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Thousands of investor properties expected to sell this year

Thousands of investor properties expected to sell this year

Investors are bringing more properties to the market.

By: Sally Lindsay

6 February 2024

In the latest Tony Alexander/NZHL Property Report 14% of real estate agents say investors are bringing them more properties to sell.

This is the highest reading on record and Alexander says despite the coalition government reinstating tax deductibility to 100% next year, many investors “are of a mind to reduce their presence in the rental sector”.

The government’s intention to bring the Brightline test back from 10 years to two years in July is expected to result in a wave of investor selling – perhaps tens of thousands of properties.

When the Brightline changes in July, about 250,000 properties will be outside the test. Not all of these will be investor-owned properties, perhaps 75,000-100,000 will fall into this category. Not all of these will come on to the market, but property pundits are picking 1-10% will as investors struggle with cashflow and are chomping at the bit to sell. That will make a big dent in the supply of rentals.

However, agents are noticing more investors in the market to buy. It was not until the end of September that more agents said they were seeing more investors than seeing fewer. Since then, investors have retained their stand, but they are still not that positive as they remain constrained by sharp cost increases.

For those investors who are looking to buy, their main motivation is the hope of finding a bargain. There was a list if expectations of price rises over the September quarter, but that gain has now steadied. Interest rates are still too high to act as a buying motivator – in contrast to 2020.

The main concerns of all buyers are access to finance, interest rates and not enough listings. Concerns about the availability of finance have remained steady. Credit remains hard to get for many people and is the cause of many deals falling over, according to agents.

Tough times ahead

Meanwhile, building consents continue to drop on an annual basis, reflecting tough times ahead for the building sector and a tighter housing market for prospective buyers, Satish Ranchhod, Westpac’s senior economist says.

Data from Stats NZ shows 39,900 new homes were consented in the year ended October 2023, down 21 per cent compared with the year ended October 2022.

Ranchhod says large increases in interest rates and build costs, and lower home prices, have left prospective buyers feeling nervous about making purchases and developers reluctant to bring new projects to market. “That widespread downturn in consents over the past year reinforces our expectations for a sharp fall in residential construction in 2024. Those we’ve spoken to in the industry have highlighted a sharp drop in forward orders.

“At the same time, population growth is surging, and we expect house price growth will take a step higher this year supported by changes in government policy (such as fully reinstating interest deductibility for rental properties).

“Over time, those factors will help to support building activity. However, tight financial conditions still signal some tough times ahead for the building sector.”