Network head weighs in on ploy to cool housing markets

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New Zealand’s central bank is taking aim at investors by jacking the required down payment for a home to 40% in a bid to cool its market; one industry veteran has some strong opinions about what a similar Canadian would mean.

“I think that’s ridiculous. What does the down payment have to do with it?” Joe Rosati, chief executive officer of Broker Financial Group, told “If somebody has the capacity to pay their debt, whatever it may be, and it makes sense to them on an income-to-debt ratio, then why should a regulator dictate that? It doesn’t make any sense and I don’t think it will cool [New Zealand’s] market.”

Obviously not one to mince words. And one would assume many industry players in New Zealand are singing a similar tune.

The country’s central bank will now require citizens to put 40% down on investment properties, the Reserve Bank said in a statement Tuesday. The policy has been put in place to cool the country’s hot housing market.

“A sharp correction in house prices is a key risk to the financial system, and there are clear signs that this risk is increasing across the country,” Governor of the New Zealand Reserve Bank Graeme Wheeler said, per the New Zealand Herald.

The average home price in Auckland, the country’s hottest housing market, is about $675,000 (C$619,269).

That’s below the average home prices in Canada’s two hottest markets, Vancouver and Toronto, where houses averaged $1,026,207 and $746,546 respectively in June.

Of course, no economy is equal and there are several differences between New Zealand’s and Canada’s, so a direct comparison based solely on home prices offers just one piece of the economic puzzle.

And for his part, Rosati argues Canada’s housing market isn’t overheated.

“I don’t think we have an overheated market in Canada and I don’t think they can really capture the numbers,” he said. “I think in any open market, supply and demand will prevail and I don’t think we need intervention and certainly not government intervention.”

  • Ron Butler on 2016-07-21 10:20:46 AM

    It is hard to understand why anyone would not think the Vancouver housing market is not overheated. With 30% year on year increases that have produced the effect of houses being treated as if they were stock trades a government should be worried about what the eventual effect that rate of increase or the eventual price reversal will impact the public.

  • LanceH on 2016-07-21 10:43:50 AM

    I know nothing about NZ's market, but I can't help imagine, that if one has to put down 40% to buy rental ppty's, they're going to end up with a severe shortage of rental accommodation, and considering the offshore investors often have buckets of cash, will do nothing to deter them. On the surface of it, it doesn't sound the best.

  • BJ on 2016-07-25 12:14:34 PM

    Joe Rosati is correct about the down payment of 40% being "ridiculous". If imposed all that does is further benefit the wealthy. However the real estate market IS overheated (at least in BC). House prices have gone up 20% since January in Victoria - I'd say that is mega-uber-overheated.

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