Photo: RNZ
Smaller-scale property investors are back in the market, primarily looking for cheap properties, data firm Cotality says.
It has released its latest chart pack, which shows mortgaged-multiple property owners are now about 25 percent of the market, compared to 21 percent in mid last year.
Chief property economist Kelvin Davidson said their attention had shifted a bit.
Now that all properties' home loan interest was 100 percent deductible for tax purposes, and not just that of new builds, the incentive to buy new was not the same.
"There's evidence that this investor comeback is towards the lower end of the market … the bottom 30 percent of properties by value, which probably tends to correlate with the shift a little bit more towards existing properties, which tend to be a bit cheaper than new builds."
He said there could be better rental returns on offer from those homes, particularly if investors added a bedroom or bathroom to boost cashflow.
Davidson said property investors were also being enticed back because lower interest rates meant they had less of a gap between rent payments and mortgage repayments to cover.
"That has shifted the balance for many landlords, allowing them to re-engage in the market and for newer investors, giving them the incentive to build a portfolio in more favourable conditions.
"Think about your cliched mum-and-dad investor, probably what matters most to them is 'how much cash am I putting in?' and the big shift there has been lower interest rates.
"Last year, a standard rental property might have might have needed $400 or $500 a week in terms of a cash flow top up … now it's $200.
"It's a lot still, but that's a very visible change for a mum and dad investor, you know simply that we're putting in a lot less cash than we might have had to do last year."
He said interest rates continuing to fall would keep investors engaged.
But he said there were factors against them. Council rates were going up and there was a perceived risk if the government changed.
"There's a perception out there amongst some investors that the tax rules could shift again back against property investment in terms of interest deductibility. So some people out there [are] very concerned about that. It's never one way traffic, some things in favour, some things against."
He said rents were sluggish. They were still high in relation to income overall, limiting the scope for further increases. Migration was soft.
"Rents have actually fallen in Auckland and Wellington in the past year, something that doesn't happen often.
"The weakness is illustrated by the MBIE bonds data, with the median national rent in the three months to June slightly lower than a year ago - one of the first declines since late 2009. It's difficult to see a strong return to growth in the near term."
But investors' yield was trending higher as property values fell.
From a low of an average 2.7 percent in 2021, investors were now getting an average 3.8 percent, the highest since mid-2016.
Davidson said first-home buyers were also still active in the market.
KiwiSaver was helping people pull together a deposit, he said, and banks were willing to lend to people with smaller deposits.
"A lot of that money has been going to first-time buyers. So you know, first-home buyers definitely don't need a 20 percent deposit to get into the market. And I think that's been a big factor as well as just simply lower house prices, lower interest rates, those things have helped."
Moving owner-occupiers were less active. That might be because of the mechanics involved in buying and selling, he said.
"It's simply been a little bit tricky to get a sale for your own property and line up a purchase in short order. The lack of certainty around buying and selling has made it tricky, so maybe people have just stayed where they are instead."
He said if confidence returned and the market freed up, pent-up demand could start to come through.
"I think the owner-occupier market will be a bit busier next year but it could be that we've just got to get through a few quieter months first."
He said while it remained a buyers' market, there could be some more competitive price pressure building in the next few months as the employment market improved and interest rates were lower.
"It does feel as if the market conditions will be shifting by the start of next year."
Sign up for Ngā Pitopito Kōrero, a daily newsletter curated by our editors and delivered straight to your inbox every weekday.
