Photo: RNZ / Nate McKinnon
Purchases by first time home buyers have jumped to a record high, as financing and other costs prove to be too much for many investors needing to get a loan.
CoreLogic NZ chief property economist Kelvin Davidson said it would be tough for residential property to stack up as a good investment for mortgaged investors, considering the minimum 40 percent deposit investors needed to get bank mortgage on anything but a new build.
Landlords were also challenged by low gross rental yields, amid high interest rates and additional costs of compliance and regulations, such as the removal of the interest rate deductibility against rental income, Davidson said.
"With these challenges, it's little wonder the CoreLogic Buyer Classification data shows that mortgaged multiple property owners (MPOs, including investors) are currently running at about a 21 percent share of purchases, close to all-time lows," he said.
In contrast, first time buyers currently accounted for about a quarter of the market, which was a record rate.
However, Davidson said investors with cash were still active in the market and able to take advantage of bargain opportunities.
"Clearly some investors are still finding value and new builds are no doubt one of these opportunities.
"In a market where finance is restricted and costly, it stands to reason that cash is king."
Investors with relatively large portfolios were doing a bit better than small investors, he said.
"Mums and Dads have found the going a bit tougher than bigger landlords. Again, that makes sense in the current market conditions, given having the resources or banking relationships for a deposit to keep buying is challenging."
Market activity would eventually pick up when prices bottom out, Davidson said.
"No one knows exactly, but my working assumption is that as mortgage rates finally peak in the next few months (if they haven't already).
"We may see sales activity pick up a little in the second half of the year and property values in many parts of the country find a floor."
The upcoming general election was a potential gamechanger for investors, he said.
"Will National win the election and reinstate interest deductibility? This scenario does seem to be getting more likely as the days go by, but it's probably still prudent to work the numbers on what we know now, and if the rules change, that's a bonus for investors."
Davidson said another variable was whether there would be any changes to the Reserve Bank's loan to value ratio rules (LVRs), which restrict bank lending, this year.
"One factor that will work in favour of investors are signs that net migration is back in the black - a boost for tenant demand and rents this year."