Residential property investment fundamentals remain strong, according to new data.
Bayleys Canterbury residential investment group leader Angela Webb reports
Owning residential real estate in Canterbury for investment purposes still remains a fundamentally sound decision when you look at the figures, according to new data and market analysis out by one of New Zealand’s leading economists, and an independent statistics monitory service.
Residential investment property has always been seen as a hedge against inflation – a dynamic highlighted by a wave of independent real estate data and statistics out in the past couple of weeks. In most cases, the yield – rental return – percentage derived from letting a home will be higher than bank deposit interest rates currently hovering around three percent.
Property transaction monitoring and data analysis firm CoreLogic has reported that there has been an increase in the cashed-up investors purchasing residential real estate assets over the past two months. The buyer group includes investors accessing funds freed up by reshuffling debt on other properties in their portfolio.
CoreLogic has identified that cash buyers with multiple properties were responsible for 14 percent of purchases over April and May – up from a low of nine percent in October last year.
“In an environment where credit is harder to secure, mortgage rates have risen sharply, and some potential ‘bargains’ are starting to emerge, it stands to reason that people with larger equity bases and/or buying with cash would be enjoying the current conditions,” said CoreLogic chief property economist Kelvin Davidson.
Davidson commented that he would not be surprised to see continued strength in the market for investor-classified buyers who usually had a greater equity base behind them, and could take their time when acquiring a real estate asset, and negotiate hard without the fear of losing out.
The Corelogic data also highlighted that mortgaged investors’ overall market share remained stable on 23 percent in May – sitting at a level it had been at for several quarters. The 23 percent figure is a drop from its peak of 29 percent early last year, after the introduction of a 40 percent deposit requirement and the removal of interest deductibility.
While the proportion of investors is lower than it used to be, it was worth noting they have not deserted the property market altogether, Davidson said.
“Almost one in four buyers are still in this category, with some investors clearly able to find enough convincing reasons to buy property, with higher yielding stock and/or newbuilds potentially a target,” he said.
Survey findings in the research show that investor buying intentions remained stable in May – with 25 percent of respondents thinking of buying another property in the next year, a figure up from 24 percent in April.
Meanwhile in his Tony’s View property market update, the real estate economist said that with inflation is running at 6.9 percent and share market jitters globally, residential property investment was the ‘default’ option for many Kiwis and Cantabrians looking for competitive returns.
“With this much uncertainty and risk (in the general economy) it would not be surprising if a large number of people who might otherwise be cautious about prices falling for their investment properties, decide to hold them as an eventual hedge against inflation yet to come,” said Tony Alexander in his June analysis.
“Bank deposit rates won’t rise much. Lack of attractive interest rates acts as a disincentive for investors to sell their properties and place the gained funds in a bank. They might sell and invest in a diversified portfolio of equities. But share markets are wobbly and people’s general plans for buying shares have declined.”
Cantabrians, as do most Kiwis, have a long-standing penchant for investing in ‘bricks and mortar’ – an asset they can literally drive past and see that it’s still there. And you can’t do that with Bitcoin, shares, or part ownership in an on-line artwork.
The residential investment team at Bayleys Canterbury appreciates that everyone’s circumstances and motivations for owning residential investment real estate assets are different, so for any residential property investors looking to exit the market or sell down part of their portfolio, the agency is hosting an Investment Auction Day at its Riccarton offices on August 4.
The Bayleys Canterbury residential property investment team is now taking on listings from residential investment property owners looking at the opportunity of selling in this very targeted event – designed specifically for the investment market.
