1. The investor landscape is still testing
I’ve recently been researching the current state of play for mortgaged property investors. The challenges in the market are not hard to find, and include low gross rental yields, higher mortgage rates – and the associated top-ups that are required out of other income – higher compliance costs, 40% deposits, and the removal of interest deductibility. It’s important to note that existing landlords aren’t selling in abnormally large numbers, and of course, new purchases by mortgaged investors haven’t disappeared altogether. But it’s certainly harder to get the sums to work on your first/additional purchase, especially when weighing up the real cash cost of top-ups versus the less-certain prospect of capital gains (on paper) in the near term.
2. Market shares stayed pretty steady in January
The early indications from the CoreLogic Buyer Classification data are that first home buyers held a strong 25% market share in January, while cash multiple property owners (including investors) were pretty steady too, at around 14% of activity. Movers, i.e. relocating owner-occupiers, had a slightly busier month in terms of market share, but given the challenges they face, it was no surprise to see that mortgaged investors remained pretty quiet, at around 20% of activity. That’s still one in every five deals, but remember that the number of deals itself (across all buyer groups) is low, and at times in the past, mortgaged investors have accounted for as much as 28% of activity.
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3. Rents flat again?
An extra challenge for landlords – but great for tenants – is that rents have largely flattened off since April last year. This week Stats NZ will update us with the figures for January, and it seems pretty likely that we’ll see more of the same – i.e. flat rents (as measured by new bonds lodged). One thing to keep an eye on here, however, is the net migration balance ….
CoreLogic chief economist Kelvin Davidson says the net migration figures could be good news for landlords in the country’s major metros. Photo / Peter Meecham
4. Migration improving?
The net migration balance has turned around pretty sharply in recent months, and on a 12-month basis is now positive again – i.e. boosting our population and adding to aggregate property demand. I suspect that December’s figures, which are due from Stats NZ this week, will continue that trend, with net new migrants to the country outweighing the net departures by NZ citizens. One specific angle for property is that new migrants tend to go to the main centres first (e.g. Auckland) and may well rent for a start too. That could be a bright spot for big-city landlords over the coming months.
5. High debt to income lending probably down again
And finally for the week, come 3pm Friday, the Reserve Bank will give us its latest update on mortgage lending broken down by debt to income ratio (DTI). This is a really important dataset at present, given their moves towards imposing formal DTI caps in early 2024 – perhaps at seven, regardless of borrower type, but with exemptions for new-builds and a speed limit allowance a la the current LVR system.
Recently, high DTI lending has slowed naturally, given that higher mortgage rates restrict how much debt can be serviced from a given income, and it seems likely that this will have been the case again from October to December (the months due to be released). It’s a key indicator to watch, especially as regards the investor landscape, as they tend to take out high DTI loans more often.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
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