Source: Radio New Zealand
Unsplash / Tom Rumble
Investors aren’t giving up on the property market yet – despite reports of large numbers planning to sell.
Cotality’s latest data shows that investors with mortgages were responsible for 24 percent of sales in the first quarter of the year, returning to a level that was in line with their long-term average.
In Auckland they were 26 percent, Hamilton 28 percent and Christchurch 25 percent.
Cotality said it was smaller players driving the increase, such as those who owned their own home plus one investment property.
Chief property economist Kelvin Davidson said lower house prices and mortgage rates helped, as did the return of full interest deductibility.
“Our calculations suggest a ‘typical’ new investor may have had to find an extra $400 to $450 per week when house prices were higher and mortgage rates were 7 percent or more – and interest deductions were being phased out.
“Now that’s perhaps $150 to $200 instead – even though buildings insurance and council rates have risen steadily. It remains a sizeable chunk of cash, but still a lot more feasible for more people.”
A recent survey by independent economist Tony Alexander said a record number of mum and dad landlords were planning to sell their properties.
But Davidson said buying still seemed a popular option, although the approach was not as frenzied as it might have been at points in the past.
“People are definitely looking at property investment right now… it’s probably a measured return. It hasn’t been the big surge in investment purchasing like we saw just after Covid.
“There are some supports for investors but I think people are starting to question it a bit.”
Concerns about the potential for a capital gains tax or for investors’ ability to offset interest costs against their income, to again be reduced if Labour were to return to government might be keeping some people on the sidelines, he said.
“When I talk to people at the moment there is more of an undertone of ‘it has delivered strong capital gains in the past but I’m not so sure about the future’.
“That’s easy to say when house prices are flat and everyone sees prices are flat and they go ‘oh well they’ll always be flat’. But I’m conscious if and when house prices start rising again, everyone changes their tune… I’m always conscious of saying this time is different.”
But he said there were factors that meant gains were likely to be lower in future.
Interest rates had trended lower over the long term, most households were now double-income and the government was pushing forward with plans to increase land supply.
Davidson said some level of investment activity would always be needed to provide rental properties.
“We still need investors but… you have to either accept a lower return because capital gains are lower or you get the same return but you do it a bit differently and get some income or yield off it. You can’t just rely on the capital gain. It has to turn cash flow positive a bit sooner.”
Squirrel chief executive David Cunningham said some investors might decide they did not want to continue topping up their investment properties if there was no chance of capital gains in the short term.
“There was a 20 or 30 year period where you could buy anything and it would go up. I think the savvy investors are sort of the more long-term ones that are habitual investors rather than jumping on the bandwagon because everyone’s been on the bandwagon and it’s been successful.
“I think selective property investment still is really wise and lets you leverage, but it’s all about buying well and not having to top up with cash… which has been the norm.”
Part of the market cycle
Property investment coach Steve Goodey said investor activity dropping and then returning was part of the market cycle.
“All the conversation at the moment that property investment is over and you should sell your apartment in Auckland, you should get rid of this and get rid of that… it’s coming from vested interests… I don’t think investors are actually having these conversations.”
He said banks were willing to lend but some people might be waiting to see what happened with the election.
The data also shows first-home buyers’ share of the market held up at more than 27 percent, well above the long-term average.
In Auckland, their share was higher at about 30 percent, while Hamilton was 33 percent and Wellington 37 percent.
“There remain multiple supports for first-home buyers,” Davidson said.
“Obviously, lower house prices and reduced mortgage rates help, as does access to KiwiSaver for at least part of their deposit. But not even needing to save a 20 percent deposit in the first place is proving beneficial too, as part of the LVR rules, the latest Reserve Bank figures show that more than half of FHB loans over January and February were done at less than 20 percent equity.”
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand
