Hive News Friday: China acts to stem capital outflows; House values still rising at double-digit rates

Billboard near Auckland airport advertising a website promoting property to Chinese investors. Copyright Lynn Grieveson / Hive News

New Zealand's politicians and voters will all be focused on Labour's expected win in the Mt Roskill by-election on the weekend, but overseas the attention is on Italy's referendum this weekend and new signs China is struggling to cope with a capital exodus as US interest rates and the US dollar rise sharply.

A loss for Italian Prime Minister Matteo Renzi is worrying many who are looking at the precarious state of Italy's banking system, where 18% of its loans are non-performing. Renzi has promised to resign if he loses the referendum for constitutional reform and the Opposition Five Star movement led by comedian Beppe Grillo wants to pull Italy out of the euro.

Meanwhile, the stresses in the Global Financial System because of the sharp rise in the US dollar and US long-term interest rates in the wake of Donald Trump's election are now rippling out through emerging markets and into China, which is the driving force for Australasia's economy. The South China Morning Post reported this morning that China had clamped down on capital outflows to arrest a sharp fall in the renminbi.

"China’s central bank will limit the amount of renminbi that Chinese companies and individuals can remit outside the country, imposing a cap for the first time in more than two decades to stem the yuan’s outflow as the currency plumbs daily lows," the SCMP reported.

These capital flows have supported Australia and New Zealand's housing markets in recent years. See more in Weekend Reads below on the problems emerging now in Australia's apartment markets as buyers from China fail to settle purchases, banks pull back from lending to overseas buyers and Melbourne's apartment prices start falling.

Apartments coming to Auckland

However, there's plenty of capital from China that is set to be invested in Auckland apartment development, if the announcements yesterday in Auckland are anything to go by.

Yesterday Changda International Development announced plans to build more than 1,100 homes at the Pacific Gardens development on a 9.4 hectare Special Housing Area site next to the Vodafone Events Centre and Wero Whitewater Park at Manukau. Changda also plans to build 500 sections at Orewa north of Auckland.

It said it planned to sell 200 homes from the Pacific Gardens project into the market every year over 5 to 8 years, starting early in 2018.

The project was announced at an event with Phil Goff and Changda Construction Group chairman Xu Pengqiang​ in Manukau yesterday, including a sea of red ribbon cutting. See more detail and pictures here in this Stuff report.

QV shows double-digit house value inflation

Meanwhile, there's still plenty of house price inflation around, even though activity has slowed and some of the heat has come out of the market since the announcement in July of the Reserve Bank's 40% deposit requirement nationwide for rental property investors. It formally applied from October 1, but was introduced in practice almost immediately by banks.

QV reported inflation slowed again nationally to a six month low of 12.4% in November and a two-year low of 12.8% in Auckland as the LVR restrictions and some signs interest rates have bottomed out affect demand.

However, values still rose 2% nationally over the last three months and by 3.7% in Auckland over the same period.

"This comes as the latest round of LVR restrictions have led to a weaker than normal spring as a reduction in demand for investor housing stock has resulted in more subdued value growth and has seen nationwide quarterly growth to ease back to 2.0%," QV's Andrea Rush said.

“While values continue to rise in most parts of New Zealand, the trend of a slowing rate of growth continues for Auckland, Hamilton, and Christchurch," she said, adding some of the heat was also coming out of the Wellington market.

In other economic and political news...

Kelvin Davis' Housing Corporation (Affordable Housing Development) Amendment Bill was drawn from the ballot in Parliament yesterday. It would implement Labour's KiwiBuild policy of building 10,000 affordable homes per year for 10 years. The private member's bill could set up an embarrassing showdown in Parliament for the Government.

Gareth Hughes' Student Loan Scheme (First Home Repayment Diversion) Amendment Bill, which would allow graduates to defer loan repayments to instead save for a home deposit, was also drawn from the ballot yesterday.

Have a great weekend.

cheers

Bernard

2 December 2016