“If you took your equity out and invested it in standard index funds or a managed fund, there’s potential that if you pick the right one, you could do a lot better over the same period.”
He said many investors were increasingly interested in assets that offered some liquidity, or properties that would give more cashflow.
Iswar said investors needed to think about what they wanted to achieve with any of their investments. “If you’re buying property for future wealth then it might be a good thing… I’m not saying property is bad. I’m saying you should look at property and other asset classes at the same time, so you are diversified.”
ASB’s investment confidence survey showed many people now expect lower returns from property investment.
Investors are advised to think about what they want to achieve with any of their investments. Photo / 123rf
A survey by economist Tony Alexander earlier in the year showed a record number of investors considering selling.
Property investment coach Steve Goodey said investors were taking a different approach now the market was flat.
Prices have been flat or falling in much of the country for the past three years, although Canterbury and Otago have returned to their previous peaks.
“Five years ago, property could do no wrong, now it’s all property might be over, which is bulls***. It’s just first-home buyers’ turn to jump in, which is great for the average long-term investors as it takes so many properties out of the rental pool.
“Investors have just flipped, they don’t invest for equity at this point in the market so they invest for the other metric that makes sense, which is cashflow.”
He said the run-up to Christmas was likely to be a terrible time to sell a property but a good time to buy.
Goodey said he was finding value in “blue-collar cities” such as Palmerston North and Hastings. “They haven’t had the massive boom or massive bust; they tick over and do their own thing. There is a lot of interesting stuff going on, a lot of great cashflow plays. There are lots of people sitting out there with the ability to borrow but they’re keeping their hands in their pockets because they’re nervous.”
More than three-quarters of first-home purchases are standalone houses. Photo / 123rf
Cotality chief property economist Kelvin Davidson agreed that investors seemed to be changing their approach. He said it seemed the type of properties that investors were buying was changing.
In 2016, 13.8% of investor purchases were townhouses and 71.7% were houses.
In 2021, that was 15.5% and 69.9% respectively.
By this year, it was 66.9% and 19.4%.
More than three-quarters of first-home purchases are standalone houses.
“It could be an income thing or a cashflow thing… we estimate a townhouse yield right now might be 5% versus 4.5%… not a huge difference but a bit of a difference.”
He said historically investors had made a significant proportion of their returns from capital growth but many of the things that had driven prices up in the past, such as long-term falls in interest rates, a move to double-income households and housing supply shortages, had changed.
“I think if there is a point at which we are going to see structural change in the rate of house price growth, it may well be now. I think we’ll still see house price growth because incomes will go up and construction costs will rise a bit and we’ll still have population growth, those things will still drive up house prices over the long run, but the growth may just be slower. So if investors are going to get the same return from property, they’re going to need some income. It would make sense if you shift towards higher-yielding properties.”
He said he had heard some investors also focusing on a strategy in which they renovated to add value. “You add a bedroom, you get the yield up through doing that, rather than just buy a house and sit on it and let it go up in value.”
Some investors might also be purchasing townhouses because if they were new builds they were exempt from loan-to-value and debt-to-income rules.