Confidence in rental property crashes

The glory run that has seen confidence in the residential rental market soar over recent years has come to an end, according to the latest ASB Investor Confidence Survey.

Thursday, July 17th 2008, 12:00AM

by The Landlord

Rental property has been viewed by investors as providing a better return than any other investment class for the past five years. However, the quarterly survey for the three months ending June 2008 shows confidence in rental property having dropped 3% to 16%, now sharing the top spot with term deposits.

“The weak housing market has seen prices come under pressure, with equity in investment property retreating along with prices,” says Jonathan Beale, Head of Investment Services, ASB. “This may be challenging some investors’ perceptions that the strong capital gains of recent years will continue into the future.”

Meanwhile, confidence in term deposits has remained stable at 16%, and confidence in bank saving deposits is not far behind at 15%, up from 12% in Q1 2008.

On a month-to-month basis, rental property was on a downward trend over Q2 2008 and by June had dropped to 13%, both term deposits and bank savings being viewed as providing a better return at 17% and 16% respectively. Geographically, confidence in rental property was down only slightly in the top of the North Island (from 19% to 18%) but slipped more noticeably in the lower North Island (from 16% to 11%) and the South Island (from 22% to 17%).

“Having money in the bank is becoming more appealing to some investors, which is not surprising given that deposit rates have continued to edge up and offer a high return for relatively low risk,” says Mr Beale.

“The Portfolio Investment Entities legislation (PIE) has also opened the door to new savings products which offer the opportunity to pay less tax on investment income. We are certainly seeing an influx of deposits into the ASB Cash Fund since we launched it earlier this month.”