Five months have now gone by since the Reserve Bank nudged banks into restoring loan to value ratio (LVR) rules, and four months have passed since the surprise changes to interest tax deductibility were announced.
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The latter resulted in a wave of investors expressing concern. They didn’t parade in the streets like the farmers, but they did indicate some strong plans to do a few things.
A survey of investors which I ran a few days after the tax changes were announced garnered almost 4,000 responses and the following results: 74% of landlords said they would raise rents more than they were planning, 32% said they would refrain from buying another property, and 25% said they would sell at least one property.
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I don’t track rents but I can offer some insight on the two other responses. Have investors pulled back from buying? Yes. The monthly survey which I run with REINZ showed that just ahead of the tax change a net 15% of agents were seeing more investors, down from a peak net 59% late in October.
Come late-May, a net 63% of agents reported seeing fewer investors. Last month this eased slightly to a net 52% and preliminary results for the latest survey currently underway indicate a further marginal improvement.
In another survey I run with mortgages.co.nz, a net 78% of mortgage brokers in April said they were receiving fewer enquiries from investors. The latest survey shows just 19% of advisors seeing investors still backing off.
Both surveys show a strong stepping back of investor buyers. But both also show the initial period of spitting the dummy has somewhat eased. But negativity still prevails overall.
Are investors selling their properties in droves as they indicated late in March? No. There are plenty of anecdotes of some selling, but much of this will be existing plans to sell being brought forward in time, and a continuation of selling already underway by more skilled operators getting rid of their less-desired properties.
Tony Alexander: “Investors didn’t parade in the streets like the farmers, but they did indicate some strong plans to do a few things.” Photo / Supplied
Notably, there is no upward movement in the number of properties being newly listed for sale. This is interesting because in a new monthly survey specifically of investors which I run with Crockers Property Management, both in June and this month a gross 25% of investors said they plan selling a property in the next 12 months.
But when I alter the question slightly and ask not if they will sell, but how long they will hold their property asset(s) for, only 6% last month and 4% this month said up to one year. 65% in June and 68% this month said they plan holding for at least ten years or have no intention of ever selling.
We have proof of a disconnect between what investors said they would do late in March and still say they will do, and what they actually plan for their portfolios. For young buyers this is bad news. There is no wave of investment property coming onto the market.
However, the Crockers survey does offer one potentially useful insight for first home buyers. I ask investors if they plan buying another property and 26% this month and 28% last month replied yes. I ask also if they will buy a new build or an existing property. Last month 45% said new and this month 53%.
I then ask what type of property they would buy and the one interesting result there without going into the deep detail is this. Investors show very little inclination to buy an existing townhouse. That then presents an opportunity for first home buyers to make a purchase with less competition in the tender or at the auction. After all, the Government has explicitly incentivised investors to buy new builds and that means while first home buyers will be crowded out of that market, they do face better times for existing dwellings. Now, all they need is a rise in listings – something yet to happen.
- Tony Alexander is an economics commentator and former chief economist for BNZ. Additional commentary from him can be found at www.tonyalexander.nz
