Wellington Property Investors' Association

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07-11-2014

ANZ Residential Property Investment survey

SUMMARY OF FINDINGS

A major change in investor portfolios over the last few years is an increase in the proportion who hold their properties in a family trust.  This has increased from 23% in 2010 to 31%.

The proportion of intending to purchase in the next six months continues to increase gradually – from 17% in 2010 to 23% in 2014.

Once an investor owns a property most intend to hold for the long term (9 in 10 investors).  The second most common strategy is to renovate and hold (28%).

Most investors expect rents to grow by 0% to 5% in the next year (with an average of 2.8%).  The biggest regional growth is expected in Canterbury, Taranaki, Auckland, and Rotorua (see map). 

Investors expect rents to grow more over the longer term – they expect an average growth of 4.0% per annum for the next five years.  Growth expectations are higher in the larger population centres, especially Auckland where the average expectation is 4.7% per annum.

Investors have greater expectations for property value growth than they do rental growth.  On average investors expect property values to grow by 4.8% in the next year and by an average of 8.1% per year over the next five years.  Most investors expect annual growth, over the next five years, to be in the range 2.5% to 10%.

Investors expect the greatest growth in property values, over the next year and the next five years to come from the upper North Island and Canterbury.  Investors expect Auckland property values to grow 1.5 times faster than the national average.  

Investors cite changes in government regulations and tax as their biggest worry – mentioned by 52% of investors.

A third of property investors say that if the Reserve Bank does require banks to classify property investors with more than five properties as commercial customers it will impact their investment strategy.  The proportion is even higher amongst those investors with four or more properties (44%).  The most common impacts being ‘less likely to buy new properties’ and ‘more likely to sell existing properties’.

While investors were not asked directly about warrant of fitnesses for rental properties, this idea attracted a lot of comment.  Most of the comments were against the idea, for example:

Yes, do not agree with the government's WOF proposal currently under consideration. Do not agree that landlords should have to provide a form of heating in their rental properties. In particular, heat pumps for 1 and 2 bedroom properties especially, is a ridiculous idea. Purchase of a heater should be the tenant's responsibility, if, depending on the region where they live and their own personal preference/requirements, they deem this to be necessary.”

Limits on high loan-to-value ratio lending haven’t had the impact that investors expected in 2013 – 16% of investors say that the limits have had an impact on them compared to the 35% who thought that they would in the 2013 survey.  The main impact of the limits is it has made investors less likely to buy (9%).

If the limits were to be relaxed – 13% of investors say it would make them more likely to buy a property in the first six months after the limits are relaxed, and 20% say they would be more likely to buy more than six months after the limits are relaxed.

1 in 5 property investors say they aren’t confident they understand the insurance industry’s move to ‘sum insured’.  Most of these investors are accepting the insurance companies’ default cover.

INVESTOR PORTFOLIOS

The proportion of investors who have properties in a family trust is increasing over time

LEGISLATION AND REGULATORY CHANGES

Reserve Bank classifying investors as commercial

The Reserve Bank is planning to classify any rental property owner as commercial if they have more than 5 rental properties. A third of respondents said that this would have an impact on their investment strategy. Of those respondents, 66% said they were less likely to buy more rental property. 29% said that they would likely sell some rental property.

While members weren’t asked specific questions about the proposed rental WoF, many of them did mention it in the open-ended questions showing that they are both aware of the proposal and concerned by it.

Property Management

63% of residential property investors are either using or would consider using a property manager. Those using a property manager tend to be younger, have the majority of their properties in a major city, and be a full-time investor.

Investor Expectations

Most property investors are expecting 0% to 5% growth in rents in the next year.  This expectation is similar to previous years

Property investors are more optimistic about the market long term – they expect an average growth in rents of 4.0% each year over the next five years

Each year for the next five years investors expect the value of their properties to grow by 8.1% per year. Investors are expecting Auckland property values to increase the most.

Investment Strategy

Investors main strategies have been very stable over time. 89% have a buy and hold strategy. The proportion of respondents who are renovating or developing property to hold long term has increased from 20% to 28% over the last four years.

Buying intentions

The number of investors looking to buy property has been steadily increasing over the last four years. Nearly a quarter of respondents expect to purchase a new rental over the next six months.

The most frequently mentioned reason for not intending to buy another investment property in the next two years was poor rental returns. Poor returns was also the reason that had the largest increase over the last year. This indicates that insufficient rental return increases could slow down the supply of rental property in the future.

The biggest worry investors have is government regulations and tax changes and this concern seems to be increasing.  Investors are also more worried about interest rate volatility this year.  However, now that the insurance industry’s move to sum insured is bedded in, this is now less of a concern.

Investors’ concerns differ by number of properties owned – large/full-time investors are most worried by changes in government regulations and tax, whereas small investors are worried about a broader range of issues.

While the value of property, damage and vacancies concern new investors, they do not even register for more experienced investors. Experienced investors are more concerned about Government regulations and tax than small investors. While tenants defaulting on rental payments is still a concern, experienced are less worried about this than small investors.

It is interesting to see how concerns can change over time and the level of experience.

 

Debt/Value Ratio

The main reason for changes in an individual investors debt/value ratio is buying or selling a property and also capital gains

 

Rental property owners have a better understanding of limits on high loan-to-value ratio lending than last year.

In 2013, 19% of respondents needed to see what the changes were going to be before they could comment on how they would be affected. Now that they are better informed, the vast majority believe that the LVR changes will not affect them.

 

                

Tags: anz survey

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