Not much fun for residential property investors this year, according to the latest predictions from the Property Institute

The Property Institute believes more residential property investors are likely to cash up and exit the market this year, with the houses they sell likely to be bought by owner-occupiers.

In its predictions for the housing market in 2018, the Institute, which represents valuers and other property professionals, says this could reduce the number of rental properties in the market and increase those that are owner-occupied.

The Institute paints a picture of what could be a tough housing market this year, particularly for investors.

"While the cycles of property investment are largely predictable, there are always a number of less experienced property investors who panic and sell when a market flattens, or who decide not to invest further during downturns," the Institute said.

"This means that an increasing number of rentals will convert to owner-occupied dwellings, putting pressure on the rental market at a time when the demand for housing (rental and owner-occupied) is already acute.

"This trend is already noticeable in the dramatic reduction in new investor mortgages."

The Institute also believes that house prices will continue to flatten this year, further reducing the likelihood of capital gains.

"Median house price growth across the country is down to 0.6% year on year," the Institute said.

This is consistent with the end of a property cycle and overall prices, particularly in Auckland, will now see-saw between small increases and small decreases throughout 2018.

"There will be isolated exceptions to this trend, both up and down, around the country, but the much hyped property crash isn't going to happen.

"The latest data shows expensive houses continuing to sell and hold up the median house price numbers and we don't see that changing much."

The Institute is also predicting that mortgage interest rates will start heading back up after a bit of a lull last year, with a jump of up to 0.5% on longer term rates.

However, it also believes the Reserve Bank is likely to relax Loan-to-Value Ratio (LVR) mortgage lending restrictions this year, to 30% for investors and 10%-15% for owner-occupiers, although that lower limit may be restricted to first home buyers. 

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49 Comments

Good!

My prediction of the current govt -- Spend a lot and achieve nothing.

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26

After 9 years of National achieving WORSE than nothing, i'd rather see a government take a risk of trying SOMETHING.

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10

"It is common sense to take a method and try it. If it fails, admit it frankly and try another. But above all, try something." FDR

"Spend a lot and achieve nothing". That's the modern property investors mantra is it not?

Exactly.

Oh but without Property Investors where will people live?!?!?!

Shoebox in ta middle of da road.

A good chunk of them, in their own homes they were then able to afford to buy, what would be left over is a considerable number less tenants for the PIs that are left to scrap over.

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13

Get that is one less house to rent but also one less person renting. Stupid house prices aside, how is that a bad thing?

Probably beholds renters to sit on there hands a while longer and really see the impact of policy changez and make sure interest rates will remain at record low levels...or not.

Still think interest only loans should be eliminated.

Exactly what I was thinking. I can't see how a property being sold from an investor to a owner-occupier affects the rental market at all. Perhaps somebody could challenge my logic.

watch out an investor will try with nonsense they will have been told at some seminar,
we all know from plenty of studies done that the greater the population that are owner occupiers then it lessen the effects of inequality, which in my mind is a good thing, for those that like to lord there wealth over others not so much

I don't think it is a simple 1 in/1 out as Averageman suggests. It's not just families/individuals who are renting. Many rentals are comprised of students, young professionals, etc... who are not linked to the others in their flat.

For example:
2 rental houses with 4 tenants in each.
1 house sold = 4 tenants now requiring a rental.
1 house bought by existing renters = 2 (DINK couple) owner/occupiers no longer renting.
Net change to rental market is 2 tenants now require a home.

or more likely...
2 rental houses with 4 tenants in each.
1 house sold = 4 tenants now requiring a rental.
1 house bought by non-renter (marital breakdown, child moving out of home, immigration, etc...)
Net change to rental market is now 4 tenants now require a home.

Whilst the number of domestic students is likely to increase to some degree, the number of foreign students is dropping by the thousands. And with immigration in decline, there will be less pressure on the rental market going forward.

But isn't that their choice as to how many people they want to live with regardless of who owns the house?

A couple could rent a house out for themselves, or they could share with another couple. A couple could buy a house to live in by themselves, and they can choose to have someone lodging in the spare room to cover costs.

It all depends on the people, their income and how much privacy they want.

Thank you Noncents. So I suppose it comes down to the question: How many people on average live in a rented house, versus how many people live in an owner-occupied house.

on the right lines - but a slightly better description is how many separate households live in a property ( defining households is interpretation ) four unconnected single people in a house can be seen as four households where a family of five in the same house are one household - if they split into a parent and children and parent they would become two of course -

Potentially all of the four renters might want to live alone if they could afford it and buy four properties ....

the challenge if investors are squeezed - is more about new builds - as not many FHB's out there with the 50% cash required by banks to build your own home - so developers and investors are needed to fund projects

The government may - or may not be able to offer finance - but as they are only seeking to build very small affordable houses -( and at current land and build rates anything above 80sqm will not be affordable) this is not attractive to bulders - who want the 200sqm properties which provide them with the highest margins -

To date- after 9 years in opposition, the last two spent talking every day about the housing crisis - the government has failed to announce a single new build that was not already actioned by the previous government - or any DETAIL on how they intend to fund / manage / get the land / find unemployed builders / - now whilst i appreciate its only 100 days in - they did have years to think and strategise - and i would have thought that given the target is 10,000 extra a year -- that in the first 1/3 of a year we would at least have had one major announcement such as 1000 affordable homes to be built at X location, at $XXX and work will commence by XXX date.

At this rate we will be another 6 months before an announcement - followed by 3 months for a tender process and several months in consent - before maybe getting the first foundations in 18 months after it took power - so starting off at -15000 or worse when teh first new home ( not already in process by previous government is built -

Given we all know National made a tits on a bull job of housing - just a little bit concerning that we area already looking at a further deficit before anything even starts

Perfectly put kpnuts - very simple logic to comprehend ...

We are all ready to help counting the new built homes at end of the year stocktake ....

Go look at Ormiston / Flat Bush... thousands coming online.

Unless you mean ones built by the government, in which case, you can borrow my pinky to count if you want :)

"as not many FHB's out there with the 50% cash required by banks to build your own home - so developers and investors are needed to fund projects"

Where does this requirement come from? Given newbuilds are exempt from high LVR speed limits, I dont believe it's accurate to say you need 50%, in fact you need less than buying an existing, assuming servicing calculations.

2 rental houses with 2 DINKs and 1 divorcee respectively
1 house sold = 1 tenant now requiring a rental
1 house bought by single FHB who gets 3 flatmates in.
Net change to rental market is 3 less tenants requiring a home.

The dynamics suggest that property market – especially that in Auckland - is in a very fragile state.
A recent report on this site on rental yields indicated that the norm around the country was at around 4%. This seemed to exclude outgoings such as maintenance, rates and insurance and possible periods of no rental income. Outlook for future capital gain is mooted and compliance costs for the likelihood of tightening government requirements are high. So, it is not surprising that the Institute believes that landlords are exiting the market and the abysmally low bank deposit rates provide a far safer and better return for less work.
For first home buyers, houses are still over valued to income, and there are significant affordability issues. I have already quoted that my first home in Auckland in the early 1980’s was four times my teacher’s salary; today the RV is 12 times the salary for someone in the same position. It is no wonder there are reports of teacher shortages in Auckland as young teachers move to the provinces to get onto the property ladder and this trend is consistent with anecdotal information from schools here in the Hawkes Bay. The same is also the case in the health sector. First home buyers taking on high mortgages face the real risk of interest rate increases which even of only 1.5% over the next few years on a $500,000 mortgage would be crippling for many as they look to find an extra after tax $300 a fortnight.
Tony Alexander when discussing the future of the property market for this year, used the premise of "ignoring now irrelevant fair value measures based on what was happening decades ago (rental yields, prices versus incomes)". This is alarming; current values can only be sustained if there are the buyers to support those prices and many in two significant cohorts – investors and first home buyers – appear to be priced out.
The Institute comments above that “increasing number of rentals will convert to owner-occupied dwellings.” However, where are the Institute’s new owner occupiers coming from?
There has been movement from Auckland to the provinces and high house prices are likely to be a deterrent for flows to Auckland.
Are Auckland house prices going to be sustained by immigration despite the Government’s wish to cut this?

Or could it be that mortgage terms will get even longer (35+ years) and some people will be forced to work until......they croak?

Or could it be that interest rates will be even lower?

Speculator, investor - Landlords can try to exit all they like but that's only assuming there is a bigger fool. Many will discover they are unwilling Landlords (the worst kind) begging for another boom.

This is now year two of many coming years that property is out of favour as a preferred form of speculative investment. I think rental yields will correct upwards considerably and will once again play magnet to the smart money. At the moment it's unattractive now that capital gains have evaporated on the turning tide. The risks and expenses don't reflect the yield that is on offer - sorry spruikers!

It's all been about capital gains, capital gains and yup you guessed it - capital gains.

But how far can rental yield rise when wages mostly aren't?

Pragmatist, tenants are tapped out so there is limited room for rents to increase. In a scenario where rents stayed the same and house prices fell then the yield increases attracting the fresh investor purchaser. We are a long way from that point.

I picture a scenario where rents will initially stagnate (top out) throughout 2018 and then follow house prices down on a deteriorating labour market heading into autumn 2019. Boom over. If the labour market were to tank along with immigration and rents followed, house prices would need to fall a hell of a lot more to attract smart money searching for safe yield place to park. It would be a disaster if that were to happen but a situation that cannot be ruled out.

Next fool is right. Supporting staff to relocate Hamilton and Tauranga for first house purchase. No Auckland specuvestor bailout in that group.

This article could almost have been written by ToThePoint.

Writing media releases for interest groups is not particularly difficult. The "voice" has to sound "credible" and has to appeal to the emotions of the people it represents and the people it hopes to influence. It also needs to communicate caveats, and if it includes any prophetic claims, you can be assured that there will be no explicit quantitative rationale of how that forecast is constructed.

Furthermore, Ashley Church is little more than a soapbox speaker with a steady line of patter. You will never once here him articulate his visions constructively or beyond a simple cause / effect of different variables that he strings together to suit his own narrative.

He is a paid shill.

The original "doom and gloom merchant".

BL

Hi Zachary,

Seems I get blamed for just about everything these days!

Seriously, I think the housing market is in very good shape - and that includes Auckland.......

To reiterate my position: in the foreseeable future, I think sales volumes will be relatively soft - but that prices will hold pretty firm.

We've entered into a period of consolidation - which I don't have a problem with at all. It's better than either another boom or a bust - neither of which I see as being at all likely.

Property investment in NZ has a good reputation - globally as well as domestically. I sense there are far more people wanting a slice of NZ than there are people wanting to retreat from property ownership/investment.

Notably, in high-demand, sought-after areas - such as Auckland's classic inner-city suburbs - there's a dire shortage of properties coming onto the market. (Owners are not inclined to sell, unless they are trading up.)

At the opposite extreme, first-home-buyers are as keen as ever to get their hands on lower-priced, entry-level properties.

Steady growth in NZ residential property values across the medium-to-long term can never be guaranteed - but it's a pretty good bet in my estimation.

TTP

Seems I get blamed for just about everything these days!

By who? The wife? The kids? What are you being blamed for? Hogging the bandwidth?

Hi TTP,
Correct assessment ,

Some think that one less house to rent is one less person (family) renting ... while that maybe sound true by simple math, it also means one less rental property taken off the market and less accomodation for the thousands of new couples, marriages, grown ups leaving home which are not yet ready to ( or can't) buy a property - let alone migrants and their rental demand !!... Solution ? .. more teepees, tents and caravans?... this is a recipe for a disaster !! we are heading the wrong way ..

When we are over 40,000 properties short and when supply cannot catch up with increasing demand some are cheering up for draining the rental market to deteriorate that Supply side even further, patching one wound by opening a bigger one ( swapping chairs on the titanic deck) .... Purging the rental market from its lower socio economic occupants and replacing them with the ones who Can buy these properties ? .... where would the incapable tenants and families go at the end of the day ... ? ..live in Motels @ taxpayer expense? or live in a teepee?

We shall revisit this big problem again by the end of 2018 and assess the damage then...

I don't follow your logic. A renting family buying their house does not affect rental demand - the number of houses provided falls by one, the demand for houses falls by one. There is definitely an argument than more people tend to live in an average rental property vs and average owner-occupied property, but you don't seem to be making this point so I really don't get where you're coming from?

The obvious solutions to the problems you're putting forward are to act to reduce house prices, build more houses, increase social housing provision, and reduce immigration. The new government is proposing to take steps in this direction, so there is good news for you.

Sorry, but that is exactly the simple math I mentioned above - assuming that all or most of the tenants will be able to buy the house they rent is nonsense in practice - not one of my tenants over 18 years ( maybe over a 100) could do that !!

Beneficiaries and low income families living from payslip to payslip, or old people can't afford to buy a house - let alone, they don't want to !!.... these people represent the majority of tenants in nz ...and that is a fact - no stats required.

Capable people rent conveniently and settle down when they please - unlike incapable people and families or people on the move - and there are a lot of them ...

so my point stands: think about continuous purging of lower socio economic tenants ( incapable ) and replacing them by an emerging middle class or FHBs ( or even AIRBnB business )...where would that lead us in 2 years ?

Your Obvious solutions are not switches that the Gov can flick to change the status quo , most of what you mentioned are out of the control of any Gov ... unless they are totally oblivious to the damage they are about to cause elsewhere .... proposing is nice - doing it is another !!

A bit like employment relation laws about to be unleashed , they sound great and cheerful on the outside but could potentially cause self inflicting damage to a lot of people losing jobs or businesses sent to the wall !! - Attacking SMEs is a bit like attacking Landlords , very little thought is put in the inconsequential damages down the road ...

I have totally lost track of the point you are trying to make. I never assumed all or most tenants could afford their houses, and this isn't relevant to the points I made. You're arguing against 'simple maths' by saying the equation isn't always possible, not by arguing against the result of the equation.It's like saying 2 oranges + 2 oranges doesn't equal 4 oranges because you can't find that many oranges.

Reducing immigration is straight forward, stopping sales of social housing has already happened and more building will follow. Governments are well capable of freeing up land and building houses. It's happened before and will happen again. House price rises can be moderated by reducing foreign investment and taking steps to make property investment less lucrative - both will happen under this government to reduce buyer pressure.

What exactly do you want to happen? What are you complaining about? What is your solution?

Yeah sorry again, we live on two different planets and speaking different languages .. so let's leave it that ...have a great evening

...and MFD lives on Earth.

MisterB,

I agree. His non-de-plume should be Eco Bird Brain.

Lancelot link, if you're going to go ad hominem get it right, it's 'nom de plume'

TTP, I wish I kept archives, or int.co was better for searching, because I can't help but feel this is a change in tone from you speak of flat markets and non guarantee of returns. But perhaps I am mistaken.

Is a market really 'in good shape' if it's less and less liquid (drastically lower sales) against a rising yield curve overseas and mightily indebted? hmm, not so sure.

"The Property Institute believes more residential property investors are likely to cash up and exit the market this year,"

Great news for FHB and those trading up.

Due to the very high cost of homes there is an ever growing trend for FHB's to take on flatmates. I cannot speak for our population at large but it has and is still happening in my family. Thus, I suspect that an increase in home ownership will have little effect on renters.

IMHO the Property Institute is incorrect in its forecast. I cant see property Investors cashing up. Most of the ones I know anyway(not a big sample I concede) are 1) staying put or 2) buying in cheaper areas in NZ. These buyers like myself bought 5-10 yrs ago and dont even worry about the LVR when buying cheap properties around the country. The rent is paying for all costs and then some, so why would we sell? Interest rates going up then eh? Well so what, so are rents. Reduced immigration...doubt it...even the labour government doesnt want to stuff the economy...we will see but this article is from the south end of a bull. Cheers

"The Property Institute believes more residential property investors are likely to cash up and exit the market this year, with the houses they sell likely to be bought by owner-occupiers."

So what happens with the houses that the owner-occupiers sold? Or do they mean bought by First home buyers? If FHB buy a house that was previously rented it doesn't affect the rental pool, 1 less rental house and 1 less family renting = nil change.
The real question is; why would FHB now be able to buy that rented house? It isn't cheaper than it was a year ago and certainly not 2 or 3 years ago. Some may, of course but I don't think in any significant numbers.

Perhaps their sentence should read "The Property Institute believes more residential property investors are likely to cash up [cut their losses] and exit the market this year [by selling at a loss, or to someone who has read too many TTP/Eco posts] , with the houses they sell likely to be bought by owner-occupiers."

House prices in some places (Auckland, Chch) have not kept up with inflation for a year and a half or so. Potential buyers incomes have risen, their deposits have grown, things are now more manageable. Your income can grow quite fast when you're at a typical FHB age. There will be quite a number who have been desperately saving watching house prices fly away from them over the last few years who will find the current stagnant market quite a relief.

California houses on fire...billions lost. We are heating up here...keep a hose handy.

https://www.reuters.com/article/us-california-fire-insurance/california-...

Oh...I hear it is gonna bucket down.....But premiums up....Here.