Mortgaged multiple property owners are running at about a 21% share of purchases, close to all-time lows, data shows
CoreLogic NZ Chief Property Economist Kelvin Davidson believed it may take a while for a property investor comeback amidst weaker market conditions.
CoreLogic Buyer Classification data showed that mortgaged multiple property owners (MPOs, including investors) were running at about a 21% share of purchases, close to all-time lows.
The data was unsurprising given the rising the number of barriers facing would-be investors, including 40% deposits (unless buying a new build), low gross rental yields, higher mortgage rates (not to mention tough serviceability tests), increased compliance costs, removal of interest deductibility, and flattening rents.
The situation is not a total disaster though.
“Those figures still mean that one in every five deals is going to a mortgaged MPO,” Davidson said. “Kept in context, it’s within a low overall number of transactions. But clearly some investors are still finding value and new builds are no doubt one of these opportunities. Anecdotally, there are relative ‘bargains’ to be picked up, with some developers looking to shift stock so they can crack on with their next project. In the weak market, others will simply be doing deals on existing properties at discounted prices.”
Cash MPOs, meanwhile, also get to enjoy the weak market conditions.
“Their share of purchases has risen to a record high from around 10% in late 2021 to closer to 15% now,” Davidson said. “In a market where finance is restricted and costly, it stands to reason that ‘cash is king.”
When looking at investor activity by size of portfolio, Davidson noted that the drop in market share has tended to be a bit bigger for those with fewer properties, adding that this makes sense as it was challenging for “mums and dads” to have the resources or banking relationships for a deposit in the current market conditions.
“If we put ourselves in the shoes of an investor, what would be worth considering over the coming months and is it a time to buy?” Davidson said. “The first question, for investors and buyers more broadly, is to ask, ‘When property values might bottom out?’ No one knows exactly, but my working assumption is that as mortgage rates finally peak in the next few months (if they haven’t already), we may see sales activity pick up a little in the second half of the year and property values in many parts of the country find a floor.”
Other considerations include whether the New Zealand National Party (National) wins the October election and reinstate interest deductibility, or if lending rules evolve, though changes to LVRs this year are unlikely, he said.
“Ultimately, I suspect many would-be investors are currently weighing up the need to top-up a property investment’s cash flow from other income sources over a three- to five-year horizon versus the scope for renewed capital gains over that period, which are uncertain and only ‘on paper’ until realised,” Davidson said. “It’s by no means an easy balancing act, but one factor that will work in favour of investors are signs that net migration is back in the black – a boost for tenant demand and rents this year.”
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