After the strength of first home buyers in 2017-18, the main story in the CoreLogic Buyer Classification data in the past few months has been the comeback by mortgaged investors. Due to factors such as low returns on other assets (e.g. term deposits) and eased serviceability testing by the banks, investors have raised their market share in many parts of the country and across various tiers of property. Conditions seem favourable for investors’ presence to remain strong in 2020.
Another month of data for the CoreLogic Buyer Classification series and another rise for mortgaged investors. Indeed, with the market share for first home buyers (FHBs) flat at 24% in October, and movers sliding down further, the comeback for mortgaged investors (multiple property owners/MPOs) has simply rolled on. At 26%, their share of purchases in October is now back within a couple of percentage points of the previous peaks seen prior to the third round of loan-to-value (LVR) rule changes* (see the first chart). It’s not just a rise in % market share either; the number of purchases by mortgaged investors has risen too.
The return of mortgaged investors has been pretty broad-based across the country. For example, in each of the main centres, the share of purchases going to this group of buyers is currently at least 2-3% points higher than a year ago – and far more than that in Dunedin (see the second chart). Indeed, not only has the rise in mortgaged investors’ market share in Dunedin been stark over the past year, but the level (30%) is now higher than at any time in the last 15 years.
Mortgaged investors have also raised their share of purchases across a wide range of value bands, from the lowest bracket of properties right up to the top end of the market. The third chart splits Buyer Classification into three ‘buckets’ by value – the bottom 30% (left-hand panel), the middle 40%, and the top 30% (right-hand panel). As you can see, the market share for mortgaged investors has historically tended to be highest at the lower end of the market, presumably because this is where gross yields are generally the highest. However, the more important thing here is the strong rise in market share across all the value buckets (see circled areas).
Finally, it remains the smaller players that have boosted investors’ overall presence. The fourth chart doesn’t distinguish between mortgaged or cash purchases, but it clearly shows where the rebound for investors has come from – it’s the people with two or 3-4 properties (after their latest purchase), commonly referred to as the ‘Mums and Dads’. It looks pretty clear that the drop in returns on other assets (e.g. term deposits) and also the scrapping of the capital gains tax proposals (back in April) have given these smaller players a bigger shot of confidence than other investors. Indeed, at 13% and 12% respectively in October, the share of purchases by the MPO 2 and MPO 3-4 groups are pretty much at record highs.
Overall, the figures are showing that mortgaged investors have developed a taste for property again. In addition to the factors noted above (low term deposit returns, CGT scrapping), the easing of the internal serviceability rates by the banks also seems to have played a key role in unlocking some investor demand (and therefore also suggests that the tighter serviceability tests were previously hindering investors more than other buyer types). In our view, we may well have shifted into the ‘year of the investor’.