Hunt for yield driving property investors to regions – Wheeler

Higher rental yields could be enticing property investors out of Auckland, Reserve Bank Governor Graeme Wheeler says, although he would not be drawn over whether the central bank will act to slow the surge in house prices across the country.

Mr Wheeler made the comments at a select committee after the release of the bank's six-monthly financial stability report, which highlighted concerns about the resumption of unsustainably high house price inflation nationwide, and especially in Auckland.

The report stopped short of imposing new lending restrictions and the governors used a press conference earlier to flesh out their thinking on possible additions to the country's growing array of macro-prudential controls.

Mr Wheeler was asked about the 'halo effect' of investors moving from Auckland to nearby regions. A release from the Real Estate Institute of New Zealand says investors were increasingly looking to buy property outside Auckland, with four regions hitting new median house price highs in April. Mr Wheeler says rental yield in Auckland was low at about 2.8%.

"You sort of say, why do people invest for that sort of rental yield?" Mr Wheeler says. "It's linked to expectations of capital gains, and it's one of the reasons why you'll see those investors moving to Hamilton or Tauranga and other places - the rental yield there is higher, and they would think the capital gains might be higher."

Investors, who account for 42% of house transactions in Auckland and 40% across the rest of the country, were spilling over to regions outside the biggest city and that was a "big factor behind house price increases," Mr Wheeler says. "The investor activity that's come out of Auckland has built up pressure in other parts of the country."

He says house price-to-income ratios in Auckland were currently just over 9, compared to 5.3 in the rest of the country.

"The concern is that ratio could continue to increase, we've seen more momentum in the housing market in February and March," he says adding that while the ratio outside Auckland was lower, it was concerning how quickly house prices were rising.

Mr Wheeler and deputy governor Grant Spencer has earlier said new lending restrictions to prevent people borrowing too much relative to their income were on the cards, though they stressed there is no timetable for implementation of such a measure which would require agreement from Finance Minister Bill English for inclusion in the government's memorandum of understanding with the central bank.

At the select committee, Mr Wheeler says the central bank had not decided whether it needed to take further action, nor what that further action would be.

"We're continuing to watch developments in the housing markets carefully, we're discussing in-house [whether there are] strong grounds for further macro-prudential instruments, we would move in consultation to the government about the housing market," he says. "At this point, we haven't made any decisions."

(BusinessDesk)