Media Release
ANZ, part of ANZ National Bank Limited
For Immediate Release
Wednesday 7 May 2008
Property investment yields down, but optimism remains, says ANZ Survey
Property investors are becoming more circumspect, although they continue to expect strong returns from housing in the
medium-term, figures from the fifth annual ANZ Property Investors Survey show.
Conducted by Colmar Brunton on behalf of the New Zealand Property Investors Federation and ANZ, the survey canvassed
residential property investors across the country.
One third of investors expect house prices to fall over the coming year, and another third expect house prices to be
flat to 2.5% over the next year. Collectively, 70% of property investor’s expect house prices to decline or rise by less
than 2.5 percent, up noticeably on last year’s total of 24%.
ANZ Chief Economist Cameron Bagrie says that this still looks optimistic considering the current interest rate
environment, global conditions and the marked increase in real estate listings across the country. House sales figures
for March were down 52% nationally and 56% in Auckland.
Looking further ahead, over the next five years 69% of those surveyed expect price growth between 2.5% and 10%, broadly
the same as last year.
“The majority of investors expect weakness in the market to be a reasonably short-lived affair, which appears at odds
with the historical pattern of house prices remaining flat for four years following an upswing,” says Bagrie.
Bagrie says that given the strength of the housing boom over the past six years and price of a typical house relative to
the average wage, we should not be surprised to see house prices give up some gains, thus improving their affordability,
and we can reasonably expect prices to flatten out for a number of years."
Landlords are expecting solid rental increases. 68% expect rents to increase by anything from 2.5% and 10% over the next
year, and nearly three quarters are expecting rents to grow between 2.6% and 10% over the next five years.
“Facing more limited capital growth over the coming year, investors are naturally turning their attention towards the
yield on the investment,” says Bagrie.
“Unlike previous housing cycles there does not look to be an excess supply of houses so rents are likely to be biased
up. However, this is likely to be countered by flat net migration, and a slowing economy."
With gross rental yields around 5% and current fixed mortgage rates hovering around 9 - 10%, the biggest challenge for
landlords is negative net yield, particularly in a flat capital growth environment. The number of investors reporting a
gross yield under 5% has increased from 51% in 2007 to 65% this year.
“Clearly landlords are under increasing cash flow stress and it’s hard to see this situation changing soon,” says
Bagrie.
Managing Director of ANZ Retail Banking, Wayne Besant, says that landlords should be thinking hard about their strategy
going forward to maximise returns. “Investors will be looking at things they can do to retain tenants for longer,
investing in minor dwellings or enhancing their property’s appeal in order to receive a premium rent."
There are indications that some landlords are mindful of how the market has changed – those who bought properties in the
last year dropped to 40% from 49% in 2007.
As expected, intentions to buy have dipped, but a hearty 39% of investors still plan to buy in the next 12 months,
compared with 49% in 2007.
Besant says that as some investors seek to exit the market because of lower yields and high interest rates, this
represents opportunities for others.
“If investors have the equity and cashflow to sustain losses over the short to medium term, there are returns to be made
over the long term. Ultimately an investor’s return is about the buy price and rental income. As the market cools
investment fundamentals will slowly gain traction."
Similarly investors are nervous about what changes the Government might make, with 30% seeing regulation as a major
risk. Changes to tax and loss attributing qualifying company (LAQC) rules was of particular concern, as was ring fencing
of rental losses.
Martin Evans, president of the New Zealand Property Investor’s Federation, says that the survey shows that property
investors are realistic about the current property market conditions and don’t expect yields to change much in the
foreseeable future.
“They are hoping for some relief through rent increases which have lagged behind increases in outgoings. They are also
concerned the impact new legislation would have on their investments and see the importance of advocacy and lobbying
undertaken by the NZPIF,” he said.
ENDS