Asia Economy

IMF warns 'unsustainable' rise in New Zealand house prices could trigger a correction

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Key Points
  • New Zealand's "unsustainable" house price rises could trigger a pronounced correction, the International Monetary Fund (IMF) warned in its staff report on Friday.
  • The country's success in managing Covid-19 has enabled a faster economic recovery than other countries, but a slew of monetary and fiscal stimulus measures has super-charged property market values.
  • IMF's warning comes as median prices for residential property across New Zealand rose by a record 22.8% in February, according to latest statistics from the Real Estate Institute of New Zealand released on Thursday.
Workers and shoppers eat on the steps of Freyberg Place in downtown Auckland, New Zealand, on October 29, 2020, enjoying the freedom of Covid-19 Alert Level 1.
Lynn Grieveson | Newsroom | Getty Images

New Zealand's "unsustainable" house price rises could trigger a pronounced correction, the International Monetary Fund (IMF) warned in its staff report on Friday.

The country's success in managing Covid-19 has enabled a faster economic recovery than other countries, but a slew of monetary and fiscal stimulus measures has super-charged property market values.

IMF's warning comes as median prices for residential property across New Zealand rose by a record 22.8% in February, according to latest statistics from the Real Estate Institute of New Zealand (REINZ) released on Thursday.

Median house prices in its biggest city, Auckland, increased by a record 24.3% to 1,100,000 New Zealand dollars ($794,750.00).

The IMF said financial stability concerns have been heightened by speculative demand for housing, which along with historically low interest rates and structural housing supply shortages are amplifying the house price surge.

"Unsustainable house prices relative to income, a tightening of credit standards, or a sharp rise in mortgage rates could trigger an eventual, pronounced correction," the IMF staff report said.

A comprehensive policy response is needed, including measures to unlock supply and dampen speculative demand, the report said.

Critics have slammed the government and the central bank saying its fiscal and monetary stimulus have indirectly fired up the property market by letting investors pick up more investment properties while cutting off first home buyers.

The growing political pressure prompted the government last month to ask the Reserve Bank of New Zealand (RBNZ) to consider the impact on housing while formulating monetary policy decisions, although most economists don't expect any such move to have a meaningful impact on house prices.

The RBNZ bought back mortgage lending curbs this month, and also lifted some liquidity facilities it had put in place.

The government is also expected to reveal other measures to temper the housing market later this month.

The IMF said in its report that the fiscal and monetary support should not be withdrawn prematurely, as uncertainties remain.