Investors buying power plunges

Low yields, high mortgage rates, high deposits and interest deductibility changes are deterring mortgaged multiple property owners (investors) from buying, CoreLogic’s Buyer Classification Data shows.

While mortgaged investors’ market share drops, first home buyers and cashed-up investors share is running at record highs.

CoreLogic chief property economist Kelvin Davidson says the record low is slightly below the previous mark of 20% in September last year.

He says market conditions are particularly tough for mortgaged investors, most notably low rental yields, high mortgage rates and the removal of interest deductibility as a tax write off.

“The 40% deposit requirement has also been a hurdle, however the prospect of that loosening to 35% from 1 June should provide some slight relief, but not significantly.

“We’re not seeing existing investors sell off to any great degree, it’s just that it’s become much harder to make the sums work on a new investment purchase, or growing an existing portfolio.”

Sales and new listings are low as buyers retain power in the market, says Davidson.

The flow of new listings coming on to the market each week has remained sluggish, and Davidson says it remains a “buyer’s market”.

“Buyers still taking their time and few vendors are finding themselves in a forced selling position.

However, while the total stock of listings available on the market nationally is at a multi-year high, there are tentative signs that total stock levels have just started to fall a little, with Auckland an example.

“The total stock of listings available on the market are continuing to drop, as sales activity, although still low, is tending to outweigh new listings flows – which are really weak,” Davidson says.

“Winter is expected to remain sluggish per the seasonal norm, so spring will really be the key period to watch for the property market.

He says it still seems likely that the downturn is on its last legs, albeit not quite finished yet.

“Whether people regard this as good or bad, of course, depends on their perspective, but it’s worth noting that an immediate or strong upturn is this environment doesn’t seem likely either.”

May Housing Chart Pack highlights:

• residential real estate is worth $1.57 trillion;
• house sales in the 12 months to April 2023 are down -30.5% on last year;
• over the four weeks ending 7 May 2023, there were 6,778 new listings, -23% down on the same period last year;
• total listings on the market is starting to decline, but remains 15% higher than the five-year average. Nelson / Tasman has the highest volume of total listings compared to the same time last year, and Gisborne has the lowest;
• property values fell -2.6% in the past three months, and -10.3% over the year;
• The upper quartile of the market is leading the downturn, with values down -13.1% from the peak, while the lower quartile has fallen a smaller -8.5%;
• Wellington is the weakest of the main centres, with values down 20.8% from the peak, while Christchurch is only 6.2% down;
• mortgaged investors share of property purchases sunk to a new record low of 19.9% in April, while cash investors (16.1%) and FHBs (25.3%) are at record highs for these types of buyers;
• rental growth remains more subdued than this time last year, running at 3-4% nationally over the past 12 months, although it’s a mixed bag around the main centres;
• of the main centres, Tauranga had the largest annual change in rent (9.0%) making it the most expensive main centre to rent ($614); and
• gross rental yields nationally have reached 3% for the first time since March 2021, mainly due to the continued falls in property values. This is still relatively low by past standards, and is less than the income returns on some other asset classes (e.g. term deposits).