ANALYSIS: Every three months I run a survey of investors, which provides insight into where people are placing their spare funds. One of the key things to come out of the survey these past three years has been that people don’t chop and change their asset preferences all that much.
Plenty of people note that although they have concerns about things like geo-politics and recessions, their investment horizon is many years ahead, not just the next two. However, the surveys, which are sponsored by Sharesies, have been useful in identifying some areas where the trend in some asset preferences is up or down.
On average for the past three years a net 11% of respondents said that they will be placing more funds into residential property. That is where the measure stood both one and two years ago. But now a record low 4% say they will buy more property. This downward shift is consistent with results from my other surveys showing a decrease in investor preference for providing rental accommodation.
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Similarly, on average a net 10% of investors have said that they will invest more in commercial property. But that measure now sits also at a record low of 5%. The recession has crimped tenant demand for premises, high interest rates have driven costs upward alongside insurance and rates, and there is a global downward shift underway in valuations of office buildings and many retail premises.
Do these trends mean property is a no-go area now? Definitely not. Property markets go through cycles and those cycles are often tied to the interest rates cycle. Once borrowing costs fall away, it is likely that net demand for property will go back up.
Assisting this demand will be spare funds which investors are building up in their bank accounts currently earning good yields. On average these past three years a net 14% of my survey respondents have said they will place more funds in savings accounts. Now a net 23% are saying that.
Independent Tony Alexander: "Once borrowing costs fall away, it is likely that net demand for property will go back up." Photo / Fiona Goodall
This is interesting because at the same time as people with investable funds are growing their bank balances, households and businesses on average may be reducing theirs. The general consensus in Australia is that extra savings built up during the pandemic have now been used up and in the United States research suggests those extra balances ran out two months ago.
I’m assuming that we’ve probably reached the same point in New Zealand and that is one of the reasons why our retail spending through 2024 will remain so weak. Other reasons include high borrowing costs, falling house construction (less need for furniture, carpet etc), and ending of the pandemic binge when we bought a lot of stuff we might normally be replacing now.
Back on investing matters: when I ask people what they are most concerned about the top ranking currently is being given to geo-politics followed by high interest rates and then returns on their assets. Just over a year ago geo-politics ranked fifth, with top spots going to inflation, recession, then high interest rates.
Of note this time around was the 4% of investors saying they are concerned about interest rates going down, as compared with the 20% concerned about rates being high. Plenty of people are secretly happy that interest rates are high and maybe these are the people filling good restaurants throughout the week at a time when parts of the hospitality sector servicing less well-off and undoubtedly younger people are suffering.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
