The latest CoreLogic Buyer Classification series shows that property investors remained active in October. The figures were possibly boosted by overseas buyers rushing to beat the foreign ban, but they nevertheless still illustrate that extra government regulations in the rental property sector aren’t scaring off landlords anytime yet.
CoreLogic research analyst Kelvin Davidson writes:
The CoreLogic Buyer Classification figures for October are now available and multiple property owners (MPOs) have started the fourth quarter of 2018 in strong form. Indeed, MPOs buying with cash accounted for 14% of property purchases in October and MPOs with a mortgage were 24% (see the first chart, above). The combined total of 38% for MPOs was their highest monthly share for 2018 so far. And this wasn’t just a case of MPOs buying the same number of properties while other buyer groups shied away (which would naturally boost MPOs’ market share), because the raw numbers of purchases by MPOs also increased in October.
So, why might this have happened? It’s important to note that the ‘MPO’ category will include some foreigners. Because the foreign buyer ban passed into law on 22nd October, one potential explanation for the increase in MPOs’ activity is that some investors without citizenship or a residency visa were rushing in over the first three weeks of the month to beat the ban. If so, the MPO numbers may well reduce over the next few months. Even if that does happen; the underlying trend still shows that investors are fairly active in the market. At face value, that might seem surprising given recent government interventions - increased tenant rights, Brightline Test extension, looming tax ring-fencing of rental losses, potential capital gains/income tax, which had the potential to make the property market less attractive for investors.
The answer as to why it hasn’t could be down to other factors at play. For a start, alternative options may be thin on the ground for the average “mum and dad” investor, especially with term deposit rates so low. Also, as BNZ’s Chief Economist Tony Alexander has pointed out - the extra measures and costs don’t scupper an investment plan altogether; they just mean that the landlord will probably now have to hold onto properties for another year or two to achieve the return they wanted.
October meant different things to the other buyer groups in the classification series, with the flipside of a higher percentage share for MPOs being lower shares for both movers and first home buyers. In the case of FHBs, it wasn’t much to be concerned about though: their raw number of purchases held up OK (2,084 this October vs 2,095 a year ago). For movers however, October was very clearly a weaker month - especially in the Wellington region (see the second chart, below), namely Wellington City and Lower Hutt. Parts of Auckland (Central, North Shore) were also slow markets for movers in October. Generally speaking, although mortgage rates are low, the tight criteria to secure a larger mortgage to allow the next move up the property ladder may be one factor keeping existing owner-occupiers where they are. Other factors might include affordability problems or just general uncertainty about the market outlook.
As a final point, it will be interesting to see if the spike in MPOs’ activity in October flows through to the Statistics NZ series on foreign activity in the property market. The Q3 data which was recently released (see the third chart, below) showed that activity has already been waning from its peak early in the year. If it was indeed foreign buyers driving up MPO activity in October, our figures suggest there could be a ‘last hurrah’ in the Q4 Stats NZ data (due out in 8th February next year). Then once the foreign buyer ban takes full effect, they’ll of course fall away in 2019.