Investors losing interest in property - survey

One of the country's leading economists says the Government's tax changes have caused a "substantial decline" in interest in property investment.

Last month landlords were told they'd soon be unable to use interest payments on mortgages to reduce their tax liabilities, the Government saying it was a "loophole" that favoured speculators and investors over owner-occupiers. 

Last week a survey of real estate agents uncovered anecdotal evidence fewer investors were showing up to open homes and auctions, and a new survey by former BNZ chief economist Tony Alexander has backed that up. 

"Last month we reported that the announcement of a 40 percent minimum deposit requirement for investor purchases of residential property had contributed to a decline in the proportion of people looking at purchasing an investment property," he wrote in the latest edition of his regular Spending Plans Survey.

"Now, following the March 23 announcement of a raft of new policies including removal of interest cost deductibility, we have seen a substantial decline in purchase intentions." 

Nearly 1500 of Alexander's subscribers responded to the latest survey, a net 10 percent saying "they plan cutting back on their purchasing of investment property" - meaning 10 percent more plan to cut back than invest. It's the first time the survey has shown a majority planning to cut back on investment since it began in April last year.

"This is a result which will please the Government as it seeks to dissuade people from purchasing existing properties to provide rental accommodation to those who need or want to rent," said Alexander. 

But the survey didn't show a rise in intentions to buy a place to live in either, likely down to prices being at record highs and the possibility they could fall later this year. 

"By hook or by crook, the housing market is going to slow towards the back half of 2021," former ANZ chief economist Cameron Bagrie told The AM Show on Tuesday. He expects more action from the authorities on top of what's already been announced, but says any fall in values will likely be modest.

"The Reserve Bank is going to step up to the plate again in the next couple of months... It has knocked confidence. 

"But if the property market pulls back - and let's pull some big numbers out here - 5 to 10 percent. A 5 to 10 percent fall in property prices sounds like a big number, when you put it in context against the 20 percent increase in 2020, it's a modest pullback." 

Graph shows the dip in interest in investment properties.
Graph shows the dip in interest in investment properties. Photo credit: Tony Alexander/supplied

Alexander said there was also evidence in the survey responses that people who would have invested in property are looking to put their money somewhere more productive. 

"A net 14 percent of respondents plan buying more shares, up from 13 percent in March and a change which one would not normally expect to see during a period when people's wealth expectations have declined."

So have their spending expectations. While a net 21 percent still plan on upping their spending in the coming months, that's down about half since March, and continues a falling trend that began in December. 

"As is normal in this survey, the main reason people give for not spending more is that they have everything they want," said Alexander.

That was followed, in order, by "need to get debt down", "feeling worse about the future", "expecting investments... will be overpriced", "lower profits" and "falling wealth". 

"People have binged on spas, electric bikes, and many other home and lifestyle-related consumer items," he said, unwilling to spend up on international travel with the added risks and costs of managed isolation on return.

"Such spending must eventually fade as few households need to regularly replace their spas."

Falling expectations of capital gains on housing would also dampen spending plans, he added. Or people could be saving instead for an overseas holiday once the borders open.

"The net proportion of respondents planning to cut back on international travel has fallen to just 10 percent from 40 percent last month. We have clear evidence of a shift in international travel plans and while it is impossible to translate this into numbers likely to travel, it does suggest some busy times on the trans-Tasman air route in the near future."