Foreign investors in spotlight as New Zealand central bank tightens home lending controls

Pressure mounted on the New Zealand government Wednesday to curb property sales to overseas buyers after the central bank tightened controls on local property investors.

The Reserve Bank of New Zealand (RBNZ) said that property investors in Auckland -- home to a quarter of New Zealand's population -- would require a deposit of at least 30 percent when seeking a mortgage from Oct. 1.

Most owner-occupiers seeking to buy a home and buyers outside of Auckland would still require a deposit of 20 percent, RBNZ governor Graeme Wheeler said in a statement.

Auckland house prices had been rising rapidly since late last year and the city's median house price was 60 percent above its 2008 level, and the possibility of a sharp correction was a risk to the country's financial stability, said Wheeler.

Last month, the RBNZ urged the government to implement taxes to discourage housing speculators, but the government rejected the call.

Finance Minister Bill English admitted that rising property prices were a concern, but, in an interview with Radio New Zealand, he gave no indication that the government would shift its focus from the supply side of the housing crisis to the demand side.

"We certainly share (the RBNZ's) concern that when you have house prices rising at double digit rates that is setting people up for problems if there's a significant correction in the house prices," said English.

Opposition lawmakers welcomed the RBNZ move to control prices, but warned that "cashed up" foreign investors would face less competition in the Auckland housing market as a result.

"The bank is right to take action to curb speculation, but the government's refusal to tackle foreign speculators gives them a free hand," finance spokesperson for the main opposition Labour Party Grant Robertson said in a statement.

"The government must fix this looming loophole, and address the impact of foreign speculators who are simply taking profits where they can get them."

The opposition New Zealand First party said the country was still on course for a financial catastrophe when the housing bubble burst.

"The critical problems are immigration and offshore buyers, many of whom are speculators. Foreign buyers have access to cheap loans from overseas, in the 1 percent 2 percent range, so now they have even more advantage," New Zealand First leader Winston Peters said.

"The government can immediately reduce demand by winding back immigration and stopping foreign ownership," Peters said in a statement.

The RBNZ move heightened speculation that it would cut its 3.5- percent official cash rate (OCR) later this year.

With inflation hovering at near zero -- well below its target band of 1 percent to 3 percent -- the RBNZ has been discouraged from a stimulatory interest rate cut for fear of fueling Auckland' s overheated housing market.

The ASB Bank issued an Economic Note forecasting total cuts of 50 basis points to the OCR from September, "although the risk is an earlier start."

"One side effect from cutting the OCR would be some added stimulus for the housing market. Although we haven't viewed housing strength as an impediment to cutting the OCR, the restrictions will make the RBNZ more comfortable about responding to low consumer price inflation," it said. Endi