Property investors reveal their top concerns

Guest Post by Tony Alexander

Each month I run five surveys of different groups in the economy and most of them give good coalface insight into what is happening with the residential real estate market. The latest of these surveys is done alongside Crockers Property Management and looks at the concerns and plans of property investors.

Here are a number of the key trends we can identify from the survey which has been running since early-2021

First, despite hopes of interest rate declines, booming population growth (and therefore housing demand), and changes in tax rules, fewer and fewer investors are looking to make another property purchase. A net 13% of respondents in my latest survey said they plan cutting their purchases in the next 12 months, and this is the second worst result on record.

What is interesting is that their net buying intentions worsened at the same time as the housing market picked up in the middle of last year on the back of strong buying by young people. It looks like the constant rule changes, denigration in the media of those who supply rental accommodation, and soaring costs have driven some investors to take advantage of the earlier market surge by placing their property on the market.

Second, the top three things which investors are concerned about are insurance costs, council rates, and maintenance expenses. These strong cash outflow items alongside high debt servicing costs mean the numbers don’t stack up any longer for many investors unless their debt is low, or they are willing to strongly raise their rents.

Are they?

Not really. While 80% of investors have said they plan raising their rents, this is only just above the three year average of 77%. And the average rent rise being sought has eased recently to 5.4% from a peak of 6.3% in July last year.

Research shows that housing rents in NZ are largely determined by tenant incomes — their ability to pay — and not the usual interaction of supply and demand. Rents growth is high, but slowing. However, with house construction falling away quite quickly it would not be surprising if the pace of growth in rents were to hold near current levels for the next few years, even as overall inflation settles down near 2%.

Third, with many stories of inability to get sufficient pre-sales, cost escalation, and resource shortages, fewer and fewer investors looking at making a property purchase in the coming year are opting to buy a new-build or undertake the development themselves.

The proportion of those looking to buy (20%) who would buy new or build themselves has fallen to a record low of 31% from an average of 44% and a reading of 47% a year ago. 

This means the outlook for home builders is getting worse.

Overall, the survey I run of property investors shows deep concerns about costs, wariness of new developments, some new fears that prices will fall, and still declining interest in growing the size of one’s existing portfolio. For first home buyers, the environment since early-2021 of little competition from investors looks like it is going to continue.

When might this favourable situation for the young end?

I had expected that to be happening right now. But the 21% lift in the stock of listings since the low-point in July last year alongside new worries about the economy means they will probably enjoy a reasonably clear run at auctions and in tenders until we are well into 2025 and mortgage rates have declined about 1%.

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