Based on percentage, the trend for mortgaged investors’ market share of property purchases remains upwards around many parts of NZ (and they’re also making more purchases by number too). At the same time, there are signs of fatigue creep amongst first home buyers (FHBs) in areas such as Wellington City, Palmerston North, and Invercargill. While investors may not necessarily have pushed out FHBs in those areas (i.e. it’s correlation rather than causation), strong price pressures have nevertheless reduced affordability for would-be buyers – presumably a growing concern for central and local government.

NZ % share of purchase
NZ % share of purchases (Source: CoreLogic)

CoreLogic Senior Property Economist Kelvin Davidson writes:

The CoreLogic Buyer Classification figures for January 2020 showed a continuation of the general trends from the second half of 2019. The national share of property purchases made by first home buyers (FHBs) held at around a steady 24% in January, while movers’ market share stayed relatively subdued (although did edge up a little to start the year). Meanwhile, the share of purchases accounted for by mortgaged multiple property owners (MPOs, or investors) rose further, and sits at 25% (see the first chart). The resurgence in investors’ purchases, both by number and % of market share was the leading story for late 2019, and it’s now continuing to roll on into 2020.

2
NZ % share of purchases by mortgaged investors, split by properties owned (Source: CoreLogic)

The rebound for mortgaged investors continues to be driven by those who (after their latest purchase) own two (MPO 2) or 3-4 properties (MPO 3-4) – see the second chart. Generally, for an MPO 2, for example, this would be the house they live in and one rental property. As we’ve outlined many times before, it’s not hard to see why these smaller players, or the ‘Mum and Dad’ investors, have begun to target property again – these factors include the scrapping of capital gains tax proposals and low/falling returns on other low-risk assets such as term deposits.

3
Dunedin % share of purchases (Source: CoreLogic)

Amongst the markets where mortgaged investors have been the strongest to return, Dunedin is a stand out. In January, this group accounted for 30% of property purchases, the highest share on record (see the third chart). No doubt many of these investors will have been attracted by the strongly rising property values in Dunedin and the allure of (potential) further capital gains, alongside relatively high gross rental yields – 4.0% versus 3.2% nationally.

4
Buyer type % share of purchases (Source: CoreLogic)

Even with values rising quickly, FHBs have also managed a decent market share in Dunedin lately, but there are other parts of the country where the rise in mortgaged investors’ market share has coincided with a drop for FHBs – this includes (but not limited to) Invercargill, Wellington City, and Palmerston North. As the fourth chart shows, Invercargill especially has seen a sharp rise in the presence of mortgaged investors lately.

To be clear, we’re not saying that investors have necessarily pushed out FHBs in these markets. However, there’s no doubt that property values have recently risen strongly in Invercargill, Palmerston North and Wellington, and the associated reduction in affordability (even though mortgage interest rates have been falling) will have made things a lot harder for some would-be buyers.

Indeed, housing affordability will almost certainly be a big election issue and so the government (as well as local council authorities) may not be entirely happy to see these investor and FHB patterns in the Buyer Classification series. We’ll be watching closely to see how all of this evolves as the year progresses.