ANALYSIS: I have started up a monthly survey of Kiwi investors in assets as generally defined (shares as well as housing, cryptos etc.) sponsored by Sharesies. A key reason for doing so was to give insight to those who to date might have done well out of residential property investment and could be looking at alternatives.
This week, in one of my other surveys sponsored by Crockers Property Management, I could see for the first time that property investors are in fact more actively considering alternatives.
Each month I ask property investors a range of questions including whether they are looking at buying or selling a property. As yet no trend changes are apparent in those measures. But I also ask those who are considering selling what their prime motivation is.
So far in every month, the highest ranking reason has been to fund retirement. But the proportion saying they will sell in order to invest in other assets has this month climbed to 30% from 17% last month and the previous best result of 20% back in September.
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Why might people more actively be thinking about some portfolio diversification? Rising interest rates don’t appear to be a worry as yet with no trend rise in the proportion of landlords saying they will accelerate repayment of their debt. There are also no worries about finding a good tenant coming through.
But the proportion who say they are concerned about prices falling has climbed from 2.7% in September to 4.9% this month. This aligns with results from my survey of real estate agents when asked about the worries which new property buyers have. FOOP – fear of over-paying – is increasing.
My surveys with Crockers, Sharesies and REINZ all tell me that there is no clear rise underway in the proportion of existing property investors who are looking to sell. In particular, there is no fresh deterioration in buying plans since the big stepping back of many potential purchasers at the end of March last year when tax changes to interest deductibility were announced.
Ultimately, what do I take from my Crockers survey being released in a few days? Some investors are cashing out just beyond the price peak and parking their funds in more liquid assets, potentially to come back into property again when the price correction has run its course. In fact, my survey of real estate agents with REINZ told us three weeks ago that more agents are seeing investors sniffing around because they hope to secure a bargain.
Independent economist Tony Alexander: “The negatives for pricing will dominate.” Photo / Fiona Goodall
On average since May 2020, 24% of agents have cited bargain-hunting as motivating investors. Now that sits at 34%. This is not as high as the 42% to 60% readings from May to July 2020. But the trend is up.
All of this analysis just feeds into reinforcing my overarching view on what is likely to happen in our residential real estate market this year. The negatives for pricing will dominate, namely rising interest rates, net migration outflows, decreased access to credit, and rising supply. But there will be no investor rout, and owner-occupancy demand will remain firm because of the strong labour market.
Whatever the correction in prices turns out to be from the peak in December to a trough late this year or next year, it looks like being orderly. The magnitude does not look like being all that substantial when set against the fact prices currently are 38% above where they were before the first nationwide lockdown in March 2020.
One final comment. Of investors selling there has been a decrease in the proportion doing so to fund retirement. Some sunny regions have seen population, house buying and house-building spurts recently from people retiring early because of the pandemic and the soaring value of their investment portfolio allowing them to reach dollar goals earlier than expected. There are signs that this pandemic-induced regional population shift may be coming to an end.
- Tony Alexander is an economics commentator and former chief economist for BNZ. Additional commentary from him can be found at www.tonyalexander.nz
