"2025 will be an investor market"
Investors are finding new opportunities in New Zealand's property market.
"2025 will be an investor market," Kris Pedersen (pictured above left), founder of Kris Pedersen Mortgages, told New Zealand Adviser.
Pedersen explained that the investor market has been quiet for the last few years. But since Christmas, "it's the busiest we've seen it. There's been a lot more activity with interest rate drops. Investors are seeking out property because of interest rates. They want to renovate them, or, they're ways to get cash flows."
April Hastilow (pictured above right), a mortgage adviser at Opes Mortgages, agreed that market dynamics are currently favorable to investors.
"There's lots of opportunities in the markets now," she said. "I'm seeing a lot of investor interest in terms of, maybe, they've been sitting on the sidelines a little while, or maybe, repayments have been biting for investors with how much they were having to top up properties. And now that that's easing, and they're starting to see the potential for property prices to increase, the activity of investors wanting to get back into the market is quite substantial."
In December, CoreLogic released data stating investors had a 23% share in the New Zealand property market. Pedersen estimates the investor segment is closer to a quarter of the market.
"And now that part of the market is coming back. It's an opportunity for advisers, for those who know how to use it," he said.
The drivers
A number of factors are at play, stimulating investor appetite in the market, including New Zealand property prices. Home values fell in recent weeks, prompting some investors to consider scooping up additional properties before prices rise again. There's also easing loan-to-value ratio restrictions and tax changes that allow investors to claim 80% of their mortgage interest as a tax-deductible expense.
Yet, falling rates are likely the biggest catalyst, prompting rise to increased investor activity. In October, the Reserve Bank of New Zealand cut the official cash rate to a new low of 4.25%. But Hastilow said it's not just the OCR.
"Really it's the fixed rates that a lot of people focus on, and that's been two fold with the changes. Fixed interest rates have dropped dramatically,"she said.
Last year, BNZ, Westpac and ASB slashed fixed mortgage rates in New Zealand, while ANZ, the country's largest bank, cut fixed-term home loan rates earlier this month.
No doubt this has incentivized investors to rethink their portfolios, allocating more heavily to the property markets.
"I was speaking with an investor [recently] who was coming off of a 7% [rate] on a lot of his portfolio, and he's going to be coming off, anywhere between 5.2% and 5.5%, which is going to create a massive difference in his cash flow," Hastilow said. "So whilst technically, affordability would have been there for him in the last six to eight months by being approved by a bank, the cold, hard reality of how much he was having to top up his portfolio had prevented him from wanting to do something else until now."
Also creating more borrowing power are banks' lower expectations for deposits, as well as the test rates, or the rates banks use to assess a potential borrowers' ability to pay back the loan. In January, the rates fell to roughly 7.5%, down from 9.5% a year earlier.
"The difference in test rates means we've dropped over 1% in a matter of months," Hastilow said. "That has created the difference for investors of being able to purchase another property or not.
"And that means people can have access to more lending," she continued. "It allows people who've previously, maybe, been declined, or people who thought about getting another property and adding it to the portfolio, or, maybe, first-time buyers who weren't quite able to get as much lending as what they wanted, that's now available to them. And there's a lot of properties on the market that they're able to look at purchasing as well."
