With the recent release of the ANZ Property Investors Survey it provides a timely snapshot into the views of residential property investors. A few interesting and key insights from this year’s survey include:
- Confidence about buying property remains high. The proportion of investors planning to buy more properties rose to a net 69% of respondents, the highest since 2009, with investors optimistic over returns for both the year ahead and longer term.
- Average house price expectations have risen, reflecting that property market strength has spread around the country. Nearly 60% of investors expect price gains of at least 6% over the next 12 months.
- Auckland house price expectations are still very strong but have been overtaken by the rest of the North Island.
Debt/value ratios have decreased for a second year, with the main reported reason being due to higher house prices. The proportion of investors with LVRs over at least 90% halved from 6% to 3%. It is encouraging that the sector on average has not leveraged up significantly, but given it was due to increases in house prices rather than debt reduction it is probable debt-to-income ratios have not improved to the same extent – if at all.
Property investors are very optimistic about the price outlook for both the year ahead and further out. Nearly 60% of investors expect price gains of at least 6% over the next 12 months (versus 51% last year). Given the recent runaway increases in prices in the regions around Auckland, it is perhaps not surprising that investors in the North Island have the highest expectations for value increases during the next year, with Waikato leading the charge. Canterbury investors have the most conservative short-term expectations but think values will increase at a greater rate over the longer term.
There was no evidence of an impact from the new “bright-line” 2-year capital gains tax test, with a small lift in the proportion of investors who were planning to renovate/develop and sell.
Evidence is now mounting that the tighter loan-to-value ratio restrictions that have just come into effect are cooling the housing market. House sales are down nearly 10% versus a year ago and houses are taking longer to sell (though the market is still incredibly tight). Typically, house prices follow sales with a 3-6-month lag. House price inflation is already easing and we expect it to continue to do so. Given this, investors’ house price expectations look overcooked. That said, previous rounds of LVR restrictions proved to have relatively short-lived impacts on the housing market, so investors may be assuming the same will occur this time.
Nearly a third of investors say that the restrictions have impacted on their strategy in the past 12 months (versus 16% the year before), and nearly half of these investors said they have not bought a property they would otherwise have done. Nearly 30% say they are less likely to buy another property in the next 12 months than they would have been otherwise.
Investors can expect to have their cake and eat it too with the survey showing that rental growth expectations for the next year are also strong outside of Canterbury, with short-term growth expectations the highest in the upper North Island.
Investor strategies have also been consistent over this period and they continue to see property as a long-term investment, with almost 90% indicating that they intend to hold on to their property for the longer term.
Investors also expect increases in rental income, particularly in Auckland where there is a genuine housing shortage because of exceptionally strong net migration. Other regions haven’t experienced the same level of population growth, but with a strong economy and labour market, landlords appear confident they can charge more and still find a tenant.
In terms of what is keeping property investors up at night, LVR restrictions and other regulatory changes are certainly up there, but are trumped by the risk of damage to property, especially methamphetamine contamination. These sorts of results suggest that while the RBNZ’s tightening of the LVR lending restrictions is certainly causing wariness amongst property investors that they will not be able to invest on the scale they would prefer to, there appears to be little concern that the restrictions could topple the housing market. With migration set to stay strong and interest rates set to stay low, this is understandable.
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