The danger of FOMO

BNZ chief economist Tony Alexander

Local property investors have been the focus of much vitriol this year, subject to blame for both pushing house prices up and the provision of sub-standard rental properties.

However, there is a prevailing lack of clarity around who or what exactly constitutes an investor.

It doesn’t matter how often investor representatives point out that the majority of investors own just two or three properties and usually hold them as a retirement nest egg.

For most people, it seems that investors are speculators who spend their time trading and flipping multiple properties wildly and, as such, are responsible for the country’s super-charged market.

In his latest overview, BNZ chief economist Tony Alexander has suggested the reality is different.

He said it is incorrect to claim that people owning and buying investment properties are all speculators – just as it is incorrect to claim they are all responsible landlords interested in the well-being of their tenants.

Rather there is a wide range of people who own and buy investment properties.

This includes those for whom property investment is a business choice which they made years ago, Alexander said.

“They have bought properties for the yield they offer and the long-term capital gain. They devote a good portion of their time to managing them and have developed skills in doing so.

“They are what we have traditionally called landlords and have always provided a vital housing product for people not able or willing to buy a house to live in.”

In his view, many such investors will not be buying currently because the cycle is past its peak in terms of the pace of price rises and the quality of people making purchases.

“They are probably selling off their rubbish properties to over-optimistic inexperienced buyers.”

The investor range also includes people who have bought property as a retirement asset; people who have inherited property or who have bought additional property to help out family; rentvestors; and overseas buyers.

And then there is a new type of investor who, driven by panic and FOMO (fear of missing out), started jumping into the market last year, Alexander said.

“They feel like they have missed out on easy money and are scrambling to try and buy any meth-infused tinny joint to take away the stress of not riding the bandwagon.”

It is these investors who are problematic as they tend to be inexperienced as landlords, uninformed about investment and under-capitalised.

Alexander told landlords.co.nz that these investors are the borrowers likely to be concerning the Reserve Bank.

In turn, it is these investors who are likely to be pushed out of the market by the Reserve Bank’s latest LVRs – which he said is a good thing.

“Serious, experienced investors are not going to be put off long term by the new LVRs. Rather the new LVRs will just operate to stack demand and keep it at a different pace.”

But, if inexperienced investors keep buying despite the new LVRs, the Reserve Bank should lift the minimum deposit for investors further, he added.