Cashing out: ‘A lot of investors who bought last year are in pain’

Landlords are starting to feel the pain and flicking off their investment properties, interviews with real estate agents and mortgage brokers suggest.

One Auckland North Shore agent told OneRoof that investor properties accounted for at least half of his new listings so far this month.

More properties are coming on the market now it’s spring, but many of those are being sold because property owners are feeling the pain of rising interest rates and the tougher tax rules.

Harcourts Glenfield salesperson David Ding said enquiries had picked up considerably compared with a slow August and of his 11 new listings so far this month at least 50% of them were investment properties.

In July, Ding told the OneRoof the majority of people selling during winter were those immigrating to Australia, but in the last month those sellers had been replaced by investors.

“I think a lot of investors who bought last year are in pain,” he said.

“It was 50% (of those listing houses) go to Aussie, now it’s 50% investor to cash out.”

Ding was left speechless two weeks ago after carrying out a rental appraisal for a client who told him he was paying $5800 a month in mortgage repayments through a second-tier lender for a modest property in Glenfield.

He predicted investors would be the first to sell followed by first home buyers.

“More investors are feeling the pain and I think you will see more investors will cash up [exit] at the end of this year and more first home buyers will cash up as well. I don’t think some can hold it that far.”

Ding said mortgages were like “water temperature” and at some point the water would make people uncomfortable and they would jump out.

“I think it’s coming. The water temperature is getting uncomfortable. It’s getting there.”

Property Brokers general manager of property management David Faulkner said they were still losing landlords to sales, but not to the same extent as they did 12 months ago.

“We are still seeing landlords sell and I honestly thought we would hardly see any landlords sell unless it was distress sales so this could be an indication of people coming off your fixed mortgages and going onto higher (interest) rates or they may have just received a tax bill they weren’t expecting.”

Some regions were being hit harder than others with the West Coast losing 100 rental properties due to sales in three years, he said. There were also a significant number of landlords selling in South Waikato, Gisborne, Hawke’s Bay.

Easy Street Mortgages mortgage adviser Gareth Veale: “It can be a bit rough for some people.” Photo / Supplied

Overall, the number of rental properties on Property Broker’s books had lifted, but Faulkner said these were often properties that hadn't sold so were being rented out again.

When house prices reached a certain point, he also expected to see more investors return to the market on the assumption that a new Government would be elected next year and would reverse the interest deductibility rules.

Easy Street Mortgages mortgage adviser Gareth Veale said the main reason investors would look to get out of the market was due to the tax changes and interest deductibility rules which made having an investment property less desirable.

“Remember sometimes in Auckland too, and this is something I hear from a lot of Auckland clients, is that people hold onto their properties when the market is growing, but when the market is turning they kind of look to exit because they know it will be a little bit longer until they see that capital growth again.”

In addition to the market change, the amount of rent people were getting in relation to the value of the property didn’t “make sense for a lot of people in Auckland”, he added.

Veale had been hearing “grizzling” about the ongoing costs to landlords, but so far none of his clients have talked about selling their investment properties.

“If they get good advice, the advice would be this is a momentary thing, it’s not going to be like this forever so if you can weather the storm, you can come out through the other side.”

In Christchurch, where he is based, there were a few properties being sold off that suited first home buyers and he expected to see more being sold off due to the tax advantages to keeping existing properties disappearing.

“It can be a bit rough for some people.”

Valocity senior research analyst Wayne Shum said the number of properties sold based on the number of mortgages deregistered by people who owned multiple properties including investors between the first and second quarter of 2022 had actually dropped slightly.

Shum would not be surprised if investors were gearing up now to sell their houses so they were on the market during the spring time, but said there would be some lag time before these appeared in the mortgage registration data.

“Most people gearing up to sell try not to do it in the depth of winter they try and get it to spring and we are officially in spring now.”