When we conducted New Zealand Property Investor magazine’s annual survey last year, the mood was buoyant, with nearly 70% of respondents saying there would be a surge in house prices … and they were right. CoreLogic data recently revealed house prices nationwide grew a whopping 27.6% over the course of 2021, when compared with the previous year.

But the results of the same question this year reveal a different sentiment. Only 35% of investors believed house prices would rise; 63% believed prices would stay the same or fall.

What accounts for this dramatic change? It’s a cliché, but “perfect storm” is probably the best way to describe the conglomeration of forces currently operating in residential housing’s investor market.

The year has thrown hurdle after hurdle at property investors. From new government regulations (removal of interest deductibility as a key example) and tightening credit requirements, to the expenses posed by Healthy Homes standard compliance and the ongoing issues around tenancy act reforms, the property investment environment continues to challenge.

The government is, however, incentivising one aspect of property investment: new builds. The push to create more stock is also reflected in our survey. Around 64% of respondents say they will be looking to invest in, or already do invest in, new builds. Just 23% of respondents stated they would be sticking to existing properties.

This comes as no surprise to Sharon Cullwick, executive officer of the New Zealand Property Investors’ Federation. “The government has been actively incentivising new builds. These results show that their push in this direction is working,” she says.

Here are more interesting “take aways” from our most recent survey.

Buyer Trends

The removal of loan-to-value restrictions in 2020 may have been the catalyst for some of the house price surge experienced during the later months of that year, and the continuation of an upward climb throughout 2021.

But with restrictions now back at 40%, and the multitude of regulatory and banking restrictions facing investors, you would be forgiven for thinking they would be pushing “pause” when it came to buying.

But this was not the case. While 48% claimed they were not sure when they would buy next, 49% of respondents said they planned to buy in the foreseeable future. More specifically, 34% said they planned to buy in the next year, with an extra 16% planning to buy in the next five years; the rest planning on buying within months.

Those intending to buy in the next 12 months have dropped from 41% to 34% since last year’s survey, but these results still indicate a good level of optimism.

And the survey didn’t show the mass exodus of investors that some have predicted post the endless rule changes. Only 18% of respondents had sold in the past 12 months.

Investor Worries

The worries of property investors haven’t changed significantly in the past 12 months — government regulations still top the charts.

Around 43% of investors responded that governmental policy changes were their biggest concern, but availability of credit (30%) and rising interest rates (15%) were also keeping investors awake at night. Here is a summation of what some of our respondents make of the government regulation changes, in particular the removal of interest deductibility for tax purposes:

“I think they’ve fundamentally undermined the basis of NZ tax law. We’re expected to operate (and declare) like any other business but are no longer playing by the same taxation rules.”

“I am OK with ring fencing losses, as some investors were investing solely based on capital gains, but completely disagree with the removal of interest rate deductibility.”

“The interest deductibility changes are a tax on interest and it is driving up the cost of providing a tenant with a property thereby causing an increase of rent that only the government profits by.”

Other responses weren’t quite so considered (or even publishable) but the above is indicative of the general sentiment. Availability of credit is also playing on investors’ minds, and the impact of changes that compel lenders to scrutinise buyers’ every Uber Eats purchase (ostensibly to stay within the Credit Contracts and Consumer Finance Act tweaks) have been hitting some borrowers hard. This may be relieved by the Consumer Affairs minister David Clark’s investigation into whether lenders are applying rules correctly, but in the meantime it’s still a headache for investors.

Non-bank lending is now mainstream: 74% of respondents said the would, or have, use a non-bank lender.

“It’s very encouraging to see that 75% of respondents would consider using a non-bank,” says Chris Hamilton of Resimac. “If an investor is pragmatic and results-focused, then it’s likely the non-banks may have a great solution to suit their needs and circumstances.”

Investor Motivation

Investor motivation is always interesting. Mainstream portrays property investors as out for a quick buck, but our survey counters that. In fact only 7.3% of respondents said their key motivation was immediate equity creation, with 44% keen on long-term capital growth and 18% interested in cashflow creation. “We know that flippers have exited the market,” says Cullwick. “There’s just too much lack of surety around what is going to happen to prices.”

Investors’ selling history is also interesting. Surprisingly, nearly 47% report to have never sold a property, and nearly 25% haven’t sold for over two years. Cullwick says this reticence could be due to the tightening credit. “People are realising that it is hard to get finance if they sell.”

Crystal Ball

But a change of strategy may be looming as new builds become the chosen option for more investors.

But new builds don’t include apartments. While around 64% of respondents stated they already invest, or are looking into investing, in new builds, 63% stated they had no interest in buying apartments. Investors may be pessimistic about house price rises in the year ahead, but the majority (78%) expect rents to keep rising. This is due to several factors, including the increased cost of compliance due to Healthy Homes regulations, rising interest rates, and the upward inflation of everything to do with building supplies.