ASB senior economist Chris Tennent-Brown is welcoming a solid boost in investor confidence but bemoaning the fact it's based on surging expectations of gains from house prices.
The latest ASB Investor Confidence Survey for the three months to the end of December showed a bounce after a large drop in the previous survey. The latest survey shows a net 11% of respondents expect better investment returns over the next 12 months, up from just a net 8% in the previous survey.
But Tennent-Brown says "it’s all about housing this quarter, as signs of life in the property market saw investor confidence lift".
He says across the country, views of own home as providing the best return rose from 19% to 22%. This rise was driven by improved confidence in Auckland, where sentiment regarding one’s own home providing the best return on investments rose from 14% to 23%.
“The spring burst we’ve seen in the housing market has boosted confidence, but I really struggle with the idea of investor confidence being driven by an investors’ house rather than things like KiwiSaver, the share market or investment property,” says Tennent-Brown.
“It’s problematic, because we know that simply relying on your house going up in value isn’t an investment strategy.
“While it’s encouraging to see some expectations lift, we would like to see more diversification in investments, particularly as both KiwiSaver and the sharemarket had a stellar year in 2019, and are likely to continue providing solid returns over the long run."
Tennent-Brown says he'd like to see more confidence in investments outside of housing - "but it’s a big ask. The love affair with housing just keeps on going, as we have seen over spring”.
However, while ownership of the house you live in was well starred in the latest survey as offering good investment returns, perceptions of rental property providing the best return on investments took a dip - to their lowest level in 15 years, down to 13% from 17% in the previous survey.
"The divergence between perceptions of rental property versus own homes is interesting, given the positive drivers for rental property as an investment," Tennent-Brown said.
“The lift in the housing market, signs of increasing rents and low interest rates don’t seem to be offsetting some of the other issues that rental property investors have faced over recent years. Nevertheless, there is still a core group of investors who continue to believe and invest in rental property – it’s just smaller than the survey showed in earlier years."
Tennent-Brown says investor confidence varied significantly by region this quarter. Auckland remained the most downbeat with just 6% of respondents saying they thought return on investments would improve in the coming year, although this had risen marginally from the 4% last quarter.
“Despite Aucklanders viewing their houses more positively in terms of investment, other factors are still dampening their enthusiasm,” says Tennent-Brown.
Comparatively, Wellingtonians were much more confident, with 21% thinking return on investments would improve in the year ahead.
Fluctuation continued when it came to views of other types of investments, with 13% perceiving KiwiSaver as the best investment for returns, and 8% viewing managed funds and term deposits each as being the best investment for returns.