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Measures announced by New Zealand to put the brakes on its skyrocketing property market could drive home prices down, Westpac Bank said.
New Zealand on Tuesday introduced several measures to cool its housing market, including new taxes and a promise to boost housing supply as house prices rise out of reach for first-time buyers.
Westpac said those measures could drive prices down about 10% in the longer term, and could have much greater effects in the short term as investors bail out of the market, according to a report by The New Zealand Herald.
One tax policy change, which no longer allows rental-property owners to deduct mortgage interest from their expenses, is a “game-changer,” Westpac economist Michael Gordon wrote in a client note.
“We estimate that house prices could settle around 10% lower over the long term,” Gordon said.
Gordon warned that the new policies would have knock-on effects for the broader economy, affecting spending and inflation.
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“We will be carefully working through the implications for our forecasts,” Gordon said. “Monetary policy will need to remain easy to support the economy though the transition period. A negative [official cash rate] remains on the table.”
The New Zealand dollar weakened 0.8% following the announcement of the new measures, nearing its lowest levels this year as investors predicted that the policies would reduce the likelihood of interest-rate hikes, the Herald reported.
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