Where are investors most active?


First home buyers held their ground in 2019, however, the key shift in activity last year came from mortgaged investors. Nationally, the share of purchases from this segment rose to 25% by year-end and in some areas they accounted for at least 50% of activity, Core Logic Senior Research Analyst Kelvin Davidson observes

With December’s data now to hand, the full 2019 results are available for the CoreLogic Buyer Classification series. What were the main trends last year and what might be in store for 2020? Most of the individual buyer groups held their ground in 2019, especially first home buyers, who tracked well at a 24% share of purchases throughout the year. Cash multiple property owners (MPOs, or investors) also had a steady presence.

The main story for 2019 (second half of the year), however, was the return of mortgaged investors. After flat-lining at 23% of purchases throughout 2018 and the first half of last year, their market share rose to 24% in Q3 and hit 25% in Q4 (see the first chart). This was the highest level since Q3 2016, which marked the peak for mortgaged investors, just prior to the Reserve Bank tightening the LVR speed limits and requiring a 40% deposit. The rise in mortgaged investors’ market share has also been driven by a genuine rise in activity (i.e. more purchases), not just because they’ve ‘held on’ better than other buyer groups.

NZ % share of purchases (Source: CoreLogic)

Underlying that rise from mortgaged investors has been greater activity by the smaller players, those that after their latest purchase have two properties (i.e. MPO 2) – see the second chart. These are the ‘Mums and Dads’, who would generally live in one of their properties and have one rental. There were also upticks (albeit smaller) in 2019 for the mortgaged MPO 3-4 and 5-9 categories.

Share of purchases by mortgaged MPOs by number of properties owned (Source: CoreLogic)

So where have mortgaged MPOs had the strongest presence? Filtering out suburbs where they made less than 15 purchases last year, there were two areas where mortgaged MPOs accounted for at least 50% of activity in 2019 – Chedworth (Hamilton) and North Dunedin. As Chart 3 shows, the top 10 suburbs for mortgaged investors last year all had a figure of at least 42%, well above the national figure of 24%. The area with the lowest presence for mortgaged investors was Allenton (Ashburton), at 11%.

Top 10 suburbs for mortgaged investors’ % share of purchases in 2019 (Source: CoreLogic)

It’s also interesting that in most of the top 10 mortgaged investor suburbs last year, the actual prices they paid were below the typical value of a property in that area, as the fourth chart shows (the exceptions were Whitiora, Mellons Bay, and Pinehill). This reflects the tendency for gross rental yields to be higher on lower value property, or in other words investors typically focus on properties in lower tiers of the market (which often means two or three bedrooms, rather than four) because this is where returns are generally higher. Of course, the mortgage required is smaller too, which makes the bank happier.

Median price paid by mortgaged MPOs in 2019 versus current median value (Source: CoreLogic)

It wouldn’t be a surprise to see mortgaged investors remain active in 2020. After all, term deposit rates are likely to stay low, making property an attractive choice for many ‘Mums and Dads’ – which would only begin to look even more attractive if the recent signs of an upturn are reinforced by more entrants to the market, kicking off a self-fulfilling cycle.