Investors hold properties for longer

Wednesday 20 March 2019

Public perception has it that investors spend their time flipping properties on a regular basis but new analysis shows they hold properties for longer than other buyers.

By The Landlord

Prompted by recent drops in sales activity, CoreLogic has analysed property “hold periods”, the years between the purchase and resale of a property, to see if property owners are simply staying put these days.

They found that after a long rise, median hold periods peaked nationwide in 2016 and have actually started to edge down again since then.

CoreLogic senior property economist Kelvin Davidson says the length of time that properties are being held onto before they’re sold has fallen.

“But even at its current median of about 7.4 years (down from the peak of 8.2 in 2016) it’s still quite a bit higher than in 2007 when it was a short 3.8 years.”

Auckland hold periods tend to be shorter than nationally, while troughs and peaks (2005, 2014) have also come earlier than nationally (2007, 2016), he says.

“It’s interesting to plot Auckland’s hold periods against property values. The long rise in hold periods from the mid-2000s to the mid-2010s coincided with the rise in values. Then hold periods in Auckland flattened off and dipped, and so have values.”

Overall, the analysis does imply that shorter hold periods in the past few years suggest more sales activity than otherwise would have occurred, Davidson adds.

However, the analysis also overturns the widely held popular belief that investors spend their time buying and selling properties at a high rate to speculate on the capital gains.

CoreLogic’s analysis shows that both first home buyers and movers (owner-occupiers who are relocating) have shorter hold periods than multiple property owners (or investors).

Up until 2015, hold periods were similar for the buyer groups but, since then, first home buyers and movers who have resold have tended to have stayed in their properties for shorter periods.

In contrast, multiple property owners have not seen the same dip, so a gap has opened up in hold periods.

Davidson says this suggests that landlords haven’t been as willing or able to trade property as they might otherwise have preferred to.

“This reflects the general cooling of price growth and capital gains, the LVR rules, and extra government measures to target speculation, like the bright line test. In other words, landlords have had to stick with a property for longer to make the desired profit.”

It’s worth noting that many investors would argue that their preferred strategy has always been to buy and hold, whether for cash flow or capital gain.

Nearly two thirds (61.41%) of respondents to the recent Squirrel NZ Residential Property Investment Survey 2018 picked “buy and hold” as their preferred strategy.

Read more:

Altered landscape for investors 

COMMENT: Capital gain vs cash flow 

Comments from our readers

No comments yet

Sign In / Register to add your comment

House Prices

Market rebound coming - Westpac

The cancellation of a capital gains tax combined with lower mortgage rates will be game changing for the housing market, believes Westpac’s chief economist.

Commercial

Transforming commercial investment

Many investors are switching from residential to commercial property and now a new platform aims to makes access to the sector easier.

Mortgages

Investor lending weak in March

The latest Reserve Bank lending data reveals investors borrowed more than $1 billion in March, the highest figure since November, but a 10% fall on the same period last year.

Site by PHP Developer