KPMG’s annual survey of banks and other financial institutions says that bank executives are worried that the high prices foreigners are paying for New Zealand property, particularly “significant deals done at ridiculous pricing”, could spell disaster for them.
“Executives commented that there is a lot of money flooding into the New Zealand market from overseas investors who are able to buy assets with cash, thereby avoiding the need to borrow which is distorting asset prices and yields,” said John Kensington, KPMG’s head of financial services. “The risk for New Zealand is that, while all this money comes flooding in and creates over-inflated prices, New Zealanders are forced to buy at these over inflated prices.”
Data from the country’s Real Estate Institute shows Auckland remained the hot market in the country, with prices up 16% year-on-year.
“If at some stage in the future the money is needed back offshore, due to some event, or the rest of the world becoming more attractive, there could be a lot of assets dumped in the New Zealand market,” Kensington said. “The consequences of an abrupt sharp price correction, were it to occur, could be devastating for the banking sector.”