Napier, MSCNewsWire, Monday 13 June 2016 - The notion that the New Zealand house price bubble famously centred on Auckland can be resolved by government policy is one of the cutest and certainly the most delusional of popular beliefs that are echoed by the media.

There are grounds though for this illusion. The government in the Helen Clark era certainly launched the bubble with its encouragement of immigration. But the government, at least the New Zealand version, is powerless to puncture it.

This will be done, and in fact is already being done, by institutions in other countries and we are talking here of foreign banks, especially those in Japan.

They are starting to impose risk rates on investment in New Zealand residential property. The reason? Their hunch is that it is likely to turn sour. They have the experience of two previous occasions in the working memories of their directorates when New Zealand consumer level property investments went bad.

There was the time after the 1987 bust when they took a big hit on their investment in what they believed was a gilt-edge government guaranteed loans to venture-funding organisations here, notably the Development Finance Corporation, which turned out to be a big property investor.

In the event the government that had created entities such as the DFC declined to pay back the Japanese banks for the money they had lost.

Then there was the now-forgotten era of the Japanese investment in New Zealand coastal property which was also backed by their banks. In the event, the Japanese investors wooed by images of endless golf courses were fortunate if they got back more than 70 cents for every dollar invested.

These are just some of the reasons that the BNZ, a wholly owned subsidiary of the National Australia Bank, is starting to pull in its horns on residential property lending. It is starting to sense the imposition of a New Zealand risk penalty margin by the Asian banks which are the source of the funds in the first place.

The belief held even in the highest circles here is this: Japanese retail-level investors receive no interest from their own banks, sometimes even paying the bank for stocking their money, so they are so much better off with their money placed here, in New Zealand.

The Japanese though hate actually losing their money in New Zealand, as they have done several times in relatively recent years.

Here’s another and even more recent example of this distrust which is now being made manifest.

The Japanese were encouraged by the government’s own seismic reports to the effect that Christchurch was safely removed from the earthquake vulnerable zone.

In the event and when the earthquake struck the Japanese investors were under-insured and the problems attendant upon this have hindered the entire recovery process.

The BNZ with its long corporate memory of the rises and falls in New Zealand’s unmanageable property expectations is the bellwether in the calming of the current frenzy.

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