Faint signs of life from property market investors

Thursday, 24 October 2024

Early signs of investors returning to the housing market could mean that mum and dad investors are showing more confidence in property.

CoreLogic’s monthly housing data for September shows mortgaged multiple property owners have made a tentative return, making up 22.6% of all property purchases ‒ up from the record low seen exactly a year ago of 20.4%.

CoreLogic NZ chief property economist Kelvin Davidson said it was the highest seen since around the middle of 2022.

He said while the share of purchases going to mortgaged multiple property owners, which included investors, was still low by historical standards, there have been hints over the past quarter that there was renewed interest.

Davidson said it was likely to reflect lower mortgage rates which were reducing the required cashflow top-ups on a typical rental property purchase.

Meanwhile gross rental yields have trended higher, although slowly, as values have weakened and rents have risen.

Auckland and Wellington City rental yields were in the 3%-3.5% range, with Hamilton and Tauranga closer to 4%, and Christchurch and Dunedin a bit above 4%.

Davidson said that was up from a floor of 2.8% in late 2021 with a national figure of 3.9%.

“Even though rental yields have trended higher, they’re still quite low compared to mortgage rates, so no doubt some would-be property investors are watching and waiting for interest rates to start falling to an even more favourable level,” added Davidson.

He predicted investors would be the buyers to watch in 2025.

“We estimate that a ‘typical’ mortgage rate of around 5.5% could start to entice growing numbers of investors back to the market, but that’s also potentially a rate at which debt to income ratio limits start to have a more noticeable impact. It remains to be seen what the net impact will be.”

CoreLogic’s Home Value Index fell by a further 0.5% in September, the seventh decline in a row.

Auckland fell again in September, and alongside Wellington, it has seen values drop by more than 3% since June.

Wellington saw the largest decline of median values of all the main centres with a 23% drop.

Property sales activity increased by around 8% in September compared with the same month a year ago.

First home buyers remained a solid presence in the market, with a 26% share of property purchases in September

Investors were also looking at investing in sustainable buildings and initiatives, data from Westpac NZ shows.

Westpac has provided more than $440m through its Sustainable Business Loan to support property projects being built sustainably or delivering positive environmental or community outcomes.

One of the customers which has used the loan to fund investment is Wellington’s Nightingale Group, which recently built a 72-unit development in Wellington leased to Wellington City Council to provide rental units to those who qualify under the council’s Te Kāinga affordable rental programme.

Westpac provided a loan to support the long-term investment for the development, in recognition of the social and environmental outcomes delivered by the project.

“Building homes that are warm, dry and energy efficient is obviously the right thing to do, but it also makes good business sense,” Nightingale Group managing director Simon Nightingale said.

“Properties built to a high environmental standard are more energy efficient and healthy for people to live in, making them ultimately more appealing to both tenants and landlords.”