Deposits 'more certain' than property

Term deposits a more popular investment than rental property, ASB survey shows

9th Nov 10, 1:13pm by Gareth Vaughan

Term deposits have pulled well ahead of rental property as the most popular form of investment, according to ASB's third quarter investor confidence survey.

ASB says 20% of respondents now view term deposits as providing the best return ahead of rental property and bank savings accounts, which came in second equal with both registering 14% support.

Since the ASB survey began in the first quarter of 2006, term deposits have only ever scored higher, 21%, in the third quarter of 2008. The highest support registered for any asset class was 22%, for three consecutive quarters for rental property in 2007.

“Before the financial crisis, term deposits languished well below rental property as the investment that offered the best returns," said Jonathan Beale, ASB's acting general manager of private banking and wealth management.

"However, over the past two years the two investment classes have had more mixed fortunes. Intense competition in the market for term deposits is also likely to be having an upward impact.”

The major banks are aggressively chasing retail term deposit money given the Reserve Bank’s introduction of the core funding ratio (CFR) on April 1. The CFR sets out that banks must source at least 65% of their funding from retail sources and bonds with durations of at least one year. The central bank wants to increase the CFR to 75% by mid-2012 to offset New Zealand banks previous reliance on international wholesale, or 'hot' money, markets.

Based on the banks latest general disclosure statements, covering the three months to June, ASB grew its term deposits by more than any of the other banks, adding about NZ$400 million.

See all bank one to nine month term deposit rates here and see all bank one to five year term deposit rates here.

Meanwhile, Beale said support for rental property remained at its lowest level since late 2002, indicating investors might be opting for "more certainty" in their investment choices.

“Last quarter we saw rental property drop three points in popularity to 14% following the (Budget) changes to tax on property," said Beale.

"Property prices also remain flat across much of the country so investors may well be feeling cautious about the returns offered in the post-recession housing market.”

In terms of other forms of investment surveyed, support for managed investments rose to 11% from 10%, KiwiSaver was unchanged at 9% and support for shares in public companies fell to 5% from 8%.

Investor confidence II

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Source: ASB

(Update adds chart).

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26 Comments

by Wolly | 9th Nov 10, 3:01pm 1289268118

"support for shares in public companies fell to 5% from 8%".....goodness what could have caused this!

by A Gullible Prat | 9th Nov 10, 4:25pm 1289273104

I completely trust NZ business people to do the best for their shareholders and the rest of NZ!

by dug | 9th Nov 10, 4:50pm 1289274623

I trust them too, (thats a tui's)

by SK | 9th Nov 10, 5:02pm 1289275331

Fear is the sentiment du jour, this will not last - confidence and then greed will return.

Human nature does not change.

The rental property juggernaught will continue onwards and upwards.

by muzza | 9th Nov 10, 10:20pm 1289294427

Those who have mortgage free properties to rent in good location of a growth area will do pretty good , no point in having too much just sitting in a bank (unless you are an older person who can't take any risks)

by amalgam | 10th Nov 10, 6:09am 1289322573

Just keep telling yourself that and perhaps you'll be alright. Pretend the bubble hasn't burst and that "house prices will go up forever!" and "only mugs rent"...

by Wayne | 10th Nov 10, 8:09am 1289329764

While I can see why people would want to put their money into term deposits (the risk/return ratio is very good at present), I can't understand why ASB reports that most respondents to their survey thought t/d's provided the best return for their money. Investment grade bonds surely would beat them hands down? While we have some t/d's, most of our money is still earning 7.75 - 9.66% with solid institutions like BNZ, ANZ, Telecom, Kiwibank, Fonterra, Rabobank, Meridian and Genesis. Sure, most of these bonds were bought when interest rates were higher, but there are still good deals out there. And besides the extra 2-4% return, you have the advantage of liquidity. But of course, ASB wouldn't want to be encouraging that, would they?

by boofta | 10th Nov 10, 10:04am 1289336640

Cmon get real. Whilst there has been a noticeable downturn in investor (housing) confidence with people supposedly choosing to put their hard earned cash into more traditional forms of investment, this will be short lived. Yes the property market is experiencing a downturn, but factually it cannot be denied that over a longer period the returns are greater than that offered by any bank. Even with the recent changes to taxation laws, property values will continue to surge ahead in time, not only because it offers significant returns to investors, but because we all strive to own our "slice of heaven" in paradise. But is it?

churr churr

by muzza | 10th Nov 10, 1:14pm 1289348096

Doesn't matter if property prices go down if you have little mortgage to service and getting a rental income. A property price is just something on paper until you need to sell. However, it's true no owner wants the value to drop below what they bought it for. It you bought by 2005 in a growth area it probably won't crash to 2004 prices. But if prices do crash the hardest hit will be homeowners who can't get any return on their place.

by Chairman Moa | 10th Nov 10, 3:52pm 1289357560

I agree.

Some readers in this website is praying for property price to drop by some massive amount - like 30-40%. If that is the case the whole economy will go into a tail spin and could default the whole country. I only own my own home with modest amount of mortage - I myself will see property will remain flat for another 3-5 years, can't see if it will drop 30% as per some predictions here. But then I live in central Auckland, it's an different market in itself...

by Nicholas Arrand | 10th Nov 10, 4:21pm 1289359317

You know. I'd bet a penny to a punt ( or Euro, as it is!) that the Irish said pretty much the same as your comments in 2007, 2008 even...Nobody expects the economy to collapse, here or Aussie. So it just might.....And have a look at Dublin, 'the Auckland of Ireland', if you want to see the future. But they had different circumstances to NZ, didn't they? Different, yes. Unique, no.

by SK | 10th Nov 10, 4:51pm 1289361112

Moa in 3 - 5 years you may well make 30% in central Auckland.

by Matt in Auck | 10th Nov 10, 5:01pm 1289361660

this survey is just another confirmation that rental investment is currently a miserable option in today's market.

Having been to a few auctions recently the investors are nowhere to be seen. This is undoubtedly going to place downward pressure on prices. There's just not the same competition for the lower to mid end properties that there once was. As volumes pick up in this range, with a corresponding reduction in % terms of higher end properties, we will see the median price drop.

by 28_29 yr old | 10th Nov 10, 5:20pm 1289362829

Were the auctions in Mt Eden and central auckland Matt?

As SK says above, central auckland a whole seperate market

by Matt in Auck | 10th Nov 10, 6:30pm 1289367003

yep Mt Eden and Remuera

See ANZ's latest "Market Focus"....they are seeing annualised price falls of 4% overall, and 6% in higher end locations

It is now beyond argument that we are seeing prices fall away this year....according to the spruikers and bank economists late last year this was not going to happen...it has

If we assume flat prices next year, then by 2012 prices will be 20-25% lower in real terms compared to 2007

by Nicholas Arrand | 10th Nov 10, 6:54pm 1289368460

"...ANZ Banking Group Ltd ( Melbourne) has cited a sustained rise in funding costs for a 39-basis-point lift in its variable mortgage rate...bank's variable interest rate has now risen to 7.8 per cent..."

The pinch is coming on. And that in a land where their mortgage rates are traditionally way less than ours! Maybe our banks don't have the same funding issues, though. Hang on! They are our banks....

by Matt in Auck | 10th Nov 10, 7:12pm 1289369522

interesting times in Aus,,,,time will tell whether this is just the beginning of a very mild correction to house prices, or something a lot bigger

by Nicholas Arrand | 10th Nov 10, 7:14pm 1289369654

"...this past week might be pin-pointed as the Minsky moment for Australian housing.

..a situation in which investors who have borrowed too much are forced to sell even good assets to pay back their loans."

http://housesandholes.blogspot.com/

by Matt in Auck | 10th Nov 10, 7:38pm 1289371108

Nic - my Aussie mate with several investment properties is really worried...I think these rate rises are taking him to the edge...it sure is a testing time for highly leveraged debt ridden investors over there....

I asked him a few weeks ago before these rises what would he do if things started to go pear shaped - he said he would simply sell up, as if it was no big deal. I didn't say anything, but of course the thought that was crossing my mind was what if tonnes of others do the same thing at the same time, it mightn't be so easy to get the kind of price he imagines for them

nice guy, but he sure as hell got sucked into the ponzi mania big time

by Matt in Auck | 10th Nov 10, 7:14pm 1289369659

28/29 - I think its just time to man up and admit that, save for the occasional exception, buying property as an investment NOW doesn't stack up too well

by Chris_J | 10th Nov 10, 10:38pm 1289381890

Matt, as they say the best time to go fishing is when no one else is (or some kind of metaphor along those lines).

Are you avoiding owning even your own house because you think prices may fall maybe a further 10 or 20% (which is unlikely given building costs have and are still rising and there is constraint on new supply with 10,000 plus EQ damaged houses needing total replacement in ChCh plus tens of thousands of leaky homes needing replaced nationwide) or because you are not in a position to buy in an area you want to?

If you are expecting price falls, trying to pick a bottom is a stategy that rarely works, as soon as the market lifts competition means you won't be able to pick out the perfect home that is bargain and instead will probably rush into an average buy.

If you can't afford to buy where you want to you, then you just need a strategy of how to do it, either buying in a nearby feeder area, or buying in the area and building, renovating or subdividing etc. There are lots of ways to enter the market, but long term home ownership is something few regret. Paying $10,000 for a house in Remuera in the 1960s, or $250,000 for a villa in Herne Bay in 2000 doesn't seem like a daft thing to have done!

by 28_29 yr old | 11th Nov 10, 8:02am 1289415747

Hi MIA. Not sure how "admitting that property doesn't stack up" will make a man out of me? Although, I would love for "The Man/The Duke" to return!!As Chris_J eludes to buying a family home is different from buying a rental property. I wouldn't be looking to buy a rental in the affluent areas of Remuera etc as these are priced at a premium (I'm sure there are investors in these areas) as you and every other young professional family wants to live there or nearby.I've got nothing against people wanting to live in nice areas in nice homes. Keep saving the big deposit and keep it in the Term Deposit. But once the bottom comes and the prices edge up slowly you won't be the only person purchasing a property. There is a lot money on the sidelines at the moment. I have my own personal strategy. I have a business, kiwisaver, rental propertys and mortgage free family home. Im looking out for cash flow neutral rental while fixed rates are lowish and a couple have come close recently.You may not think property stacks up, but IMHO property is a great long term 10-20 investment. Each to their own. Regards

by boofta | 10th Nov 10, 11:04pm 1289383460

If the doom sayers get heir way and the shit hits the fan, no one will have to worry about whether or not house prices drop 10, 20 or 60%. We will all be swimming in it. The issue here though is the attractiveness or otherwise of putting ones money in the bank, or investing in property. It really comes down to moderation and not getting greedy. Yes sometimes the punt will work, but conversely you may get slammed. Regardless of the current state of the countries financials, house prices will pick up, and those with their money in interest bearing accounts will rue their lost opportunity. Come back in a couple of years and the comment of the day will be "rental properties eat into term deposit market"

Churr churr

by DarrenJ | 25th Aug 11, 11:29am 1314228548

I agree with comments made by 28-29 yr old and boofta.

I have just found a really interesting blog that sums up the comparison of returns of Rental Property and Term deposits, while i am pro-property, the findings of this comparison are quite staggering. - I know where my money is going!

You can read the blog post here http://www.propertyinvestorcentre.co.nz/blog.php?blog_id=106

by HarryM | 25th Aug 11, 12:11pm 1314231082

DJ, that's a pretty one eyed report.

For starters where can you buy a $150k house that'll return $260 per week?

4% increase per year for the next two years......

I agree that in the past property has returned well above term deposits, but crikey that report is way off the mark for most of NZ at this point and time

by DarrenJ | 25th Aug 11, 12:34pm 1314232453

HarryM,

Its not really one eyed at all. Even the rental income surplus alone was more than double the return of the term deposit, and that had nothing to do with capital growth, any capital growth is on top of that.

They also made a great point about making a capital gain on day 1 of buying a property. Pretty hard to buy a $50k term deposit for $30k aint it? ;-)

As for not being able to buy a property for $150k that rents for $260pw. We have just picked up a very tidy brick 3 bed home in Levin at $132k that rents for $250pw (10% yield ). And the Registered Valuation came in at $160k.

So even if we dont get 4% growth for the next two years, who cares!

So from my point of view that blog is actually looking very real to me.