CoreLogic – Investors take a fresh look at the NZ property market

CoreLogic’s October Housing Chart Pack shows that for the month of September, mortgaged MPOs made up 22.6% of all property purchases, up from the record low seen exactly a year ago (20.4%) and the highest seen since around the middle of 2022.

CoreLogic NZ Chief Property Economist Kelvin Davidson said although the share of purchases going to mortgaged multiple property owners (including investors) remains low by historical standards, there have been hints over the past quarter that this group is showing renewed interest.

“That’s likely to reflect lower mortgage rates, which are reducing the required cashflow top-ups on a typical rental property purchase, but also the reinstatement of mortgage interest deductibility and reduced deposit requirements under the LVR rules,” said Mr. Davidson, referring to changes that allow investors to claim 80% of their mortgage interest as a deductible expense for tax purposes.

Data from the October Chart Pack also showed that gross rental yields have been trending higher – albeit slowly – as values have weakened and rents have risen.

From a floor of 2.8% in late 2021, they now stand at 3.9%, which is the highest level since early 2016.

Auckland and Wellington City are hovering in the 3-3.5% range, with Hamilton and Tauranga closer to 4%, and Christchurch and Dunedin a bit above 4%.

“Even though rental yields have trended higher, they’re still quite low compared to mortgage rates, so no doubt some would-be property investors are watching and waiting for interest rates to start falling to an even more favourable level,” added Mr. Davidson. “That said, on individual deals, clearly some savvy investors will already be able to secure yields that exceed the market averages.”

Investors on the rise again?

He said investors are going to be a group to watch in 2025 as rates are expected to keep falling.

“We estimate that a ‘typical’ mortgage rate of around 5.5% could start to entice growing numbers of investors back to the market, but that’s also potentially a rate at which debt-to-income ratio limits might start to have a more noticeable impact.”

“It remains to be seen what the net impact will be. Of course, whatever trade-offs investors might face in terms of lower funding costs but tougher credit rules, the exemption from the DTIs for new-builds could continue to make them a very strong option for would-be buyers.”
 
October Housing Chart Pack highlights:

New Zealand’s residential real estate market is worth a combined $1.61 trillion.

The CoreLogic Home Value Index (HVI) fell by a further 0.5% in September, the seventh decline in a row, taking the drop from February’s ‘mini peak’ to almost 5%. 

Auckland fell again in September, and alongside Wellington, it has seen values drop by more than 3% since June. By contrast, Christchurch and Dunedin are proving a little more resilient.

Values dipped by 1.2% in the year to September, with the small upturn in late 2023 now close to being reversed. Taking the three months to September combined, there was a 2.4% drop in median property values across NZ.

Falls from the peak are now sitting at nearly 18% nationally, with some areas significantly larger.

National rental growth has settled into a more subdued phase, and was 1.2% in the year to September, which is comfortably below the long-term average of 3.2%.

Over the past 2-3 years, gross rental yields have been trending slowly higher, as values have weakened and rents have risen. From a floor of 2.8% in late 2021, they now stand at 3.9%.