CoreLogic says investors' share of residential property market the highest since 2016

Property

CoreLogic says it's looking increasingly likely residential property investors will face tougher lending restrictions and new tax rules on capital gains

28th Jan 21, 9:45am by Greg Ninness

CoreLogic says it's increasingly likely residential property investors will face further restrictions on their activities this year, possibly including a loan-to-valuation ratio (LVR) restriction of 40% for new mortgages, and an extension of the Bright Line Test for tax on capital gains beyond the current five year threshold.

According to CoreLogic's Buyer Classification Series, investors accounted for 27% of residential property purchases in the fourth quarter of last year, outstripping purchases by first home buyers who had a 23% share.

"The last time that mortgaged investors had a market share near this high was 28% back in Q3 2016, when the Reserve Bank imposed a 40% deposit requirement," CoreLogic Senior Property Economist Kelvin Davidson said.

"While we've already seen the Reserve Bank move to reinstate LVR speed limits at 30% from March 1, the question is, will this be the end point?

"We think a move to 40% is possible if investor participation continues to push higher."

Davidson said an extension of the Bright Line Test could also be on the cards and pointed out that the Reserve Bank had already requested the Government give it the ability to impose debt-to-income limits on mortgage borrowing.

CoreLogic data also showed that the share of sales to existing owner-occupiers looking to move homes dipped to an historically low 26% in the fourth quarter of last year, while mortgage lending by banks hit a record high.

"Mortgage credit has continued to flow in the past few months after the slump in activity in April and May," CoreLogic, a property data company, said in a summary of the latest data.

"The rise in activity over the second half of 2020 was so strong that it far outweighed the lockdown-related hiatus and left the value of mortgage lending by the banks up almost 10% for the calendar year, reaching new record highs over the final months of 2020."

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51 Comments

by Lord Dowding | 28th Jan 21, 10:08am 1611781682

There are many that are classed as investors who are buying first homes for family the stats are not that accurate

by Basil brush | 28th Jan 21, 2:08pm 1611796135

Come on mate. Let's call it what it is. Investors are hoovering up property like nobodys business. You know it, I know it, the RBNZ knows it, the retail banks know it, the government knows it. Question is, is anyone prepared to do anything meaningful about it?

by Shoreman | 28th Jan 21, 1:49pm 1611794992

Basil Brush - Investors are big on Residential, Commercial and Equities but it is hardly their fault. They are driven by circumstances significantly extremely poor TD rates, unintended consequences !

by Basil brush | 28th Jan 21, 2:11pm 1611796266

They also lobby and vote in the elected officials that help them increase their wealth even more through property so to say it isn't their fault is a little disingenuous I reckon.

by Cheetahlegs66 | 28th Jan 21, 2:12pm 1611796348

100%. This gets kicked around all the time within my social circle. We started off as reps, a nurse, bar owner and a medical technician 20+yrs ago. Everyone has moved ahead financially (we're not talking about health or family relationships). The ongoing debate has been "what would you do with a spare $x00,000 (put x=1-7). 4 are heavily invested in property (3-5 houses incl small commercial), and 2 of us in equities. The low term deposit rates are driving some of the group to more property. The current return of the house is of zero concern. Looking forward 5-8yrs it's going to be solid on the properties purchase price. Do something about term deposits and guarantee money in the banks and possibly you'll see less buying of housing. I'd like 4%. A quarter in tax, half to balance inflation and a nominal 1% return.

by RickStrauss | 29th Jan 21, 2:45pm 1611884741

However, surely we as a country should not be endlessly subsidising property investment (FHB grants, Accommodation Supplement, WFF) and making it a guaranteed investment (RB), continuing to enrich current asset holders by effectively transferring wealth from wages and savings to asset values.

It makes sense for individuals to invest in property because it gets so much support. But that effectively only transfers wealth from those who have wages and savings to those who have assets, a poor ethical / moral state of society that we've created.

by xingmowang | 28th Jan 21, 11:09am 1611785396

President Xi said residential properties are for people to live not a kind of investment for people to make profits.

https://www.bloomberg.com/news/articles/2017-10-18/xi-renews-call-housi…

by Fritz | 28th Jan 21, 12:34pm 1611790491

That's just rhetoric.
A significant proportion of China's economy relies on real estate ponzi-ism.

by IT GUY | 28th Jan 21, 9:51pm 1611823900

wow that could get ugly

by PocketAces | 29th Jan 21, 11:39am 1611873581

Get off the grass, that was me said that

by Nzdan | 28th Jan 21, 10:50am 1611784242

"Businesses" taking out "home loans" to grow their portfolio, meanwhile if a real productive business wants to borrow to invest in further growth they need to take out business loans between 6% and 10% p.a.

by Advisor | 28th Jan 21, 12:10pm 1611789054

That's right.
Interest expense much lower than rental yield, double-digit asset value appreciation with tax-free capital gains: let's do nothing to reduce investor demand and blame the supply-side for this mess.

by rumpole294 | 29th Jan 21, 10:46am 1611870366

Investor purchases property rents out so no change the renters have a roof over their head same as if they bought.

by PocketAces | 29th Jan 21, 11:40am 1611873644

Off you go then, to a restaurant, see how far you will get just renting a meal. The difference is like night and day

by PocketAces | 29th Jan 21, 11:40am 1611873644

Off you go then, to a restaurant, see how far you will get just renting a meal. The difference is like night and day

by EdwardD | 28th Jan 21, 10:52am 1611784361

Banks increased LVRs themselves several weeks back - perhaps 60% should apply? The Govt could remove deductions for mortgage interest on investment property as well as extend the brightline test. None of this will occur however, because too many MPs own rentals.

by iconoclast | 28th Jan 21, 10:54am 1611784472

It should be 50% and it should be cash

by loveyourwork | 28th Jan 21, 11:39am 1611787159

I agree - Is there any good justification for allowing leverage off property for property?

by Hans Brink | 28th Jan 21, 12:05pm 1611788713

Yes I have always thought cash deposit on all residential investment. There should be tax incentives to build rental accommodation.

by Cheetahlegs66 | 28th Jan 21, 2:15pm 1611796522

so 20% on a first house, and if you want a bach/beach house it should be 50%. Did you just pull that number from thin air? Why not 42% or 36% or.....Real scientific

by itsme | 28th Jan 21, 11:05am 1611785124

It is logical that property investors should not be eligible for their interest to be tax deductible. Property investment/ speculation is not a real business!

by Advisor | 28th Jan 21, 12:27pm 1611790053

That would also mean more tax revenue for the Crown. The interest portion on $79b in existing loans to property investors (as of Nov 2020) should be well over $1.5b.

28% of this is should be more than $420m each year. Use that to rapidly scale up social housing, remove accommodation supplements and reduce spend on emergency accommodations.

by rumpole294 | 29th Jan 21, 10:47am 1611870477

If you disallow interest do you do the same for a retail business, if you say residential investing is not a business then its not taxable.

by kiwikeith | 28th Jan 21, 10:56am 1611784581

It is pretty absurd really. There should be loan to value ratios of about 80% for investors unless it is a new build adding to the housing stock. It is ironic that a labour govt is quite happy to see the divide between the haves and have-nots increase

by ex agent | 28th Jan 21, 12:10pm 1611789003

Labour/Jacinta are no different to National. They will do whatever they need to get and retain power. To the extent core principles are not implemented. Chardonnay socialists.

by EdwardD | 28th Jan 21, 12:20pm 1611789656

I totally agree. I am getting tired of hearing that it's all about supply. Yes, supply is a PART of the problem, but the Govt could move to make property less enticing to investors if they were truly serious. Meanwhile, the feeding frenzy continues ...

by General HubHub | 28th Jan 21, 4:41pm 1611805316

Never happen. Property is the NZ economy. This ponzi will go on for five more years at least.
Watch, as soon as the borders open, the govt will let in hundreds of thousand of immigrants. This will be done despite a massive shortage of housing across the country, nor any improvement on infrastructure.

by IT GUY | 28th Jan 21, 9:52pm 1611823945

fool me once you fooly thing

by Mountie | 28th Jan 21, 12:11pm 1611789104

And even more ironic because they were going to sort out housing, child poverty, et etc, blah blah. The Project ran a story last night re the housing catastrophe and Jacinda was nowhere to be seen. She's usually there front and centre with Kanoa and Jesse gushing over her. Not last night. Go The Project. Get Jacinda on air. See if you can do this.

by Theoracle | 28th Jan 21, 11:44am 1611787472

Bad idea to extend brightline even further.

by karl seastrand | 28th Jan 21, 12:47pm 1611791279

Brightline should be extended to 99 years!

by Halfway To Paradise | 28th Jan 21, 1:00pm 1611792053

Extend brightline and people will just not sell. Therefore keeping property investors holding on to property.

by refactornz | 28th Jan 21, 1:10pm 1611792618

Agree. If they had a sensible CGT of say 10% then this would not be a problem, but at 28% - 39% investors will not sell unless absolutely necessary.

by StuckAtHome | 28th Jan 21, 2:06pm 1611795997

Agreed - but they could treat refinancings that increase the debt held against a property as a deemed partial sale (and tax it).

by RickStrauss | 29th Jan 21, 2:47pm 1611884863

Well, sure, they can hold for the next 20 years even beyond the grave. You can definitely take housing to the next life, right?

by Solid_Granite | 28th Jan 21, 12:28pm 1611790096

Can you clarify what your definition of an investor is? Because everyone is investing in property. Are they just going to crack down on registered businesses that acquire and flip homes, and not on 1st 2nd or 3rd home owners who are banking on capital gains to get their dream home? Climb the property ladder? Because that's investing too.
All this will do is encourage people to be dishonest about their true intentions.

by Magnum PI | 28th Jan 21, 12:53pm 1611791584

Lololol! I come back here for the first time in yonks and everybody is STILL banging on about houses! It's like a really pervy fetish with Kiwis! NZ's house freaks are like that creepy dude on a bus who whips it out and furiously faps away, except the other passengers crowd around to watch instead of running away. Lol!

by Basil brush | 28th Jan 21, 1:10pm 1611792623

Now this is a new and rather unusual comparison to draw between the housing market and indecent conduct in a public place but you might have hit the nail on the head.

by Magnum PI | 28th Jan 21, 1:29pm 1611793772

It's like that late night obscene phone call except the caller whispers "What are you living in?" Lol!

by Carlos67 | 28th Jan 21, 4:48pm 1611805699

If its not about houses it doesn't pull in the number of p̶e̶r̶v̶e̶r̶t̶s̶ people on this site.

by Averageman | 28th Jan 21, 1:41pm 1611794499

No it's all returnees and first home buyers.... Tui.

Of course its speculators. Seen the value of borrowing lately. Leverage to the moon and hold renters and their employers to ransom thru servicing. Keep and eye out for inflation everywhere as spineless monetary policy continues.

by Andrewj | 28th Jan 21, 2:25pm 1611797104

Try and convince me this isn't a deliberate policy, you want me to think the RB is full of dumb people?

by frazz | 28th Jan 21, 2:54pm 1611798874

Boat, Bach, Rental Property (x3) ..the kiwi goals in life

by JohnTrz | 28th Jan 21, 3:15pm 1611800127

Let's be sensible about this. Extend the Bright Line test from five years to 99 for homes not owner-occupied; and stop banks from lending to investors who want to want to buy existing houses: restrict them to new builds.

by CWBW | 28th Jan 21, 5:25pm 1611807931

There's no better risk free investment in NZ to get maximum bang for your hard earned money. LVR/30 or LVR/40 makes no dent to any well capitalised investors and if anything, it actually increases our returns significantly through forced reduction in interest payments.

The present value of a house bought today with a 30 years mortgage at $1M is worth $4,162,817.02 at LVR30 or $4,253,457.17 at LVR40 using long term appreciation rates, mortgage rates and inflation numbers.

To keep the bothersome math simple, the next time you see a house and find out the fair market price just multiply it by 4.16 if you're buying it with a LVR/30 or multiply it 4.25 with a LVR/40- that is the present value of the property. Not mentioned is that if the property has a positive cash flow, the multiplying number increases significantly so does the returns.

To keep things in perspective, the returns from term deposit rates based on a 10 year average is about 3.93%. Your $1M debenture with a bank will mature at $1,515,346.17 at present value. That's a difference of $2,647,470.85 using LVR30 and we're talking in today's dollars!

Having said that, if you can't come up with the LVR requirements, speak to your broker. LVR applies only to banks and as I said many times before, there are unlimited lending sources to help you if you find it hard to break the LVR barrier.

Another way is to form a registered syndicate REIT where pools of money comes together, synergised, and amplifies the buying power of any individual investor's capital alone. Meeting LVRs in this way becomes easy.

Look for desperate dairies or any dual purpose zoned properties, buy them over and convert them to motel like hybrids which do not inccur LVRs.

Check out where the utilities line ends at suburban fringes and buy the land next to it (and I mean right next to the pipe or power lines and hence anchoring yourself at a non negotiable junction), that will dramatically increase your pricing power when the council or developers approaches you and it's as good as striking lotto without playing the odds. You have to accept a period of negative cash flow and be well capitalised to pull this off successfully- but the returns will be astronomical.

2021 will be a record harvest for all property investors and I have a 30 y.o. whisky ready to pop comes this Christmas.

by IT GUY | 28th Jan 21, 9:58pm 1611824310

this math is impossible and will not occur in real terms, its only enabled by falling interest rates..... you are smoking the green stuff.

just think if vaccinations work rates will double from 0 very quickly whats 2 x zero? I think rates will be 5% by 2025

by nktokyo | 28th Jan 21, 10:06pm 1611824779

I bought my best ever rental 3 days after the last time we saw 40%. Would have gone for 1.1, I got it for 900. Remodeled and the rents are 2.3k pw. Now worth 2.2-2.4. Less competition and the same low interest rates? Bring it on.

by pgullery | 29th Jan 21, 7:10am 1611857405

Lot of people buying second house/holiday home that will be classed as investors no doubt

Dumb that proposing to increase brightline from 5 years to 10 years. Clearly the 2018 increase from 2 to 5 years has had no impact given house prices continued to increase so why will 5 to 10 years have any impact on house prices? Speculators who sell within 1-2 years were previously caught already that's why. Boom caused by lower interest rates

Brightline increase to 10 years is insane and simply capital gains by another name and envy tax. It wont stop rising house prices.

by house hunter | 29th Jan 21, 9:22am 1611865370

CGT is not an envy tax.

by RickStrauss | 29th Jan 21, 3:11pm 1611886286

CGT is an envy tax in the same way that income tax is an envy tax levied by unskilled asset owners upon those who have superior skills, I guess.

Back in the land of reality, as John Key noted if you make $100k one way you should pay tax on it, same as if you make it another way. Just a matter of fair treatment of income.

by Nzdan | 29th Jan 21, 12:47pm 1611877621

Boo hoo.