Interest rates don't dull appetite

Property owners expect interest rates to rise by at least 1% by the end of this year but most are not expecting that to have any effect on their property portfolios, the latest Crockers Property Investment Index shows.

Tuesday, February 4th 2014, 12:00AM

by The Landlord

Just over one in five expect an increase of 1.5% or more in rates.

But 81% of those surveyed said they would not make any change to their property portfolio as a result.

Ten per cent said the change in interest rates would prompt them to decrease their portfolios. Nine per cent said it would lead them to an increase.

Three-quarters of those surveyed expected to see positive capital growth by the end of 2014. And those not expecting positive growth mostly expected neutral growth, rather than negative capital growth.

Crockers said rental prices had followed the general trend of residential sale prices – the greatest increases were in Auckland and Christchurch. Christchurch had the larger rental price increase, up by more than 25% for both two- and three-bedroom properties since 2010. In Auckland, prices were up 12% and 15% for three- and two-bedrooms respectively over the same time period. Most of the change has been since 2012.

A rough estimation of the rental return (yearly rental income divided by house price) indicates that Christchurch is strengthening while Auckland is weakening somewhat.

If someone bought in Auckland at the median price of $564,000 and rented it out for all 52 weeks of the year at $455 per week, they would bring in 4.19% of their original investment, before expenses, comapred to the 4.54% they would have got in 2011.

The proportion of those expecting the performance of their portfolios to worsen rose to 13% last month after dipping to 4% in November. Just under 30% expected the performance to improve, from 34% the month before.

The Auckland Performance Index has dropped significantly to the lowest level recorded, after reaching a particularly high level in November.

This is driven by a number of respondents’ surveyed expecting performance to worsen in the next 12 months. But while Auckland investors aren’t expecting great returns, there is still appetite for more investments. Crockers suggested that could be because new regulations were creating opportunities.

Crockers said that since October 2013 it had seen an increasing proportion of investors indicate that they will not make changes to rental property investments.

That stabilized last month at 73%.

“This trend is the result of fewer investors indicating that they intend to increase the size of their investments, now at 15%, only slightly higher than the historical low seen in November, 13%. However, it will be interesting to watch this trendline to see if we are now coming out of a dip and into a growth pattern, as the LV R guidelines have slowed the first-home buyer within the market place, leaving more for the investor to buy.”

Of those who were planning to invest in rental properties, there was a consistent trend to look for properties that were not apartments.

Planned investment in Central CBD apartments stabilised at 17%. There was a small decrease in those planning to purchase apartments elsewhere.

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