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19-05-2010

Investor confidence in property slips

Dominion Post

Investors are showing less enthusiasm for rental property but attitudes to other classes of investment are rebounding, a quarterly ASB survey shows.

The ASB March quarter investor confidence survey shows a net 23 per cent of respondents were expecting a better rate of return over the next year, a fall of 7 percentage points from a record high in the December 2009 quarter.

The decline was partly due to rental property losing favour but largely because it was coming off such a big high, said ASB head of investment services, Jonathan Beale.

Rental property was still the favourite investment, with a net 17 per cent of people believing it still offered the best rate of return.

But it was down one percentage point and was now very close to bank savings accounts and term deposits at 16 per cent.

Term deposits rose 4 percentage points, which ASB surmised could be due to the recent pickup in interest rates.

Managed investments came in at 10 per cent, shares at 8 per cent and KiwiSaver at 6 per cent.

Mr Beale said that as the recession faded, all investment classes except rental properties were being viewed more favourably.

In particular, "managed funds have done well over the past 12 months as they recover from the slump and investors are starting to see their value as a long-term investment option".

He expected confidence in the second quarter to be shaped by debt developments in Europe and certainty at home following the Budget.

The survey also showed the uptake of KiwiSaver was at its highest point yet – up 2 percentage points to 37 per cent of investors in the survey.

While rental property is losing favour with investors, bond information reveals that rents are on the rise.

Nationally, rent for a three-bedroom house nudged up $5 a week to a median of $315 over the six months to April, compared with the same period to March.

One-bedroom apartment rents rose from $290 to $295 a week, the Department of Building and Housing said.

The figures also indicated there were fewer people moving about in the three months to April, with 27,570 bonds received, compared to 27,886 for the March quarter.

Andrew King, VP of the NZ Property Investors' Federation responds:

If rental property is considered the best investment in New Zealand, then why are more people not doing it? Statistics NZ states that only 6% of the population invest in rental property compared to 12% who own their own business, 21% who invest in insurance companies through superannuation funds, 21% who invest directly in the stock market, 9% in Managed funds and a further 5% in other financial assets.

Even though a majority of people believe that rental property is the best form of investment, most people still choose other investment forms. Why is that? The reason is likely to be that owning rental property is more hands on than handing your money to an insurance provider who will then hand it over to a fund manager.

For most people the extra effort and responsibility of providing rental property is too much even though the long term returns are likely to be higher. Does this mean most people are lazy? Certainly not. They simply place a different value on their time and choose a passive investment.

What is disappointing however, is that having made that choice and having accepted lower returns and lots of fees to different intermediaries in exchange for a hands off investment, they get upset when rental property owners actually earn more. Rather than accepting the attributes of the industry that they have chosen to invest in and seeking to change the way the industry is run so that they keep more of the returns that their capital generates, instead they attack those who chose rental property. This makes no sense.

At a time when the finance industry has lost people life savings and the structures they have developed are full of vested interests and underhanded practices, somehow average New Zealanders who choose rental property to secure their financial situation in their old age are the bad guys and all that is wrong with our economy. This makes no sense.

It is accepted that increases in GST will not be born by companies but will be passed onto consumers. However some commentators and politicians believe that rental property tax will only affect rental property owners and not their tenants. It makes no sense.

The Government have said that half of the Rich Listers’ in New Zealand don’t pay the top marginal tax rate. There solution to this problem is to reduce their marginal tax rate and increase the tax on rental property. How many residential rental property owners are on the Rich List? It makes no sense.

Source: Dominion Post

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