The share of property purchases made by mortgaged investors has recently risen back to 26% nationally, the highest since just prior to the introduction of a 40% deposit for this group (LVR III in October 2016). Auckland has been a key part of the upturn from investors, even though this is where rental yields are lowest. Of course, when you consider that property values have fallen recently across Auckland (e.g. by about $36,500 from the peak in Auckland City central area), some investors are clearly sensing bargains.
CoreLogic Senior Property Economist Kelvin Davidson writes:
The key highlight from the latest CoreLogic Buyer Classification figures is the continued resurgence in market share for mortgaged multiple property owners (MPOs, or ‘investors’). Over July and August, they have accounted for 26% of residential property purchases across NZ, as shown in the first chart. This is the highest share since the third quarter of 2016 (28%), which was the zenith for investors before the Reserve Bank introduced the third round of LVRs and required a 40% deposit.
The recent bounce-back for investors is evident around most of the main centres, including Hamilton, Tauranga, Christchurch and Dunedin (although first home buyers are still the big story in Wellington). But given that property prices are highest and gross rental yields are lowest in Auckland, the renaissance here is perhaps of most interest. As the second chart shows, mortgaged MPOs have increased their market share from 25% in the first six months of the year up to 28% now – and have again overtaken first home buyers (26%). It’s also still the MPO 2’s that are driving the upturn in Auckland, commonly known as ‘mum and dad’ investors (note that the third chart does not break down the data by mortgaged or cash).
In addition, most parts of Auckland have contributed, including Manukau and Papakura (although Waitakere for example is still currently a pretty hot market for first home buyers). However, the biggest influence has come from the large Auckland City market, where the share for mortgaged investors has actually been rising since early last year (see the fourth chart), and has now hit 30%.
At first glance, the rise in investor activity in Auckland may look surprising, given that gross rental yields across the super-city as a whole are pretty low (2.7% versus 3.3% nationally), and even lower in the Auckland City central area (2.2%). However, as we noted last month*, investor activity everywhere across the country will have received a boost from the scrapping of the capital gains tax proposals, and the low returns on offer from other assets (e.g. term deposits) may also be seeing some money re-diverted back towards property.
And then on top of that, an additional factor in Auckland specifically is that falling property values will also of course have grabbed the attention of some investors, looking to bag a potential bargain in a buyer’s market. In the Auckland City area, for example, average property values have dropped by 2.9% from their peak in June last year, equating to about $36,500. That’s likely to have been enough of a fall in price to make the economics stack up for some investors. Certainly, as we highlighted in our latest ‘Pain & Gain’ report**, apartments owned for less than three years in Auckland have recently been struggling when it comes to achieving resale profits, so this segment could be where some investors buying into the market in recent months have been sensing opportunities.
Bottom line, first home buyers have generally been the key group of interest for the past year or two. But this now seems to be changing slightly, and investors may well be the hot topic for 2020.