March was the third month in a row that mortgaged investors had a market share of 29%, or in other words it has been a sustained ‘record’ peak for their property purchasing activity. However, the recent policy changes to make buying existing properties less attractive, as well as the reinstatement of 40% deposits, suggests that investors’ market share will dip over the coming months. If so, the Reserve Bank’s job will have been made a little easier – for example, the need to restrict interest-only lending has probably lessened.
March was the third month in a row that the share of purchases across the NZ housing market made by mortgaged multiple property owners (MPOs or investors) was 29% - meaning of course that Q1’s figure as a whole was the same, and a record high (see the first chart). And when you add in cash MPOs (12%), there’s a pretty clear illustration of the role that investors have been playing in recent months.
NZ % of property purchases (Source: CoreLogic)
The high market share for investors has been seen in many parts of the country, including all the main centres, but most notably Hamilton. In Q2 last year, mortgaged investors had a 30% share of purchases in that market, but now it’s 39% (see the second chart).
Hamilton % property purchases (Source: CoreLogic)
As we’ve discussed before, a lot of the rise in mortgaged investors’ market share has recently been driven by those who have just made their first rental purchase (i.e. now own two properties, or MPO 2), or are buying their second or third (MPO 3-4) – combined, these two groups accounted for 16% of all property purchases in the first quarter (see the third chart). We suspect these smaller players will have had the strongest incentive to get their savings out of term deposits and borrow to invest.
Mortgaged investor % share of purchases by number of properties owned (Source: CoreLogic)
Meanwhile, although first home buyers (FHBs) are still faring relatively well in terms of their number of purchases, the market share has dipped in the past few months – as the first chart also shows, from 25% in Q3 2020 to 21% now. This hints that they are starting to struggle to keep pace with those investors, which isn’t surprising when you consider the strength of value gains in the past 6-9 months and what that means for saving the deposit.
As the fourth chart shows, FHBs who managed to make a purchase in March paid a median price ($650,000) that was $100,000 more than a year ago – requiring an extra $20,000 on the deposit.
Annual $ change in median price paid by first home buyers (Source: CoreLogic)
Of course, in late March the Government drew a line in the sand and via the removal of interest deductibility has made it less profitable for leveraged investors to buy existing properties (and encouraged them towards new-builds). In addition, the loan to value ratio rules have been reinstated and 40% deposits are officially required for investors from 1st May, although banks have already moved in advance of that timeframe.
Inertia in the system may mean that any effects take time to show through in the data, but from about June onwards we’d be anticipating that the Buyer Classification figures will be showing a drop for mortgaged investors’ market share. Certainly, that occurred from late 2016 and into 2017, which was the last time investors required a 40% deposit. The million dollar question is whether or not cash-rich investors and owner-occupiers will replace mortgaged investors ‘one for one’ when it comes to purchasing existing properties – our sense is that they probably will, but we’ll be watching pretty closely for any divergence in price trends between existing and new-builds.