Investors continue to shrug off extra government measures

Date: 12 December 2018

 
Investors remained active in the residential property market in November, according to the latest CoreLogic Buyer Classification data, which shows that they are not yet deterred by government measures such as the looming ring-fencing for tax relief on rental property losses. The recent momentum also makes it hard to see new investors suddenly dipping out of the market in the near term, although cautious attitudes from lenders may mean that the reduced deposit requirement (35% down to 30%) from 1st January doesn’t give them much of an extra boost either. 
 
CoreLogic research analyst Kelvin Davidson writes:
 
The latest CoreLogic Buyer Classification figures indicate that extra regulations and government pressure, haven’t slowed down residential property investors, who remain active in the market. First home buyers (FHBs) are still finding ways to get onto the ladder too.
 
25% of November’s residential property purchases across NZ were made by multiple property owners with a mortgage (mortgaged investors). As the first chart shows, the latest results continue the pattern over the last year: with mortgaged investors slowly but surely raising their market share. That’s after their share fell in late 2016 and into 2017 in the wake of LVR III (40% deposit) in October 2016.
 
NZ % share of transactions (Source: CoreLogic)
 
The continued presence of mortgaged investors in the market may also seem a bit surprising given extra government attention on them, via the looming ring-fencing for tax relief on rental property losses and the possibility of a capital gains/asset tax further down the track. The proof, however, is in the (Christmas) pudding, and to us it illustrates that true long-term investors (as opposed to speculators) are still confident that they can make their plans work even though costs may be slightly higher and (net) yields slightly lower.
 
Dunedin % share of transactions (Source: CoreLogic)
 
Dunedin has made an actively regular appearance on our ‘anecdotal stories’ radar, referencing high levels of investor activity, so it’s no surprise to see this come through in the data. As the second chart shows, mortgaged investors’ activity there has hit 26% of the market, the highest levels in about three years. Lower entry prices and higher gross rental yields will be one factor attracting investors to Dunedin, although they will no doubt also be weighing up the costs of getting any lower-quality properties up to Healthy Homes standards.
 
Wellington % share of transactions (Source: CoreLogic)
 
But it’s not just investors that are active at present; FHBs are also still keen to buy. Nationally, their share of the market continues to hover at multi-year highs of about 23%, with Wellington a clear example of where they are particularly active (see the third chart). FHBs have been a key part of the wider strength of demand in the capital over the past few years, and completed sales have not been replenished by enough new listings. This has meant that the stock of property on the market has been low, with prices naturally rising.
 
Auckland % share of transactions (Source: CoreLogic)
 
Finally, it’s also worth highlighting FHBs in Auckland (see the fourth chart). There, they account for 25% of the market, despite an average property value of $1.05m in our biggest city. This goes to show just how strong the resolve of FHBs to get on the ladder really is, helped along for example by access to KiwiSaver for a deposit, as well as a willingness to change their expectations on quality/location.

Tags: NZ Property Market , Auckland property, NZ realestate


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