The New Zealand housing market is an ever-changing landscape. From economic shifts to governmental policies, it’s hard to guess what will impact it next. Amidst all this uncertainty, one group of stakeholders plays a consistently crucial role: property investors. Their motivations, strategies, and behaviours significantly shape the availability of houses for sale, influencing both property prices and rental market dynamics. For landlords and other invested parties, understanding these elements is not just beneficial—it’s essential for making informed and strategic decisions.
Property Investor Motivations
At the core of every investment decision is a set of motivations that drive property investors. Whether you're an investor yourself or looking to make your property more appealing, here are six key factors to consider:
- Capital Gains: Money matters. This is why the key motivation for property investors is their potential for capital gains. The prospect of buying a property at a lower price and selling it at a higher value is a powerful incentive and Zealand's property market offers the perfect environment to yield gains. Investors often seek out properties in up-and-coming areas like New Brighton in Christchurch or Papakura in Auckland which are ripe for development.
- Rental Income: Another significant motivation is the steady stream of rental income. For many investors, rental properties provide a reliable source of passive income, which can be particularly appealing in a low-interest-rate environment. This income can help cover mortgage payments and other expenses, with the added benefit of potential long-term capital appreciation.
- Portfolio Diversification: Diversifying their investment portfolios is a strategic move for many property investors. Real estate offers a tangible asset that can balance more volatile investments like stocks or bonds. By spreading their investments across different asset classes, investors can mitigate risk and enhance the stability of their overall portfolio.
- Economic Factors: Broader economic conditions also play a pivotal role in shaping investment decisions. Factors such as interest rates, inflation, and economic growth can influence the attractiveness of property investments. For instance, lower interest rates reduce the cost of borrowing, making property investments more appealing.
- Government Policies: Changes in government policies, such as tax incentives, zoning regulations, and development grants, can significantly impact investor behaviour. For example, in 2022 Auckland Council introduced a change in planning rules which allowed for higher building limits in many residential areas. This change legalised the construction of apartments on numerous sites, significantly increasing the attractiveness of certain properties for investors.
- Market Trends: While it may seem obvious, market trends drive investment decisions. Rising property prices, increased demand for rentals, and positive market forecasts can create a favourable environment for property investments. Conversely, a cooling market or oversupply of properties can prompt investors to adopt more cautious strategies.
Investment Strategies
Property investors in New Zealand employ various strategies to maximise their returns. Each strategy has its unique approach and impact on the housing market, particularly in terms of supply and demand. Let's explore five of the most common investment strategies:
- Buy-to-let is a popular strategy where investors purchase properties to rent out, generating steady rental income and potential capital gains. In urban areas like Auckland and Wellington, the demand for rental properties has surged, driven by population growth and migration. While buy-to-let investments stabilise the rental market, they can also reduce the supply of homes available for purchase, driving up prices.
- Flipping, one of the most popular strategies involves buying, renovating, and quickly selling properties for profit. This appeals to investors seeking quick returns. Flipping can improve housing stock but also create short-term supply fluctuations. The Canterbury region has proven to be fairly profitable for house-flipping over the past few years.
- Long-term holding involves purchasing properties and retaining them for extended periods to benefit from rental income and capital appreciation. Investors favour stable, high-growth areas like Auckland. This strategy supports rental market stability but can limit homes available for new buyers, especially in high-demand regions.
- Commercial Property Investment: Investing in commercial properties, such as offices and retail spaces, offers higher rental yields and diversified income. While the impact on the housing market is indirect, commercial investments boost economic development, driving residential demand in areas like Auckland's CBD and Christchurch.
- Holiday Rentals are popular in tourist-heavy regions like Queenstown and Rotorua, where properties are rented short. This strategy can generate high seasonal income, especially with the convenience of AirBnB, Booking.com and other platforms.
Selling Behaviour
According to the latest data from the Real Estate Institute of New Zealand, housing sales have surged, with national sales increasing by 25.4% year-on-year, accompanied by a significant rise in property listings. Our chart highlights the growth in listings across popular regions. While Hawke’s Bay, Marlborough, and Auckland have seen moderate increases, Wellington has experienced a dramatic spike in listings, raising the question—why are property investors selling?
Property investors in New Zealand are choosing to sell their assets due to a combination of market conditions, tax changes, and personal financial goals. The current buyer's market, characterised by a national average house price decrease of 0.2% over the past three months, has prompted many investors to sell. In doing this, they aim to lock in profits or avoid further losses in a declining market.
Impact on Housing Availability
As more property investors decide to sell, the market experiences a surge in available houses. This increased supply gives buyers a wider selection, potentially making it easier to find suitable homes. This is because, with more options available, buyers have greater negotiating power, leading to lower sale prices.
The surge in property sales can have mixed effects on the rental market. Investors selling rental properties might reduce the number of homes available for rent, tightening the rental market and driving up rental prices. Conversely, some sold properties might be bought by new landlords or converted into owner-occupied homes, potentially stabilising or increasing rental availability in the long term.
Implications for Landlords
With property investors flooding the market with listings, it's essential for Landlords to stay ahead of the curve and make strategic decisions that mitigate risks. Here’s how you can do just that:
- Stay Informed and Adapt: In a market that’s constantly shifting, knowledge is power. Keep a close eye on market trends and data. Knowing when prices are likely to drop or rise can help you decide the best times to buy or sell.
- Diversify Your Portfolio: Diversification isn't just for stock markets. Consider spreading your investments across different types of properties or even different locations. This can help buffer against market volatility. If one segment of the market takes a hit, other areas of your portfolio might remain stable or even thrive.
- Enhance Property Appeal: With more properties on the market, yours needs to stand out. Invest in small upgrades or maintenance tasks that can significantly boost your property's appeal to potential buyers or tenants. A fresh coat of paint, modern appliances, or improved landscaping can make all the difference.
- Consider Long-Term Tenants: In uncertain markets, having a reliable, long-term tenant can provide steady income and reduce turnover costs. Offer competitive rental rates and excellent service to retain good tenants. Stability is key in uncertain times, and a long-term tenant can provide that.
- Leverage Professional Advice: Make sure to utilise advice from real estate professionals. The team at The Rent Shop can help you understand market trends, set competitive rental rates, and make informed decisions about buying or selling.
If you’re a landlord and are wondering whether you should sell or rent your investment property, take a look at our helpful guide.
Conclusion
Navigating the New Zealand housing market is challenging, especially in today’s economy. Understanding the motivations and behaviours of property investors is crucial, as their actions significantly impact the availability of houses for sale, property prices, and rental dynamics. At The Rent Shop, we're dedicated to providing valuable insights and tips to help you stay ahead of market trends. We recommend following our blog for the latest updates. For more personalised advice, don't hesitate to reach out—our expert team is here to help you turn market challenges into opportunities.
