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Buying a house here difficult and expensive? Down under it’s even worse

He is seriously concerned, Professor Michael Rehm, who studies house prices in New Zealand at the University of Auckland. The housing market down under is of interest to economists all over the world, he explains to RTL Nieuws.

The problems that also affect the Dutch housing market – high interest rates and falling house prices – are considerably worse in New Zealand. “We are the first to go through this. But make no mistake: other countries are in the same situation,” says Rehm.

Everyone wants a house

What makes New Zealand homeowners so vulnerable right now? The biggest problem, according to Rehm, is that housing has become unaffordable. The professor cannot name any other country where incomes and house prices have grown so far apart, apart from city-states like Singapore.

“New Zealand houses that are now worth $1 million (600,000 euros) should simply cost half that,” he says. According to Rehm, how this is possible is a difficult question. What matters is that New Zealanders believe en masse that you have to buy a house and that house prices will continue to rise forever. “I can’t predict the future, but it’s inevitable that prices will fall,” says Rehm.

That decline has already started. After years of incessant price increases, house prices in New Zealand fell on average by more than 12 percent last year. Compared to the peak in November 2021, some neighborhoods, such as Auckland and Wellington, even lost almost a quarter of their value.

Interest is only fixed for two years

But for homeowners there is currently an even more pressing problem: mortgage interest. In the Netherlands, most people who take out a mortgage fix the interest for years. This is not possible in New Zealand: a large proportion of homeowners have only fixed the interest for one or two years. Most banks have a maximum fixed-interest period of five years.

The variable interest rate is currently high. That is because the central bank in New Zealand keeps raising interest rates in an attempt to control inflation, which is now 4.75 percent. ASB, one of the largest banks in the country, charges 7.99 percent. By way of comparison: in the Netherlands the variable interest rate is about 4 percent.

The fixed-interest period of almost half of New Zealand mortgages expires this year. That is where a major problem arises, Rehm sees. “People who took out a substantial mortgage at the start of the pandemic and then paid 2 percent interest, now see that fixed-interest period expire. Instead of 2 percent, they will now pay 6 to 8 percent interest.”

‘Coming years will be difficult’

Dutch people living in New Zealand also suffer from this. Like Mithe, who bought a house in Auckland in May 2022. “In the meantime, the mortgage has already increased by more than $ 1,200 (almost 700 euros) per month. We know that the next two years will be difficult.”

Nick, also a Dutchman, bought a piece of land near Queenstown in 2021 to build a house there. “That was supposed to be delivered in June last year,” he says. “It now seems that it will be May this year. We receive a letter from the bank about every two weeks with an interest rate increase. Of course, the interest rate does matter, but the extra costs associated with the delay are really getting worse. in.”

‘Cardboard houses’

Marcel (51), who moved to New Zealand with his wife a few years ago, is also surprised about house prices. “I explain it to friends in the Netherlands as follows: for a price that is about a third higher, you get a cardboard house,” he says. “We are not impressed with the build quality here.”

For example, many New Zealand homes have single-pane windows and are made of wood.

“In 2020, just before corona, we had a house built near Christchurch, because it was cheaper there than in Wellington, where we lived at the time and actually wanted to build,” says Marcel.

“We had to make a lot of concessions. This is not the house of our dreams. Converted, we paid about 400,000 euros and fortunately we already took the rising interest into account during construction. It was 2.7 percent at first and because we have had him detained in time, it is now 4.95 percent for the next three years. That is not too bad by New Zealand standards.”

“I see many people around me who have spent more on a house in recent years due to the low interest rates than they otherwise would have done. They now see the storm coming. As soon as the fixed-interest period ends, they do not know where to get their mortgage. going to pay.”

Rice with beans

Rehm says people will do anything they can to avoid having to sell their homes. “They stop going to the theater, eat rice and beans and do everything they can to keep paying the mortgage.”

The question is how long that will continue to go well. Because home buyers have to pay 20 percent of a home with savings, it takes longer before homes are ‘underwater’. This happens as soon as the mortgage becomes worth more than the home. “If people then decide en masse that they want to sell, we get scenes that we also saw during the economic crisis in 2008,” says the professor. “I know: that’s not a pleasant prospect, but it seems inevitable.”

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