S&P issues property warning
Financial ratings agency Standard & Poor's says there is a significant risk of a property crash in New Zealand.
S&P, which has come in for criticism over its failures to adequately assess risk on many investments in the run-up to the global financial crisis, said its "base case scenario" was for medium-term real estate prices continuing to stabilise at current levels.
But credit analyst Nico DeLange said: "We are of the opinion that a significant risk remains of a sharp correction in property prices occurring given the uncertain short-to medium term outlook for the global economy."
Such an event would have a flow-on impact on the ratings of New Zealand's banks.
DeLange said: "This could potentially lead to a build-up of economic risks, resulting in the lowering of the economic risk score of New Zealand to '4' from '3'.
"Such a change could have a direct impact on the stand-alone credit profile of New Zealand banks, and the issuer credit ratings of banks in New Zealand that do not benefit from group support."
Yesterday, Finance Minister Bill English indicated new rules that could take some of the heat out of housing market by giving the Reserve Bank a greater ability to influence the amount of lending done by banks and other financial institutions could be in place by as early as the middle of the year.
Residential mortgage loans account for around 60 per cent of bank loans, so a sharp price in property prices would lower the security they had across much of their loan books.
Those rules are likely to include requiring home buyers to have bigger deposits by capping the loan-to-value ratio lending in the housing sector.
They also propose requiring banks to hold additional capital on their balance sheet as a buffer during an economywide credit boom and against loans in specific sectors if risks emerge.