Investors are still accounting for over a third of house purchases ahead of new restrictive rules aimed at them - but they do appear to be backing off on the proportionate size of loans.
New Reserve Bank figures showing loans by type for August reveal that in the month, out of a total of $5.94 billion advanced on mortgages, investors accounted for $1.989 billion, or 33.48%. This figure has been edging upwards in recent months.
The figure is, of course, national, while the Reserve Bank believes that in Auckland, investors have been accounting for more than 40% of house purchases. RBNZ deputy governor Grant Spencer said last month that based on information from property information, analytics and services provider CoreLogic, investors accounted for 41% of Auckland house sales in June. This continued the trend that can be seen in this article from back in May.
These latest figures, along with very strong mortgage figures in the past week, (highest by number and amount since April) would indicate that there is a real flurry of activity taking place ahead of the introduction of new rules aimed at curbing investors.
Next month new tax rules kick in, including that any profits on house sales by investors within two years may attract tax. The following month there's new RBNZ rules meaning that Auckland housing investors won't be able to borrow more than 70% of the value of the house they are buying.
The latter rule's likely to affect quite a lot of investors. As recently as May, more than $1 billion worth of loans to investors were done so at LVRs above 70%. This compared with a total of $1.98 billion of loans to investors in that month. In other words the above-70% LVR borrowers made up 51.15% of the total.
But ahead of the rule change these figures are already coming down. In the latest month the amount loaned at above 70% LVR was just 43.64% ($868 million) of the $1.989 billion. The percentage dropped sharply from 47.25% in July and 50.8% in June.
Separately, another set of August figures also compiled by the RBNZ, shows that the banks are still well under the existing 10% 'speed limit' on the proportion of loans they can write for LVRs over 80%. After exemptions just 6.3% of mortgage money advanced was on above-80% loans, down from 6.6% a month earlier.
Once the RBNZ's new rules come into place in November it is planned for the 'speed limit' to be relaxed to 15% outside of Auckland.
19 Comments
I have no wish to speculate. I am an investor and have been for a long time.
However I have consulted some of Auckland's biggest speculators (i.e. property developers) over the years. Typically they don't accept solid advice as their previous successes make them overly confident everything they touch will turn to gold - just as it did on their last project. Until it doesn't, and eventually they all went bust.
Ignoring leading indicators is for fools.
The B&T auction results the week before for south Auckland were similar, approx. 40% success under the hammer. Although the success rates for more central areas are currently holding their ground better.
Oxford dictionary definitions:
Invest definition:
Put (money) into financial schemes, shares, property, or a commercial venture with the expectation of achieving a profit:
speculate definition:
Invest in stocks, property, or other ventures in the hope of gain but with the risk of loss:
As you can see investors are in fact speculators as they take on risk for profit. Not sure why NZ is so caught up in trying to distinguish between the two. They are essentially the same. Every BTL investor is speculating either on rental yields or capital gains or both.
The simple fact is that anyone "investing" in Auckland residential property is by definition a speculator at the moment - Chinese or otherwise.
At current yields these purchasers are reliant upon capital gain at a time when fundamentals point to an over-priced market. There is nothing calculated about this - it's dumb, naked money rushing in... like a pool party at Dan Blizerian's place.
It is merely a taxation distinction.
Speculator is someone IR can show purchased an asset to make a gain on the disposal... therefore that gain on disposal is taxable.
Investor is someone IR cannot show purchased the asset to make a gain on disposal (e.g. they bought it for the rent or dividend returns)... therefore the gain on disposal is not taxable.
The new 2 year bright line test does away with this distinction (hence it is a true capital gains test). Even if you can show the property was acquired as an investment (i.e. you had no intention to dispose of it for a gain), if it sells in two years and it is not your family home you are taxed on the gain.
The difference between investment and speculation is that with investment you expect to achieve a return through profit / dividends from the productive use of capital.
Speculation is simply expecting to sell an asset or commodity to a greater fool at a later date and pocket the capital gains.
Investing and speculating are the same thing. Your view would mean that if you purchased shares without dividends you would be speculating.
Where you invest for profit either dividends or rent or capital gains you are speculating.
Don't worry you are not the only kiwi to get confused.
Also how is a btl property a productive use of capital ? Fairly low in regards to productivity compared to say a business.
That argument doesn't hold water I'm afraid, I hear it regularly and it reflects the ignorance and financial illiteracy of property "investors"...
You can invest in companies with:
i) high earnings that don't necessarily distribute this by way of dividend. Preferring to retain the earnings and reinvest in defined growth opportunities; or
ii) high growth that may not yet be cashflow positive but have a defined value proposition, identified customer demographic and clear path to market.
In both cases the true INVESTOR is backing an articulated business plan for value creation and the credibility of those who prepared it.... not just a belief, hope or prayer that some mug will pay a higher price for an asset that, for all intents and purposes, has remained unchanged.
This may help explain the difference.
http://www.investopedia.com/ask/answers/09/difference-between-investing…
This explains it somewhat better.
http://www.yourarticlelibrary.com/investment/what-is-the-difference-bet…
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