Smaller investors appear more confident after capital gains tax scrapping

Date: 16 July 2019

Having taken a hit from tougher LVR rules in October 2016 and then the proposals for a capital gains tax (CGT), multiple property owners with two properties (i.e. their house and a rental, or bach) have shown renewed interest in the market in the past few months – which isn’t really a surprise, given that CGT has now been scrapped. Around the main centres, this upturn has been most evident in Wellington and Christchurch. 

CoreLogic Senior Property Economist Kelvin Davidson writes:

With June’s figures to hand, we now have the full set of results for Buyer Classification in the second quarter of the year, and they show a continuation of recent patterns – movers are a little less active in terms of their market share than has been typical in the past, with first home buyers (FHBs) operating at a high market share, and mortgaged investors (multiple property owners; MPOs) on a gradual rise (see the first chart).

NZ % of property purchases (Source: CoreLogic)

Of course, it does need to be noted that all of these patterns in the percentage share of activity are within an overall relatively low number of purchases. Certainly, the numbers of purchases being made by movers and mortgaged investors are well down on the levels seen in 2016, and although FHBs have risen back closer to where they were in 2016, their activity has still flattened off in the past 6-9 months (see the second chart).

NZ number of property purchases, 12-month rolling total (Source: CoreLogic)

Back to the % market share figures, however, it’s really interesting to dig deeper into the investor category. Across all investor purchases (both cash and mortgage), their market share in Q2 2019 was 37%. If we then break that 37% down by the number of properties owned by these MPOs, it can be seen that investors with two properties (after their latest purchase) are the biggest individual group, with 11%, followed by investors with 3-4 properties, at 9% (see the third chart). But the real area of interest is those MPO 2’s – not only are they the largest MPO category, but they’ve also recently lifted their % share the most.

Composition of multiple property owner category by number of properties owned (Source: CoreLogic)

Why might that be the case? Going back to 2016, it’s these smaller investors whose market share was hit hardest by LVR III (min. 40% deposit) in October that year. And they then seem to have got knocked again as Labour’s election victory in late 2017 and tabling of capital gains tax hit confidence through 2018. Now that CGT has been scrapped, however, these figures show that the MPO 2’s, or smaller ‘mum and dad’ investors, have started to make a comeback.

Amongst the main centres, the fourth chart shows how this recent bounce in activity from MPO 2’s has been seen most clearly in wider Wellington (City, Upper/Lower Hutt, Porirua), and to lesser extent in Christchurch. In Wellington, it seems likely that investors will have been attracted by their expectation of further strong capital gains, whereas the flatter Christchurch market has probably presented ‘bargains’ for canny buyers.

Multiple property owners by size in main centres (Source: CoreLogic)

At the other end of the spectrum, the MPO 10+ category has generally eased a bit in the main centres (and NZ as a whole), not least because these bigger players are reportedly often classed as business/commercial borrowers, an area where credit has become much harder to secure. The major exception here, however, is Hamilton, where MPO 10+ was 9% of the market a year ago but is now 11%. Other figures in our database show that this isn’t due to big Auckland investors snapping up Hamilton properties either; in other words, the rise has come from locals.

Tags: Property, Real Estate, Property Market