, Apartments may be the only option…

Auckland, Apartments may be the only option…

Three incidents in 2015 will lead to an eventual boom in the apartment market and the segregation of two groups within Auckland.

1. 30% LVR policy for investors
2. 15% deposit exception for new properties
3. Loan to income restriction ration

Many people already find this option attractive even those who are buying leasehold properties, however for those looking for a first home an apartment may be their best option in getting on that first rung of the proverbial ladder.

Last week several banks dropping the 20% required deposit down to 15% for apartments, these original rules were imposed in 2013 in an attempt to cool the slowly heating market, which very much clashes with the suggested 30% deposit which the reserve bank intends in October this year to introduce for investors. The new loan-to-value ratio on lending policy of 30% would apply to property investors in Auckland Council areas.

So you may ask, how can the banks go up against the reserve? Good question, well it’s simple, banks can choose to apply this 15% at their own discretion due to a small exemption – as long as the property is new.

Now what’s with this loan to income ratio, well this is based on how much you are earning in relation to the amount of the loan (yeah it’s pretty much the same as it is now). However, it would be capped significantly compared to what it is now. Currently if you borrowed $500,000 and had a $120,000 deposit [property value of $620,000] and you were on $75,000 a year you’d be fine at 6% interest paying roughly $700 a week – it’d take you 30 years, but you’d pay it off. Now with this new restriction even with that deposit the maximum you’d be able to borrow would be around the $350,000 mark meaning you’d only be able to get a property with a price tag of $470,000 and unless you’ve got a time machine you’d be hard-pressed to find a two-bedroom house in Auckland at that price.

So what does this mean to the average Aucklander? Well it means two things; unless you’re on a great wage, inherit a sum of money of have someone helping you then your only option come the end of the year will be apartments. The other thing that this means is that the residential market may slow, however those buying in that market are likely to be wealthy, investors or overseas buyers and if you’re renting this means they’ll be your landlords.

So what to do? It’s simple
1. Foreign investment purchasing tax of 15% on all land and properties purchased by overseas investors.
2. Drop the deposit across the board to 15% to all first homebuyers and keep it at 30% for investors.
3. Free up land packages and offer these to first home buyers as part of a “get-started intuitive”, where the land is sold cheaper with a caveat that they must build on the land with 18 months and hold on to the property for at least 36 months before selling.

Otherwise within ten years, there will be a complete population segregation between free standing wealthy home owners and those who own apartments.

By: Clark Valmont
Read more: www.wordcorp.co.nz

ENDS

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