After falling to a record low in terms of their percentage share of property purchases in the second quarter of last year (a touch less than 21% nationally), mortgaged multiple property owners (MPOs, including investors) have steadily returned to the market since that time. Indeed, January’s figure had climbed to about 24% – still a little below the long-term average, but nevertheless the highest figure since mid-2021, and a clear sign that investors are targeting property again. Where is the interest showing up and what’s driving it?
It’s been a pretty broad-based return to the market
Despite higher average purchase prices, Auckland always tends to have a higher share of purchases going to mortgaged MPOs than the national figure, and there’s certainly been a pick-up in interest – from lows of around 24%, debt-backed investors have recently grown their share to 26%. Tauranga and Wellington haven’t perhaps had quite the same pick-up in interest from mortgaged investors, but Hamilton has risen, along with Christchurch in particular.
Meanwhile, Dunedin has also seen strong growth. Mortgaged investors’ market share there can be a little volatile from quarter to quarter, but after troughs of less than 15% of activity in late 2023, their presence has rebounded strongly to around 23% in the past few months. Strong rental growth in Dunedin may be a factor enticing investors back, alongside higher gross yields than other key areas.
In the ‘second tier’ cities, there’s also been a decent rise in market share for mortgaged investors, with markets such as Gisborne, Napier, Hastings, New Plymouth, Queenstown, and Invercargill all becoming more popular again. Each of these areas have different merits, but certainly in the case of Gisborne, Napier, and Hastings, significant falls in property values in the past few years will have no doubt created some fresh appeal to prospective buyers.
What lies behind the comeback?
Clearly, factors such as the shorter Brightline Test from 1st July last year and the reduction in the LVR deposit requirements on the same date (from 35% to 30% for existing properties) will have piqued some mortgaged investors’ interest again. In addition, with interest deductibility currently back to 80% and headed to 100% on 1st April this year, a smaller tax bill will have obviously helped.
But it seems likely that the most significant change has simply been the falls in mortgage rates, which have improved the cashflow positions of many investors. As an illustration, if you plug in a national purchase price of $780,000 (the median paid by mortgaged MPOs in 2024), assume 30% deposit, 4% gross rental yield, interest-only mortgage (and 100% deductibility), a drop in mortgage rates from around 7% to about 5.5% broadly cuts the weekly cash top-up/requirement from $350 to $200. That’s still significant for a new investor, but much less of a hurdle than before.
Looking ahead
Our expectation is that overall property sales volumes will rise from around 80,000 in 2024 to 90,000 in 2025, reflecting the lagged effects of lower mortgage rates and the anticipation of a growing economy again, albeit slowly. That said, further job losses in the near term are unfortunately looking likely, and debt to income ratio limits will also become a consideration, although the ‘generous’ 20% speed limit and the new-build exemption should mean they don’t put a hard stop on activity. In this environment, it would not be a surprise to see a higher number of deals from all buyer groups, with mortgaged MPOs’ % share of activity potentially also rising a bit further.
Kelvin Davidson
Kelvin Davidson is the Chief Economist of CoreLogic New Zealand.
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