The ANZ Bank and the New Zealand Property Investors’ Federation
(NZPIF) have released the results of their annual property investors’ survey.
The key findings are:
• Investor confidence is high. A net 69% of respondents are
to buy more property and nearly 25% expect to buy within the next 12 months.
• 60% of respondents believe prices will rise by more than
6% over the year (up from 51% last year).
• Regions in the North Island outside of Auckland are
expected to have the highest growth in house prices.
• Tenants damaging their property is now the greatest
concern for landlords with 54% listing it as their number one problem,
overtaking government regulation which was the greatest concern last year. This
is due to increased risks regarding methamphetamine contamination which 38% of
respondents saying it was their number one concern.
More generally, the ANZ have some cautionary comments about
prices. They say,
“House sales are down nearly 10% versus a year ago and
houses are taking longer to sell (though the market is still incredibly tight).
Typically, house prices follow sales with a 3-6 month lag. House price
inflation is already easing and we expect it to continue to do so. Given this,
investors’ house price expectations look overcooked.”
In other words, investors are being too exuberant about
their expectations.
They also point to the average number of days it takes to
sell a property. They say,
“Nationally, the median time to sell a house rose by 3.3
days in September to 33.3 days. While this is still well below the historical
average of 38 days, it is an eight month high and does suggest that while
weaker sales activity is in part due to a lack of supply, softer demand may
also now be contributing.”
The median days to sell have risen most dramatically in
Auckland, where prices have already started to cool.
It also appears as though the Loan Value Ratio regulations
introduced by the Reserve Bank are starting to take effect. The ANZ says,
“Nearly a third of investors say that the restrictions have
impacted on their strategy in the past 12 months (versus 16% the year before),
and nearly half of these investors said they have not bought a property they
would otherwise have done. Nearly 30% say they are less likely to buy another
property in the next 12 months than they would have been otherwise.”
Having said that, there remain a great number of positive
impacts on the housing market so while some investors have had their wings
clipped, they think property prices will continue to rise.
On the interest rate front, the ANZ expect a cut in the
Official Cash Rate in November, but they do not expect this to have any impact
on fixed term mortgage rates. Their preference remains 1 and 2 year fixed rate
terms, but very conservative investors may consider the longer terms. They say,
“We believe longer-term rates are at their respective cycle
lows too. At face value this suggests that there is value in considering them.
Despite their increased cost, they do offer more certainty. From a pure cost perspective,
we prefer the 1 and 2 year, but equally, we recognise that some borrowers may
value certainty beyond that.”
In my view the one and two year terms make the most sense at
present.
Looking at all of that information, one can’t help but get
the sense that the heat is starting to come off the property market a little –
but it’s more like turning an element on the stove down from a hot boil to
moderate boil.
By all accounts, 2017 should be a good year for property
investors. There are lots of positives: high immigration, low interest rates, a
strong local economy, and a high level of confidence generally. 2017 is an
election year and the government’s books are looking better than the Treasury
had forecast. So its quite likely that next year’s budget will have some good
news in the form of tax cuts – quite possibly a cut in the corporate tax rate
from 28% to 25% and an adjustment to personal income tax rates.
The high level of confidence in the property market may well
dissolve towards the end of next year as the reality of a general election
looms and attention turns to the likelihood that NZ First will hold the balance
of power and the uncertainties that would bring.
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