Director of First Light Capital, Toby Hunn says that the company was founded after their diverse team of directors saw “a space in the market for a smaller property funds management business where there is a personal touch, and where investors can invest alongside the founding partners.”

Hunn says that the team at First Light Capital comes from a range of different backgrounds that all contribute to significant business experience.

“There are four founding partners, the three directors from accounting company VCFO which specialises in Fund management, and my career has been in Investment banking and more recently property syndication.”

The fact that First Light Capital is a smaller business allows them to do things that the big players cannot do, says Hunn.

“We are not the size of some of the other unlisted property funds out there which can be real machines. We are a bespoke company that can have a direct relationship with all of our investors.”

The main offering from the group is the First Light Property Fund which is a commercial and industrial
property fund aiming to provide solid returns from within a conservative fund structure.

“We aren’t going to be chasing yield for the sake of it. We want to have a conservative investment where investors’ capital is preserved and will grow over time, whilst providing them with a steady stream of income.”

The fund at the moment includes one commercial property with a target return of 6.5% p.a. payable monthly.

“The First Light Property Fund will provide investors with as many of the benefits of direct property ownership as possible, without all of the day to day hassles of managing a portfolio yourself.”

Being a PIE fund, shareholders receive the same income, tax deductions and capital gains as if they owned the properties direct, including depreciation deductions which reduces their tax.

In a month where housing investment was turned on its head by new Government policies extending the bright-line test to 10 years and scrapping mortgage interest tax deductibility, March continued as a record peak buying month for investor as house prices hit new highs.

For the third month in a row investors have had 29% of the buying market,according to CoreLogic data.

It won’t last though. The recent policy changes are going to make buying existing properties less attractive, along with the reinstatement of 40% deposits for investors at the beginning of the month.

CoreLogic senior economist Kelvin Davidson says investors’ market share is likely to dip over the next few months.

“If so, the Reserve Bank’s job will have been made a little easier – for example, the need to restrict interest-only lending has probably lessened.”

When March’s 29% of market share by mortgaged multiple property owners is added to cash buyers at 12%, there is a clear illustration of the role investors have been playing in recent months, says Davidson.

“Investor’s high market share has been seen in many parts of the country, including all the main centres, but most notably Hamilton.

In the second quarter last year, mortgaged investors had a 30% share of purchases in that market, but now it’s 39%.”

Davidson says the rise in mortgaged investors’ market share has recently been boosted by those who have just made their first rental purchase (ie now own two properties), or are buying their second or third.

Combined, these two groups accounted for 16% of all property purchases in the first quarter of this year.

“It is suspected these smaller players will have had the strongest incentive to get their savings out of term deposits and borrow to invest.”

Inertia in the system may mean that any effects from the Government’s new policies and bigger deposit requirements take time to show through in the data, but from about June onwards CoreLogic is anticipating the Buyer Classification figures will be showing a drop for mortgaged investors’ market share.

That occurred from late 2016 and into 2017, which was the last time investors required a 40% deposit. The million-dollar question, says Davidson is whether or not cash-rich investors and owner-occupiers will replace mortgaged investors “one for one” when it comes to buying existing properties. CoreLogic’s sense is they probably will, but it will be watching closely for any divergence in price trends between existing and new-builds.

House Prices: New Highs

Meanwhile, a huge demand for houses during March pushed the median price across the country to $826,300 – a new record high and a $46,300 jump since February.

The median price rose 24.3% from $665,000 in March last year, the latest REINZ data shows.

The soaring demand was despite reintroduced loan-to-value ratios kicking in with a 30% deposit now required bybuyers. However, most of the houses sold were before the Government took aim at investors with the new policies.

Median house prices outside Auckland were also at record highs,reaching $680,000 an increase of 23.6% from $550,000 in March last year. Auckland’s median house price increased by 18.5% from $945,000 in March last year to $1,120,000 in March this year – a new record for the city.

In addition to Auckland, 11 other regions reached record median prices. Gisborne led the way with a 56.9% increase from $401,618 in March last year to $630,000 in March this year. The WestCoast followed behind with a 36.4% increase from $220,000 in March last year to $300,000 in March this year – the second record median price in a row.

The Manawatū/Whanganui region has now had nine record median prices in a row, with a 31.9% increase from $430,000 in March 2020 to $567,000 in March 2021.

The median number of days to sell a property dropped to its lowest for a March month since records began. It took just 28 days for a new buyer to be found, compared to 30 days in March last year.

REINZ acting chief executive Wendy Alexander says the national median price has increased by $46,300 since last month, showing how much pressure has been placed on house prices and how the country desperately needs more supply to come to the market.

“These sorts of price rises are unsustainable and show just why New Zealand continues to top the league tables of most unaffordable nations in international studies.

Additionally, houses are selling at a fast pace and there have also been the highest percentage of auctions
throughout the country since REINZ began keeping records showing just how quickly the market is moving.”

Alexander expects house prices to continue rising over the next couple of months, but hopes it will be at a slower pace than over the past six to 12 months.

“Hopefully the re-implementation of the LVRs, changes in government policy and the move towards winter will slow the rate of growth down a little.”

Inventory Falls

REINZ data also shows the total number of properties available for sale across the country dipped by 6.1% in March to 19,437 down from 20,702 in March last year. This was 1,265 fewer properties compared to 12 months ago and 8,791 fewer properties than in March 2019.

For the first time in a couple of months, the figures show more than one region bucked the trend with an annual increase in inventory levels for seven regions.

Gisborne had the highest increase, with an 8.5% increase on the same time last year (from 94 to 102 properties), followed by Otago (+7.3% from 493 to 529), Marlborough (+5.2% from 230 to 242) and Auckland (+5.1% from 7,880 to 8,282).

Regions with the largest percentage drop in total inventory levels were the Bay of Plenty -32.9% from 1,375 to 923 – 452 fewer properties, Waikato -27.7% from 1,539 to 1,112 – 427 fewer properties and Nelson -31.4% from 369 to 253 – 116 fewer properties. Wellington had the lowest level of inventory in the country at six weeks, followed by Waikato and Bay of Plenty with seven weeks’ inventory.

Northland and West Coast had the highest number of weeks’ inventory with 28 and 23 weeks’ inventory available respectively to prospective buyers down from 40 and 68 weeks respectively in March last year.

Slow Down - Expected

ASB senior economist Mike Jones is expecting a slowing in house sales to come through over April and May.

ASB economists had been expecting a slowdown over the second half of the year, anyway.

“The Government’s actions to quell investor demand mean the slowdown will now be more rapid,” says Jones. “Rather than market heat reducing to ‘simmer’, it’s more akin to a dousing in ice cold water.”

Jones says fewer sales will allow housing inventory to finally lift, easing market tightness and reducing the upward pressure on prices.

“General uncertainty also leads to lower levels of activity, and this is likely to continue as we wait to see if the RBNZ will gain additional housing tools. It’s also possible the May Budget will contain additional housing policy.”

However, the four-year phase-in period for the changes to interest rate deductibility on already-held properties will blunt the immediate impacts and afford investors plenty of time to assess, says Jones.

“Some parts of the proposals are also still out for consultation and may end up being watered-down.”

For those seeking a passive income and exposure to New Zealand’s commercial property sector, please visit www.firstlightcapital.co.nz or contact Toby Hunn at 027 574 8477 or email him at [email protected] to receive details on all upcoming listings.