Investors more optimistic about bank lending, but challenges remain
As the credit crunch fades, The Tony Alexander Survey Report for October indicated that property investors are becoming more optimistic about lending conditions, though concerns over costs and tenant availability persist.
Credit crunch: A thing of the past?
The report, carried out by independent economist Alexander in partnership with Crockers Property Management, shows that investor perceptions about banks’ willingness to lend have notably improved, signalling a shift from the stringent credit conditions imposed in late 2021.
“The credit cycle has turned well away from the crunch conditions,” Alexander (pictured above) said, suggesting that worries about interest rates have also eased, reducing fears of falling house prices. However, investors remain cautious regarding the rapid decline in net migration.
Selling or buying: The balance shifts
When asked about their plans, a net 6% of landlords indicated they plan to sell an investment property in the coming year, continuing a trend where sellers outnumber buyers since early 2023. Yet, there’s a hint of change as this figure shows signs of easing.
“Once the REINZ monthly data shows consistent house price rises, this measure will likely turn positive,” Alexander said. While 30% of investors are considering selling, 24% are contemplating a purchase, suggesting that growing interest in buying may contribute to the easing of selling intentions.
Long-term holding is in vogue
Approximately 31% of investors plan to hold their properties for up to five years, while 59% intend to keep them for 10 years or more. This marks an increase from 57% in September and a low of 50% in May.
“Signs of an improving housing market and falling interest rates may be encouraging more investors to remember the long-term focus,” Alexander said.
New vs. existing properties: A stalemate
There’s currently no emerging trend regarding investors’ preferences between new and existing properties. Changes in interest expense deductibility rules have tempered the incentive to purchase new builds.
However, the survey reflects existing property investors’ thoughts, and CoreLogic data suggests new entrants into the market may favour new constructions.
Rent increases: A cautious approach
A significant 64% of respondents plan to raise rents in the next year, consistent with September’s figures.
However, the average planned increase has dipped to 4.4% from 5% last month. This downward trend is noteworthy, as it could impact inflation and interest rates, with rent increases being a key driver of recent inflationary pressures, Alexander said.
Banks: A changing landscape
A record net 22% of respondents report finding banks more willing to lend.
“This is an important development,” Alexander said, as it addresses one of the major factors behind the decline in house prices from late 2021.
Investor concerns: The big picture
When asked about their main concerns regarding investment returns, insurance costs and council rates emerged as the top worries.
Notably, concerns about falling house prices and high interest rates are diminishing, although worries about maintenance costs and net migration flows are on the rise.
Tenant availability: A challenging market
For the second consecutive month, a record net 22% of respondents have reported difficulty in finding good tenants, indicating a significant shift in tenant availability since the start of the year.
As the market evolves, investors are cautiously optimistic about the changes on the horizon, balancing long-term strategies with current market realities.
