New Zealand Property Overvalued?

According to AMP Capital Investors, property prices in New Zealand are now 42 percent higher than they should be.

In the last five years, New Zealand’s house prices have increased by an inflation-adjusted 75 percent, leaving them 42 percent higher than expected from long term trends. (Inflation adjusted house prices have increased on average by around two percent per annum for over 40 years in NZ.)

The average house price in New Zealand is now $356,028 (£125,000).

At BBB we wondered how the rise in house prices in New Zealand compares with what’s been happening in the UK property market.

According to Nationwide Building Society, in 2001, the UK’s inflation adjusted average house price was £98,374. By the end of 2006, it had reached £172,065. That’s an increase of 75 percent – identical to what’s been happening in New Zealand in the same period. So, if you’re worried that the UK market has been rising too quickly, the New Zealand market has been doing exactly the same thing.

Most market observers in New Zealand seem unconcerned about house price rises – seeing them as a reflection of rising incomes and healthy immigration flows from countries like the UK, where property prices are considerably higher. New Zealand’s central bank, however, is concerned about inflation and has pushed interest rates in New Zealand to 7.25 percent, quite a bit higher than the UK’s 5.25 percent.