The Unconditional Blog

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6

Property investment loses its appeal – results of a new survey

Posted on: August 18th, 2010 | Filed in Buying / Selling a home, Featured, Property Investing

Investment property  Aug 2010Since the budget announcements in May as to the treatment of investment properties there has been extensive speculation as to the likely reaction of the investor segment of the property market.

The market both prior to May and subsequent to the announcement has shown virtually no movement (certainly no positive movement). The seasonally adjusted volumes for this year as represented in the chart (blue bars) track a very static level of around 4,500 per month well down on 2009 (green) and ominously close to 2008 (red).

REINZ sales Jul 2010

This sales data from the Real Estate Institute unfortunately provides no insight into the type of property purchased. However a recently released survey can now provide some valuable insight.

The annual Nielsen Real Estate Market Report 2010 now in its fifth year for which Realestate.co.nz is the primary sponsor has in the latest release highlighted a major flight of investors from the market comparing 2010 with prior years.

The survey, which is undertaken through an online intercept questionnaire, measures many aspects of the property buying and selling process. When it came to asking about buying intentions of the 1,225 survey respondents, it showed that their intention to buy an investment property had slumped by 40% in a year. Last year 1 in 4 of all those surveyed said that their intention was to buy an investment property. Just 12 months later when this survey was undertaken in May/June of this year that intention had slumped to just 1 in 7 – just 15%; the lowest level seen in the past 4 years of this annual survey.

Investors buying intention

Matched to this very clear intention of investment buyers was the fact that those who owned investment property were now far more likely to hold rather than sell – this is likely to be a clear factor in the slowing of the property market. Holders of investment property in the survey showed a 42% decline in intention to sell.

Investor intention to sell

Another aspect to the investor profile in the market is the likelihood that investors will target private sellers who they perceive as offering great deals in this “buyer’s market” – in the space of the last year there has been a 24% increase of intention by property investors to seek out private sellers as a source of property investment – 41% of investment buyers stated that they would prefer to buy privately.

Note: The Nielsen Real Estate Market Report is based on a website-intercept survey on New Zealand real estate websites conducted during May and June 2010 with a sample size of 1,225 respondents and a margin of error of 2.86%.

Article Discussion

  1. Shamubeel Eaqub says:

    This survey shows that fewer Kiwis want to buy residential property as an investment, but also fewer wish to sell their investment property. The latter is an excellent example of loss aversion by households – hanging on to a losing bet – only to have the mental satisfaction of not realising a loss.

    The survey results are consistent with current depressed sales volumes and suggest a sombre outlook for house prices. Housing as an investment proposition is less alluring than in recent years. House prices have been largely flat for two years, compared to prices increasing by an average of 8%pa in the previous decade. In this period rental properties made good investments despite very low rental yields, as low as half of mortgage rates, on the back of capital gains.

    However, house prices are now very expensive relative to incomes. Affordability for owner-occupiers is poor, especially if budgeting for higher interest rates in coming years. So there may not be a great flood of owner-occupier buyers unless prices fall.

    For investors, without handsome capital gains, current rents do not stack up. Either rents have to go up or house prices have to fall. Given rents are closely tied to incomes – or the ability to pay – we do not believe there is much room for significant rental increases. Instead, frothy house prices fuelled by excess demand from investors may adjust lower. The survey today suggests this excess demand is fading.

  2. Alistair Helm says:

    Shamubeel,

    Appreciate your perspective and interpretation – there is nothing in what you say I can disagree with.

    Being a “glass half full” type of person I hope that the current and future state of the market can provide an opportunity for those that aspire to own their own home to make those first steps more confident in the future of a market that will not be so skewed by speculative volatility.

  3. J.C. says:

    Hi,

    Shamubeel’s analysis makes good sense, however, as we see across the Tasman, low yield and high prices relative to income don’t necessarily drive prices lower. And Shamubeel will know better than me about this, but the bank’s risk profile will also be an important driver.
    Don’t discount the influence of media hyperbole, bank spin, and aggressive industry marketing. The influence of these drivers is much harder to track and/or quantify. It would be interesting to see any qualitative and/or quantitative research into these factors to get some deeper understanding. Is there any research out there that you are aware of that is accessible by the public?

  4. michael says:

    As a solicitor in an established north island provincial city I have to say I am not suprised by this survey result. From 2002 to 2006 we were extremely busy as buyers got into property investment but this slowed down in 2007 as interest rate increases put the brakes on.Last year there was a small window of a revival in investing as rates were temporarily very attractive but that has not slowed down again especially in the last two months. It is interesting to watch what I would have thought were long term investors sell down all or part of their portfolio. Today I met up with a young couple in their thirties who are selling all four of their rentals and their home as they pack up to move to Queensland. He is a builder who intends to work in the offshore oil industry. Like many others I meet these days they were long term investors but are now disallusioned with the returns and with NZ in general and they feel Australia is a better bet long term. It is sad to see them going as they have four young children and we as a country can ill afford lose such families. Property investment has really slowed down where I practice and those already in the market are definitely looking at either quitting or reducing their exposure to it.

  5. Bob says:

    I’m trying to find somewhere new to live after being asked to move out of two rental properties in the last 12 months, both times so the landlord can sell up. There’s now a real lack of homes to rent as landlords sell after the tax changes but having also looked at buying a place instead, prices remain at silly levels. I went to an auction yesterday for a property said at the open home to be in the high 600s – it got to over 800K and still got passed in! There’s nowhere to rent and nothing affordable to buy – I can understand why so many people are moving to Oz.

  6. Chris says:

    Just had a refusual of a vendor who believed that the Rateable Value was the market value of a totally unimproved 1/4 acre section,.and he refused to accept registered valuation done at my expense!

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