Signs of Life in New Zealand’s Property Market: Mortgaged Multiple Property Owners (MPOs) on the Rise

The New Zealand property market has experienced significant fluctuations over the past few years, with mortgaged multiple property owners (MPOs) being notably less active than usual. However, recent data suggests that this trend may be shifting, indicating a potential resurgence of interest from ‘mum and dad’ investors. This article delves into the latest findings from CoreLogic’s October Housing Chart Pack and explores the implications for the New Zealand property landscape.

A Gradual Return of MPOs

According to CoreLogic’s October Housing Chart Pack, mortgaged MPOs accounted for 22.6% of all property purchases in September, a modest increase from the record low of 20.4% observed a year earlier. This uptick marks the highest percentage of MPO purchases since mid-2022, hinting at a renewed interest in the market. Kelvin Davidson, Chief Property Economist at CoreLogic NZ, notes that while the share of purchases by MPOs remains low compared to historical standards, there are signs that this group is beginning to re-engage with the property market.

Factors Driving Renewed Interest

Several factors are contributing to the renewed interest among MPOs. One of the most significant influences is the decline in mortgage rates, which has eased the cash flow burden associated with typical rental property purchases. Additionally, the reinstatement of mortgage interest deductibility—allowing investors to claim 80% of their mortgage interest as a deductible expense—has made property investment more appealing. Furthermore, reduced deposit requirements under the Loan-to-Value Ratio (LVR) rules have lowered the barriers to entry for potential investors.

Davidson highlights that these changes are likely to encourage more investors to consider entering the market, particularly as gross rental yields have been trending upward. From a low of 2.8% in late 2021, gross rental yields have now risen to 3.9%, the highest level since early 2016. This increase is attributed to a combination of weakening property values and rising rents, creating a more favorable environment for investors.

Regional Variations in Rental Yields

While the national average for gross rental yields stands at 3.9%, there are notable regional variations. In major cities like Auckland and Wellington, yields hover between 3% and 3.5%. In contrast, cities such as Hamilton and Tauranga are closer to 4%, while Christchurch and Dunedin boast yields slightly above 4%. Despite the upward trend in rental yields, Davidson cautions that they remain relatively low compared to current mortgage rates, leading some potential investors to adopt a wait-and-see approach until interest rates fall further.

The Future of Property Investment

Looking ahead, Davidson suggests that 2025 could be a pivotal year for property investors. As mortgage rates are expected to continue their downward trajectory, a typical mortgage rate of around 5.5% could entice a growing number of investors back into the market. However, this potential resurgence may be tempered by stricter debt-to-income (DTI) ratio limits, which could impact borrowing capacity.

Despite these challenges, new-build properties may present a strong opportunity for investors, as they are exempt from DTI restrictions. This exemption could make new developments an attractive option for those looking to enter the market.

Key Highlights from the October Housing Chart Pack

The October Housing Chart Pack provides a comprehensive overview of the current state of New Zealand’s residential real estate market, which is valued at a staggering $1.61 trillion. Here are some key takeaways:

The CoreLogic Home Value Index (HVI) fell by 0.5% in September, marking the seventh consecutive decline and bringing the total drop from February’s mini-peak to nearly 5%.
Auckland and Wellington have experienced property value declines of over 3% since June, while Christchurch and Dunedin have shown more resilience.
Nationally, property values dipped by 1.2% in the year leading up to September, with a cumulative 2.4% drop in median property values over the three months to September.
The overall decline from the market peak now sits at nearly 18% nationally, with some regions experiencing even steeper drops.
National rental growth has slowed, recording only 1.2% growth in the year to September, significantly below the long-term average of 3.2%.
Gross rental yields have been on a slow upward trend, now standing at 3.9%, up from a low of 2.8% in late 2021.
Approximately 66% of New Zealand’s existing mortgages by value are currently fixed but will be repriced onto new mortgage rates within the next 12 months.

Conclusion

The signs of renewed activity among mortgaged multiple property owners in New Zealand’s property market are encouraging. With lower mortgage rates, reinstated tax benefits, and rising rental yields, the landscape appears to be shifting in favor of investors. As we look toward 2025, the potential for a more robust property investment environment is on the horizon, making it an exciting time for both seasoned investors and newcomers alike. For those interested in exploring the latest trends and data, the full CoreLogic Housing Chart Pack is available for download here.