Could the government target investors in bid to cool market?

New Zealand’s central bank is taking aim at investors by jacking the required down payment for a home to 40% in a bid to cool its market; one investor believes a certain plan could be put in place in Canada.

“There [is a] chance of that … it wouldn’t be 40% because that would botch the market. If it does happen, and there’s a high probability of it, [the minimum down payment] could jump from 20% to 25%,” investor Shawn Arshad told Canadian Real Estate Wealth. “Will it deter some? Yes. [Would] it cool the market? Absolutely.

“That would be a great way to cool the market.

New Zealand’s central bank will now require citizens to put 40% down on investment properties, up from the original 30% requirement, the Reserve Bank said in a statement Tuesday. The policy has been put in place to cool the country’s hot housing market.

“A sharp correction in house prices is a key risk to the financial system, and there are clear signs that this risk is increasing across the country,” Governor of the New Zealand Reserve Bank Graeme Wheeler said, per the New Zealand Herald.

The average home price in Auckland, the country’s hottest housing market, is about $675,000 (C$619,269).

That’s below the average home prices in Canada’s two hottest markets, Vancouver and Toronto, where houses average $1,026,207 and $746,546 respectively in June.

Of course, no economy is created equal and there are several differences between New Zealand’s and Canada’s, so a direct comparison based solely on home prices offers just one piece of the economic puzzle.

For his part, Joe Rosati, CEO of Broker Financial Group, argues against a similar plan in Canada.

“I think that’s ridiculous. What does the down payment have to do with it?” Rosati recently told CREW sister publication, MortgageBrokerNews.ca. “If somebody has the capacity to pay their debt, whatever it may be and it makes sense to them on an income to debt ratio, then why should a regulator dictate that? It doesn’t make any sense and I don’t think it will cool [New Zealand’s] market.”

 

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