Multiple property owners with a mortgage accounted for 25% of property purchases in April, continuing their gradual return from a lull in late 2017 and early 2018. Given timing issues, this cannot have been a bounce-back from capital gains tax-related uncertainty; rather a sign that investors still have faith in the prospects for the property market. First home buyers are also holding their ground in terms of market share, especially in the main centres.
CoreLogic Senior Property Economist Kelvin Davidson writes:
CoreLogic’s Buyer Classification figures for April showed a strong return to the market by mortgaged multiple property owners (MPOs) – in other words, investors - with first home buyers (FHBs) also managing to hold their ground last month.
As the first chart (above) shows, mortgaged investors/MPOs increased their share of property purchases nationally from 24% in Q1 as a whole to 25% in April, a level that hasn’t been seen since late 2016 (when investors’ market share was already in decline in the wake of LVR III’s 40% deposit requirement). As an example, Christchurch saw a particularly strong jump in mortgaged investor activity in April (see the second chart).
Of course, we shouldn’t get carried away by a single month of results on its own. However, it’s still worth paying attention to, and suggests that many investors remain confident about the returns they can generate from property, even despite extra costs such as higher insulation standards and the tax ring-fence for losses. Note that April’s figure is not a response to the scrapping of capital gains tax (CGT) either – CGT was abandoned on 17th April, and given the time it takes to settle a property purchase, these figures can’t have been affected to any great degree.
FHBs held their ground too, as they continue to tap KiwiSaver for at least part of their deposit and/or compromise on the property itself (either location or type), hence allowing access to cheaper segments. The Welcome Home Loan scheme will also be successfully assisting some FHBs - about 8% in 2018 - into the market (and it actually also seems to be the template for Australia’s proposed First Home Loan Deposit Scheme). Indeed, although the upwards trend in FHBs’ market share has flattened off, at 23% of purchases in April it’s still a high figure by past standards.
It’s also interesting that FHBs still have a strong presence in the main centres (e.g. see Auckland in the third chart), even though property generally costs more than in regional markets. Our take on this is the same as what BNZ Chief Economist, Tony Alexander pointed out in his coverage of our figures in his weekly article on May 2nd - along with more amenities and activities, the big pull for the main centres is better job opportunities (especially in sectors such as banking, law, financial services).
Speaking of Auckland, we often hear the complaint that local house prices have been pushed up by an influx of equity-rich buyers from our biggest city. This is undoubtedly a factor at certain times and in certain towns/suburbs, and Hamilton is currently one to watch. The fourth chart is a variation of the figures – splitting investors not by cash/mortgage, but by local/Auckland – and it shows that from a trough of 6% in mid-2018, Auckland investors have raised their share of property purchases across Hamilton back up to 10%. It’s well below the figure of 17% in 2015, when investors in Auckland had their own specific LVR rule and were looking further afield, but the upwards trend is one we’ll be keeping an eye on.