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New Lvr's Mean That Investors Can Look To The Us With Estero Property Investments

Thursday 30 July 2015, 9:29AM

By Beckie Wright

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In its most recent six-monthly Financial Stability Report, published recently, the Reserve Bank has targeted Auckland property investors with a raft of new restrictions. "We are proposing these adjustments to the LVR policy to more directly target investor activity in the Auckland region, where house prices relative to incomes and rent are more elevated than elsewhere in New Zealand," the bank’s governor Graeme Wheeler said in a statement. A number of commentators, including Estero Property Investments, however, have been quick to observe that the changes are likely to have little effect and will not solve the underlying issue of housing under-supply.

For investors seeking certainty and financial security, Lindsay Jarvis of Estero Property suggests that the U.S. is rapidly becoming a smart place to buy, advising that there are several advantages to investing in the U.S. Whilst many investors focus on capital gain, Estero concentrates on the more immediate returns provided by income. With this in mind, they’ve found the U.S. market almost unbeatable, offering cash ROI's in the 10-20% range as opposed to the 1-4% offered by many local property investments.

Estero Property’s advice has become even more relevant with the Reserve Bank signalling its intent to target landlords with their new lending restrictions and recently announced that it had opened up consultations to examine new lending rules for property investors. In a statement it stated that it was looking at a "new asset class treatment for mortgage loans to residential property investors."

Following recent consultation, the Reserve is establishing a new asset class for bank loans to residential property investors. These loans will attract a higher risk weighting than for owner-occupier mortgages, requiring more capital to be held against them. “The Bank is also proposing some changes to its policy on high loan-to-value ratio (LVR) lending to recognise the financial stability risks arising from housing market conditions in Auckland”, stated its report. The changes are proposed to be introduced from 1 October 2015, and will involve a new restriction on loans to property investors in the Auckland region with an LVR of greater than 70 percent. Borrowers will now need a deposit of at least 30 per cent.

The proposed introduction of lending restrictions aimed at landlords by the Reserve Bank indicates that there could be rocky times ahead for those heading to local banks to fund their NZ property investments. At the same time, it also presents a timely opportunity for investors to rethink their strategy and consider solid property investment markets such as the US. For more information, please visit Estero Property at www.esterproperty.co.nz  .