ANZ survey finds significant number of housing investors believe 'speed limits' on high LVR lending could actually increase the value of their properties

Significant numbers of housing investors actually believe the Reserve Bank's "speed limits" on high loan-to-value lending will help drive up property prices, while many don't see the move having any impact, according to an ANZ survey.

The RBNZ applied the speed limits on LVR lending from the start of this month, mainly to protect financial stability, but also with a view to reining in rampant house prices.

The ANZ recently conducted its annual survey of property investors, in conjunction with the NZ Property Investors' Federation, and released brief results of this earlier in the month.

However, in the bank's latest monthly Property Focus publication, ANZ economists provide more detailed commentary around the results. Some 1368 property investors took part in the survey during July and August.

The economists stressed that the results of the survey were compiled before the final details of the RBNZ's moves on LVRs were known - though much of what ultimately transpired was well-signposted.

There were, however, some "interesting takeouts" among the survey results, the economists said.

No impact

"Around half of all investors did not think that speed limits on high loan-to-value ratio housing lending would impact their property investment strategy in the next 12 months," the economists said.

A further 16% of investors indicated the LVR move would change their strategy in some way, and another 20% indicated that they would need to know the extent and nature of the limits before they could make a judgement.

The ANZ economists said that half of the investors surveyed thought the speed limits would have no effect on capital values across their portfolios, a quarter of the investors were unsure whether there would be an impact, while a final quarter thought there would be an impact.

However, in an outcome that the economists thought would be "of some concern to the Reserve Bank", among those expecting an impact on prices actually more thought they would increase than decrease.

"The reason given was that their property portfolio is focused at the more affordable end of the spectrum, and people would be forced to trade down in terms of what they could buy for a given deposit, lifting demand for lower-end properties," the economists said.

Small price changes

In any event, those expecting movements in prices as a result of the LVR policy thought these movements would be relatively small - of the magnitude of plus or minus 5%.

The economists said the survey results overall suggested that despite some rapid increases in the value of residential property, especially in the Auckland market, and to a lesser extent Christchurch, investors on the whole continued to take a prudent approach to the management of their portfolios.

"Inexperienced investors may believe that prices only ever go up. The more experienced investors, who form the majority of the respondents to this survey, know better," they said.

"...Despite media hype about increases in the value of residential property, investor expectations of short and medium-term increases in property values and rents remain reassuringly modest."

As interest.co.nz previously reported, the survey found that growth in property values over the next year was anticipated by 92% of respondents. This was up from 87% last year and 71%. The median increase expected rose to 4.3% versus 3.1% last year.

In the longer term, the economists said the average rate investors expect their property value to have increased by in five years time remains "modest" at just 6% to 10%.

RBNZ 'reassured'

"The Reserve Bank will likely be reassured to see that investors are not extrapolating a stellar year, but are on the whole remaining realistic about their potential longterm gains," the economists said.

In terms of how property investors structure the ownership of their houses, the ANZ economists said there were very few changes compared with last year.

Owning a property in your own name was the most common property ownership structure, with 42% of responses opting for this structure (up from 39%). Ownership via a “look through” company was the next most popular ownership structure, with 32% of investors adopting this structure (up from 31%).

Forty five percent of property investors use a property manager for at least one of their investment properties. This is the highest proportion since the start of the survey. A further 16% of investors would consider using a property manager.

One in every ten property investors is completely debt free. Around 6 in 10 investors have debt that is 50% or more of their properties’ value.

"These results are similar to last year, with 20% of investors saying their debt-to-value ratio has increased, and 41% saying it has decreased over this period," the economists said.

Increasing values

"Increasing property values were the main reason cited for improved debt-to-value ratios, rather than reductions in nominal debt. This makes the improvement in debt burdens less comforting for the Reserve Bank than actual debt repayment would be, from a financial stability point of view."

The economists said that for property investors, a continued focus on improving the sustainability of their investments made sense.

"While the housing market in Auckland is running hot at present, the Reserve Bank is on the warpath, fixed mortgage interest rates are rising, and housing affordability constraints will inevitably kick in at some point.

"The bigger the overshoot, the uglier the potential correction. Investor confidence should remain tempered with prudent attention to business fundamentals."