Optimism running high with property investors

New Zealand’s property investors remain optimistic about property prices and they continue to look for strong capital gains to offset low yields.

Tuesday, March 20th 2007, 3:34PM

by The Landlord

The annual ANZ Property Investor Survey (in association with the New Zealand Property
Investors Federation) released today shows that only 2% of the 453 respondents expect prices
to fall over the next year, with only 1% anticipating a price fall over the next five years.

The median price expectation over the year ahead is 5%, 7.5% for five years, and 10% over
the next decade.

“The results of our survey tell us that residential property investors are optimistic about
property prices and tend to have a long term hold ownership strategy,” says ANZ Chief
Economist Cameron Bagrie.

But he warns of clouds on the horizon.

“It is precisely this sort of exuberance that the Reserve Bank is seeking to quell. Continued
house price gains of double-digit magnitude will see housing become even more unaffordable
to the average New Zealander. Investors need material capital gains as the average gross
yield is 4.5%.

“We concur with the general view of property investors over the long term, although they do
seem a little optimistic: the expectations are that house prices will grow faster over the
coming decade than they have averaged historically over the last 50 years.

“We note that both the Reserve Bank and Minister of Finance are looking at tightening up on
the use of Loss Attributing Qualifying Companies (LAQCs) and stricter enforcement of existing
tax rules on capital gains (made on properties that are bought with the intention of selling for
a profit).

“Given the results of our survey, a clamp down of this nature would appear to have
implications for many residential property investors. While uncertainty remains, Reserve Bank
and Government investigations are still in the exploratory stages and will not be acted upon for
some time.

“Consequently, while we recommend that property investors keep a close eye on
developments, they should not be overly concerned yet.”

The proportion of equity in relation to the total value of properties is not high, with 62% of
respondents reporting a gearing ratio of 0.5 or less.

Martin Evans, President of the New Zealand Property Investors Federation is pleased to note
the equity figures but reminds investors to keep their eye on the long-term goal.

“Many New Zealanders have the vision of investing in long term property assets to boost their
wealth to provide a good standard of living in retirement” says NZPIF President Martin Evans.
“It’s pleasing to see that many have already reached that level of wealth and are able to enjoy
the benefits of their chosen investment vehicle.

“However many wise investors choose to hold off purchasing when cycles are peaking; instead
realising that this is a long-term strategy, and there will be plenty of other opportunities when
yields improve.”

The average market value of residential properties was $1.47 million and the average equity
held by respondent investors was $700,000. In general, investors are reasonably well placed
to weather any contractions in property prices - and in many cases expand their portfolios.

Most still have an appetite to buy, with half of respondents expecting to buy another
investment property in the next 12 months. Only 17% don’t plan to buy in the next five years.
Survey respondents own an average of five residential properties.

Loss Attributing Qualifying Companies are the most common ownership vehicle used by 55%
of respondents, while 36% hold properties privately in their own name.

Most investors are in the market for the long term, with an overwhelming 87% of respondents
citing this as one of their strategies.

There’s a wide age-range of property investors, with 60% under 50 years. Only 12% are over
60 years, throwing doubt on the talked-about “bow-wave” of properties hitting the market as
retiring property investors liquidate their assets.

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