Confidence in rental returns at new low

The bank’s survey, which covers the three months to the end of December, shows that investor confidence overall rose by 3% as 2019 wound to a close.

This meant investor confidence nationwide went from a nett 8% to a nett 11%.

Investor confidence in Auckland was not quite as upbeat as the rest of the country, but it was still up by 2% to a nett 6%, as compared to 4% in the last quarter.

It appears to the improving state of the housing market which is driving investor confidence – but that confidence is resting in investors’ own homes.

Around the country, the view that one’s own home provides the best return rose from by 3% to a nett 22%, from 19% last quarter.

This development was particularly noticeable in Auckland where the belief in one’s own home providing the best returns rose to 23% from 14%.

In contrast, views of rental property as providing the best returns declined this quarter, falling from 17% to 13%.

ASB senior economist Chris Tennent-Brown says while the overall increase in confidence is encouraging, the details behind the lift are slightly disappointing.

“I really struggle with the idea of investor confidence being driven by an investors’ house rather than things like KiwiSaver, the share market or investment property.

“It’s problematic, because we know that simply relying on your house going up in value isn’t an investment strategy.”

They would like to see more diversification in investments, particularly as both KiwiSaver and the sharemarket had a stellar year in 2019, and are likely to continue providing solid returns over the long run.

But the divergence between perceptions of rental property versus own homes is interesting, given the positive drivers for rental property as an investment, Tennent-Brown says.

“The lift in the housing market, signs of increasing rents and low interest rates don’t seem to be offsetting some of the other issues that rental property investors have faced over recent years.

“Nevertheless, there is still a core group of investors who continue to believe and invest in rental property – it’s just smaller than the survey showed in earlier years.”

There was significant variation in investor confidence by region over the quarter.

Aucklanders remained the most downbeat, while Wellingtonians were much more confident, with 21% thinking return on investments would improve in the year ahead.

When it came to views of other types of investments, 13% perceived KiwiSaver as the best investment for returns while 8% viewed managed funds and term deposits each as being best.