We’re in the midst of a property market slowdown, at least in terms of sales activity. Month on month sales have been dropping since early last year, and for most of 2013 this drop hit all buyer types more or less equally, but since the LVR speed limits came in last October there has been a shift, and investors are the clear winners.
Sales to each buyer group
Take a look at this chart which shows the percentage of sales each month for the last 10 years by buyer group.
Notice the red line going up and then dropping suddenly around the time LVRs came in? First home buyers had an initial surge in activity just before the limits kicked in, then dropped to a couple of percent below their pre LVR level, where they’ve been steady for the last six months. The other noticeable drop is with movers in the last few months, perhaps waiting to see the outcome of the election.
SEE ALSO: Property Investors dominate the market
Increasing investor activity
The most significant change since the LVR speed limits came in has been the increase in investor (multiple property owner) activity, now at its equal highest level for the past 10 years. During that time investors have always been the most active group, generally buying 33% to 40% of all the properties that sell in a given month. The current figure of 42% is the same as it was in September 2010, just before we started recovering after the GFC.
Of the investors, the most active groups are those buying their second property, and those who already have a portfolio of ten or more properties. Both of these groups buy about 30% each of all properties bought by investors. People with a portfolio of three to four properties make up another 25%, and people with 5 to 9 properties make up 15%.
The group owning ten or more properties used to be much more dominant, making up 32% to 40% of all investor sales up until 2010.
Where are investors buying?
This map shows where investors are active across the country, based on sales over the past three months. Areas above the national average of 41% are red, those below are blue, and those around the average are grey.
The first thing that jumps out is the high investor activity in Central Auckland and Christchurch, with 47% and 48% of all sales, respectively, going to investors.
Dunedin and Queenstown are also both strong at 45% and 43% respectively. This is a significant change from a year ago when they were both below the national average, especially Dunedin.
Wellington City and Manukau both sit around the national average.
Rodney, North Shore and Waitakere in Auckland are all below the national average, as they were a year ago. Hamilton and Tauranga have both dropped further below the national average.
What are investors buying?
You may have a view that investors primarily buy flats and apartments, and you would be partly right and partly wrong.
Partly right in that investors buy apartments and flats more than other buyers do, from 20% of their sales for investors with 2 properties up to 29% for investors with portfolios of 10+. This compares to 16% for first home buyers and 17% for movers.
But partly wrong in that even for the big investors, standalone houses are by far the most common type of property bought.
What value properties are investors buying?
There is also a commonly held view that investors tend to buy properties at the lower end of the value range. Analysis of rental yields, for example, often uses the lower quartile of property values for that calculation.
But this actually isn’t the case. Investors are buying right across the value range.
Investors with two properties have the most even spread of any buyer group, buying more or less a quarter of all their properties in each value quartile, with only a slight skew towards the bottom quartile.
As you move up through the investor groups their purchases of top quartile properties increases, to the extent that 37% of the purchases made by the 10+ group are in the top quartile and only 38% in the bottom half of the value range; a clear skew towards more expensive properties.
So what sort of properties are these expensive ones that large portfolio investors are buying? One of the patterns we have seen is that rather than purchasing in cheaper outlying suburbs they are more often purchasing houses in suburbs close to city centres, for example a $1m house in Remuera. Not an expensive house by Remuera standards but well above the Auckland average, and from an investment point of view a pretty safe bet for capital returns and tenancy.
So where to from here?
Now that the election result is clear and spring has arrived, sales activity should pick up again. I am expecting investors to remain active, especially while the LVR limits hold down first home buyers and some movers.
SEE ALSO: Property Investors dominate the market
Westpac has info and tools to help you navigate the house hunting process: