Tighter regulations making life tough for landlords - report
The market share of purchases by mortgaged multiple property owners in New Zealand has slumped, according to CoreLogic’s latest buyer classification data, with its monthly percentage share of property purchases sitting at 20.9%.
CoreLogic chief property economist Kelvin Davidson (pictured above) said this slump was caused by the hurdles facing mortgaged MPOs recently as regulation tightened and the “the simple economics of being a landlord [turned] against them”.
Among the challenges were ring-fencing of tax losses, the extension of the Brightline Test, the removal of interest deductibility, and the 40% deposit requirement, said Davidson. There was also a “sharply widening gap” between low gross rental yields and high mortgage rates, which meant top-ups were almost inevitable for anyone buying property lately.
“Given all of that, it’s no surprise our data has shown low percentage market share of purchases for mortgaged MPOs lately – and on top of that, it’s a low share in a quiet market,” Davidson said.
However, CoreLogic buyer classification data for August showed the situation had improved for first home buyers with that sector accounting for 25% of property sales, the highest market share since December 2022. Further details on FHBs were contained in CoreLogic’s biannual First Home Buyer report, released in November.
Share of property purchases for mortgaged MPOs versus cash MPOs
Breaking down investor purchasing activity by size, CoreLogic looked into the overall market shares for mortgaged MPOs by number of properties owned following the latest purchase and found that those with a total of two properties (MPO 2) were “essentially new investors,” mostly owning their home on top of having just recently bought their first rental.
Additionally, the overall increase in post-COVID investor activity was found to have been driven by “smaller players” or mortgaged investors that fell within the MPO 2 and MPO 3-4 categories. CoreLogic’s data also showed that these investors’ market shares “have been sliding lower” since early 2021, “as well as MPO 5-9 to some degree”.
“This all seems logical – the ‘newbie’ investors probably had the most anxiety about all of the regulatory changes being pushed through, as well as probably having less equity behind them, and also a greater eye on alternative ‘safer’ investments (such as term deposits),” said Davidson.
On the other hand, CoreLogic data showed that cash investors have largely increased their market share, with the exception of buyers that have more than 10 total properties. Davidson also emphasised the moderate scale of these increases, noting how even MPO 2s saw only a single percentage point increase as it jumped from 3% in 2021 to 4% in 2022.
“Cash MPOs may well hold on to a decent market share in 2023, albeit we also expect the number of property sales to stay fairly low,” said Davidson.
“The converse is that the percentage share for mortgaged MPOs looks set to continue to struggle into next year – although it also needs to be acknowledged that some would-be investors will have actively chosen to pull back, with the aim of buying something cheaper later. That time could well be 2023, if they can navigate the mortgage hurdles.”
Davidson also told investors to watch for some kind of potential sell-off in 2025-26, given the flurry of investor purchases in the 12 to 18 months after COVID first hit (with large capital gains subsequently accruing), and the fact these purchases had a five-year Brightline period.
In October, CoreLogic figures showed that the average price of a home in New Zealand had fallen under $1 million.
