New Zealand banks (which are really Australian banks) are REALLY worried (for themselves, oh and for us too).
KPMG is reporting that NZ (read Australia) bank executives are scared for themselves due to the high rate of cashed up property buying foreigners gobbling up land and homes in NZ. It’s taking profit from them and creating a potential crisis.
The Head of KPMG’s financial services, Mr Kensington said
“The consequences of an abrupt sharp price correction, were it to occur, could be devastating for the banking sector,”
Got that? It’s irrelevant if the exorbitant pricing is hurting kiwis, both renters and potential buyers, but the Banks? Ohhhhhh the banks are going to get hurt (yes, I understand if the banks collapse we all get hurt – but if the GFC taught us anything it’s that Banks don’t get really hurt by such corrections).
The upside of their fear is that it has forced a big organisation like KPMG (and one which this Government listens to) to dent the Government’s claim that foreign buying is NOT a problem with our property market (in Auckland especially).
The Banks didn’t give a toss when they were spending the profit generated on the back of decades of interest payments by ordinary kiwis (we still pay some of the highest interest rates in the western world for our loans – and are only now beginning to see the introduction of longer term loans) but they are seeing that disappear in high enough numbers to make them get KPMG going public on their behalf.
An IMF report in 2013 showed that New Zealand and Norway had the greatest deviation in house price to income ratios from historic trends among several advanced economies, at more than 60 per cent above the normal ratio.
The banks collectively posted a record profit of $4.8 billion in their last financial year, in most cases to September 30.
Kensington said the enormous profits were a result of banks being able borrow money cheaply to lend out on mortgages, falling bad debts, cost-cutting, and the continued house price boom in Auckland and Canterbury.
But while the bank rolled in money, it was a mixed year for their customers.
This government won’t listen to ordinary folks, despite mountains of anecdotal evidence from kiwis (home buyers, agents and commercial investors) about who is beating them to property and land in Auckland. Watch them react to KPMG publicly and privately. I will do so with interest.