1. Tough conditions for new investment purchases
Despite the challenges out there for landlords at present, there’s no real evidence of investors looking to sell their existing holdings to any great degree. Of course, some will be “locked in” by a desire to avoid paying capital gains tax (under the Brightline Test). However, purchasing activity by mortgaged investors has certainly softened, and the CoreLogic Buyer Classification data shows that this pull-back has come right across the size spectrum. No doubt the (rising) cash top-ups that are often required out of other income to bridge the gap between rents and total costs will be deterring some would-be investors at present, but the “Mums and Dads” may also be eying up the risk-free higher returns now available on term deposits too.
2. At least a brain gain might help a bit
More encouragingly for property investors hoping for a rise in overall demand and maybe a bit more scope to increase rents, the net migration trend seems to be turning around. Sure, when we get Stats NZ’s release of the October figures this week, it wouldn’t be a surprise to see the net balance (arrivals minus departures) for NZ citizens remain negative, as people still look to head overseas for their OE, or sometimes more pay. But the past few months have also seen the non-citizen balance pick up quite strongly, as more new migrants look to relocate here – and this inflow has been enough to outweigh the weak NZ citizen balance lately, leaving our overall total in positive territory. This will probably be shown again in October’s figures, and it certainly looks like 2023 will be a year of steady and positive net migration, bolstering property demand.
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3. Rents still subdued for now though
Of course, that’s a potential story for next year; right now, rental conditions are moving in favour of tenants. Indeed, since around March/April, rents have really flattened off, and the latest refresh of the figures from Stats NZ for November (due Tuesday) is likely to show more of the same. The reduced ability to raise rents adds to the current headaches for a lot of landlords, although it’s also important to note that many investors I speak to actually choose to keep rents unchanged for many years anyway, as they value a good tenant and know the financial hit that can result from an extended vacant period.
CoreLogic chief economist Kelvin Davidson: "Higher mortgage rates and a weak economy is clearly not a favourable combination for the property market." Photo / Peter Meecham
4. It’s GDP time again too
Also due this week are the official Q3 GDP figures from Stats NZ on Thursday, and as always, these will generate plenty of interest – likely to show an economy that was still ticking over fairly well between July and September. But of course, that’s “old news”, with all the focus now on the rising risk of a prolonged (albeit relatively mild) recession next year. Higher mortgage rates and a weak economy is clearly not a favourable combination for the property market.
5. Poor old Wellington
We’ve recently looked deeply into suburb-level data for our annual Best of the Best Report, due out this week, and it’s really highlighted the plight of Wellington’s housing market this year – not great for existing owners, but of course beneficial for would-be first home buyers. Of 92 suburbs across Wellington City, Lower Hutt, Upper Hutt, and Porirua, the ‘best’ area has been Ascot Park, with a 6.3% decline in median property values over the past 12 months. In other words, all suburbs have seen falls to some degree. More than half of the suburbs (58) have actually seen values drop by at least 15%, with Fairfield, Avalon, and Normandale (all in Lower Hutt) dropping by about 20%.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
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