Property investors started 2019 with very uncertain expectations for the year ahead. Auckland property sales were declining; Sydney and Melbourne’s prices were also declining rapidly – presenting a concern for New Zealand property values; housing policy and tax changes were imminent; and property market commentators were commonly predicting a collapse.

But balanced against those potentially dire denouements, was the plain fact that population growth was still strong, interest rates were low, and there was a shortage of available housing across most of the main centres.

In the past year, none of these economic drivers have faltered, which is reflected in the survey respondents’ responses to the Squirrel NZ Residential

Property Investment Survey 2020. Because despite the removal of negative gearing and various rental law reforms over the past year, the ninth annual investors’ survey shows rental property owners are overwhelmingly more positive about expanding their portfolios this year.

Buyer Trends

The beginning of a positive trend in property prices may be the key to this change, and perhaps the buoyancy in the market is reflected in the number of investors now looking to buy.

In 2018, 51% of survey respondents were not sure whether they would buy again, yet in 2019 this dropped to 46%, with 29.3% of respondents in this year’s survey purchasing a rental property in the past year, and a further 11.61% purchasing within the past two years.

A whopping 41.35% say they will purchase within the next year. But are they looking further afield than the classic three-bedroom standalone residential dwelling? It seems investors’ appetites for diversification haven’t changed much in the past year. Despite the high number of new apartments coming on stream in the main centres, 62% of respondents are still not interested in apartments (compared to 63% in 2018) while 50% are not interested in commercial property – a minor increase in interest from 54% in 2018’s survey.For those who are looking to buy in 2020, most expect yields to fall into the 5-8% bracket (55.71%), while those expecting 0-5% and 8-10% are relatively even at 18.52% and 17.27%, respectively.

‘I’m absolutely dreading [tenancy law reform] and I plan to sell a property next month, then another in six months when the lease is up’ SURVEY RESPONDENT

When it comes to rents, optimism is also prevalent. A resounding 78.59% expect rents to increase in 2020, while 69.77% have increased their rents over the past year, already. Of those that increased their rents, 56.47% increased them by 1-5%, while 33.39% increased them from between 6-10%.

Investor Concerns

In 2018’s survey, the overwhelming concern for investors was government policy changes. But while many changes were implemented in 2019, there are still more changes to come with the landlords still lacking crucial detail on tenancy law reforms, such as whether the 90-day nocause notice will be removed.

So, in light of this, are investors still predominantly concerned with government policy? The answer is a resounding yes: 86.67% of respondents cited this as their greatest concern.

One respondent commented “I’m very concerned about the 90-day no-fault ability being removed!” while another cited policy changes as the reason they are no longer looking to invest: “The proposed law changes add risk that can no longer be mitigated. That’s why we exited the market for now, after originally looking to add to our portfolio.”

Survey Highlights: Investor Wins & Losses

It’s always easier to learn from others’ mistakes, and their triumphs, rather than learning them first-hand – especially when you are investing big dollars. So, we asked survey respondents to share with us their greatest trials and triumphs and found there were some common themes and experiences. Here, we share some of the top wins and losses, so take heed!

WIN

Getting started. It may seem scary, but signing your first property contract is the only way to grow wealth through property, and many respondents said taking the leap into property was their biggest win. One investor stated that success followed quickly after their first purchase: “Growing my net worth from negative $10,000 to positive $90,000 in two years, and [I’m] on target to hit $1 million before the next five years.”

LOSS

Choosing the wrong tenants. Many cited this as a major setback, with one respondent saying their biggest mistake was: “Keeping tenants on when we bought a house” and another lamenting: “Giving a prospective tenant a ‘fresh start’, trusting what they said and then having nothing but trouble and serving a 90-day notice. Never again.”

WIN

Making the most out of “added value”. Whether that was buying a property with a large section and being able to develop it down the track; or buying a house that could be developed to add a bedroom, investors found the strategy of adding value a highly lucrative one.

LOSS

Selling. Full stop. Hindsight is 20/20, but it’s not going to help you when the chips are stacked against you and you feel you must sell a property. It’s worth investigating your options, though, as selling a property was one of the most common regrets cited by our survey respondents.

WIN

Capital gains. By far the most commonly stated “win”, the benefits of capital gains cannot be over-rated, whether you’re in the property for one cycle or for 20 years.

LOSS

Much the same as in last year’s survey, the biggest mistake investors had made was: “not buying 15 years ago”, “not buying sooner”, “not buying earlier” or simply, “not buying” at all. In investor-speak, we call this the cost of lost opportunity. Some investors are so active in the market, that a mere few weeks out of the market can cost them tens of thousands of dollars.

For those mum and dad investors, the loss of a few weeks out of the market isn’t so dire, but take heed from this mistake, as a lifetime out of the market can mean the loss of early financial security.

‘The most noticeable change is why people are selling . . . it’s now overwhelmingly to free up capital as they approach retirement’ JOHN BOLTON

When investors were asked to give their opinions on the tenancy law reforms, the responses were resoundingly negative, with responses ranging from the mild “ill advised” and “biased”, to the extreme: “I’m absolutely dreading it and

I plan to sell a property next month, then another in six months when the lease is up.” Interestingly, the question asking landlords how the healthy homes standards had impacted them in 2019 prompted a far less dire response, with the majority of respondents not unhappy with the increased costs caused by the changes.

Finding good tenants was next in the top three investor concerns, while low yields wasn’t far behind. One respondent lamented “I have good tenants but I’m reluctant to take on any new ones”, while another said

“More people are less equipped for life, so across the board, calibre of tenants is more challenging.” Interestingly, the top three barriers preventing investors from growing their portfolios in 2020 are considered to be: government policy changes; lenders’ servicing criteria; and property values increasing.

FUTURE EXPECTATIONS

While property prices increasing is a concern for those not able to get a foothold in the market, for those who own property increased values may provide the equity they need to expand their portfolio this year.

Respondents to the survey were positive about the possibility of value increases in 2020, which is a significant change in outlook from the previous year.

In 2018, 55.5% of respondents expected prices to remain the same, while 27.98% expected them to increase and 16.48% expected them to decline.

In this year’s survey, the tables have turned: 63.54% expect values to increase, 31.7% expect them to remain the same, while only 4.76% expect them to fall. Squirrel’s John Bolton says investors are far more confident in their outlook:

“This is a big shift from last year where the majority expected prices to stay flat.” He says low interest rates mean investors are less negatively-geared than before and investor activity is on the up.

“Investors are confident with their existing portfolio and its performance. There has been a bit more investor activity over the past year and the most noticeable change is why people are selling which is now overwhelmingly to free up capital as they approach retirement.”