The value of real-time data right now is at an all-time premium.
Here at CoreLogic we’ve already rolled out the ‘Early Market Indicators’ report to track both pre-listing, and pre-mortgage activity, which will be of incredible interest as we move down through the levels (hopefully swiftly) and real estate activity starts to come back from its lock-down enforced slumber.
But to add to that it’s great to get a bit more colour and sentiment from the market, by way of surveys focussed on specific market segments.
Given the role investors play in our property market, they are an important group to gauge sentiment, as we navigate one of the most uncertain periods of our lives.
Based on CoreLogic’s Buyer Classification data, in the first quarter of 2020, multiple property owners accounted for 38% of all residential property sales nationwide. This is the highest share of sales to this group since the end of 2016. Clearly investors continued to see value in the market – and understandably so, as rental yields strengthened and future capital gain looked likely.
But the question now is how active will investors remain across the residential housing market? The outlook for home values and rents is much less positive, so will they continue to invest in NZs largest asset class (by far), or look elsewhere?
With the help of Auckland Property Investors Association (APIA), we put together and sent out an investor’s survey (from 8-17 April) to their members and other contacts in the industry. Here are the results, from 272 responses:
Firstly we need to acknowledge the type of investor who answered the survey;
- More than half (53%) of the respondents owned four or more investment properties.
- 70% had been in the property market for at least 5 years, with 47% more than 10 years.
- Only 6 percent were new entrants (investing for less than a year).
From a strategy perspective:
- The majority (55%) had a ‘buy and hold’ strategy;
- with almost half of those adding value to the property along the way
- while a further 28% were dependent on the situation
- None were ‘flippers’ (buying and reselling for a quick return)
- Leaving 17% buying for capital gain.
So the sample we’re analysing are generally well engaged, experienced, with substantial exposure to the asset class, and looking long term.
And let’s cover of a few other high level insights before getting into the meaty stuff;
- While the survey was run through the Auckland Association, ‘only’ 55% of respondents were based in Auckland.
- 58% were a member of their local association, suggesting scope for more member recruitment.
- One third owned at least one investment property outside the city they were based.
- A huge majority (82%) preferred investing in houses (over townhouses or apartments).
- Over half effectively only invested in property, with only 4% having the majority of their wealth outside of property.
But what we really wanted to understand was the impact of COVID-19, and perhaps the good news for the property market was that many were unfazed, with the majority of respondents (65%) saying they were staying the course they were already on. This includes a total of 21% of respondents who were looking to buy prior to lock-down, and were sticking to that plan ‘on the other side’. Almost the same number of respondents (18%) had either put off the decision to purchase, while a small amount (2%) actually decided to sell now.
Meanwhile, a total of 6% of respondents were previously going to do nothing, but are now looking at what opportunities arise to buy.
On the flip side, COVID-19 has only caused 2% of investors surveyed to sell who otherwise weren’t going to, but this is countered by 7% of respondents who were going to sell, but will now hold on (maybe due to expectations of the market dropping in the short term).
Perhaps the key insight from this, has to be that we’re not expecting a large proportion of experienced investors to reduce their portfolio, despite a negative outlook in the short term. Only 7% of the survey participants are looking to sell a property, while 27% are looking to buy. That’s a pretty clear sign of confidence.
From a rent perspective, only 16% had provided some form of discount, while a further 17% said rental discounts were considered on a case-by-case basis.
Only 12% said they would not even consider modifying the rent they charge if they were approached.
My interpretation of this would be that once again, many have the long term in mind, and they probably have their finances in control to the point where they can weather a period of reduced rental income, for the sake of retaining a tenant long term.
From a lending perspective, not many (27%) had recently (since the beginning of March) spoken to their bank. For those that had, most had found that credit availability hadn’t changed at all (13%) or had tightened (10%).
Interestingly, when it came to the requirement to have a 30% deposit for a new purchase, most respondents (54%) said it wasn’t always the case for them. This contradicts RBNZ data which shows very few loans are provided with less than a 30% deposit, so perhaps indicates the savviness of these investors (who may use other mortgage providers, and/or be using the exemptions within the limits). It may also reflect the length of time they’ve been ‘in the game’ and may not represent recent experiences. It could also provide an insight into the mind-set of investors who can leverage other properties for the 30% security required for a new purchase, but may not view this technically as a deposit.
Either way, it makes you wonder about the impact of temporarily removing the LVR limits (as the RBNZ has proposed), if some investors tend to find a way around them when they want to anyway.
Overall this paints a relatively positive position from experienced property investors. They know not to act at the whim of uncertainty, but to focus on the fundamentals and ensure their finance is consistently well structured. This ensures they’re not acting around the margins of profitability and are able to withstand a period of reduced income (or potentially increased costs).