Investors snap up new builds at record levels

CoreLogic figures show 32% of new property sales went to mortgaged investors in the third quarter of this year. The average over the past five years has been about 25%.

CoreLogic research head Nick Goodall says the trend is expected to continue as interest rates rise, the profitability of buying new, as opposed to existing increases, because the ability to deduct mortgage interest payments against rental income still applies to new builds.

However, across the overall market — new and existing properties — mortgaged investors activity reached an all-time low of 20% in September.

“With prospects of capital growth, especially in the short term dropping, combined with increased costs, it’s getting harder for investors to make the finances work for a(nother) investment property,” says Goodall. 

“They may well be considering other investment options, as interest rates rise — a one-year term deposit now averages 4.1%.”

He says the property investment market has definitely become more complex to navigate, with more regulation and prices falling, but investors haven’t completely abandoned it. “Opportunities still around and reduced competition means for anyone with the ability and wherewithal to buy has a bit of power in their hands.”

Stepping back

Investors have decidedly stepped back from across the entire residential market, the latest survey of real estate agents by economist Tony Alexander and REINZ shows.  However, there is no mass exodus of investors from the market either. For the time being at least, they appear to be sitting on the sidelines.

The survey of real estate agents shows the biggest impact of the recent lift in mortgage rates on the overall market has been a 20-point deterioration in the number of agents seeing investors — from -28% to -48%.

“Investors have decidedly stepped back from the market anew over the past month. However, while investors remain rare in the market, the degree to which they are absent is less severe than earlier this year when credit conditions were tighter and prices had not fallen as far as they have now.” 

However, the survey shows there has been a further rise in the number of agents saying they are seeing more investors looking to sell.

That percentage now sits at 6% — compared to -6% last month and -12% the month prior, but Alexander says this cannot be called a wave of selling. “Still, the correlation of this shift with the rise in borrowing costs suggests that interest rates and the dropping ability to deduct mortgage interest expenses when calculating taxable income are making some investors rethink their property holding timeframes.”

There is also no improving trend in expectations for price gains, and fewer agents now report investors seeking to buy are hopeful of getting a bargain.