ANALYSIS: Each month I survey existing residential property investors alongside Crockers Property Management to get a feel as to what they are seeing and intending to do with their properties. Over the past year there have been some substantial changes in key dynamics in the sector and here are a few of them.
First, good tenants are now a lot harder to find than before. At this time last year a strong net 24% of landlords reported that they were finding it easy to secure good tenants. Now, a record net 22% say that finding such people is hard.
The availability of good tenants has probably been affected by the sharp easing in net migration flows underway since December, and perhaps by the high proportion of house purchases now being made by first-home buyers.
Responding to the relative shortage of desired tenants, landlords are becoming less willing to raise their rents. A year ago 82% said they planned rent increases in the coming year. That is now down to a four-year low of 63%.
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Compared with a year ago there hasn’t been all that much of a change in the proportion of investors saying they are looking to sell in the coming year – around 30%. But if we go back to early 2023 that proportion sat as low as 20%. It looks like the surge in first-home buying over the first half of 2023 encouraged more investors to consider selling their properties and this may account especially for the rush of fresh listings over January and February this year.
My suspicion is that a lot of these sellers are older investors looking to fund their now more expensive retirement and get away from higher expenses of holding a rental property in the form of council rates and insurance.
For those investors looking to make another purchase or refinance their existing mortgage, the news from the banks is getting more positive. A record net 10% of investors have just reported that they are finding it easier to get credit from their lender. A year ago a net 12% said banks were getting meaner and early in 2022 just after the credit crunch was imposed by the government and Reserve Bank this proportion peaked at 60%.
But despite this improving access to credit, a record low of 11% of landlords looking to make a purchase say they will undertake the development themselves. A year ago 17% favoured this do-it-yourself option and late in 2021 this was 25%. For builders this represents bad news only slightly offset by 24% of those looking to buy who say they will purchase an already built new house.
Independent economist Tony Alexander: "My suspicion is that a lot of these sellers are older investors looking to fund their now more expensive retirement." Photo / Fiona Goodall
Finally, there are some shifts underway in the things which investors are most worried about. Hikes in council rates and insurance continue to rank top of the list of concerns. But falling house prices are becoming less of a worry along with interest rates.
Speaking of which, now that mortgage rates are falling people are newly focused on the question of when the time is likely to be right to stop fixing for six to 12 months and instead lock in a three- to five-year rate to limit exposure to the next upward phase of the interest rates cycle.
History tells us that all rates roughly bottom out at the same time. With the Reserve Bank predicting that the low-point for their Official Cash Rate will probably arrive in the latter part of 2026 we are still some two years away from the time when people will be faced with the tough decision to forsake short-term fixing for the certainty of a longer rate.
History then also tells us this. Most people won’t fix long, they’ll continue to roll for short periods out to two years.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
