Demand for Rental Properties Plummeting?

This may have woken a few owners up but you can relax. This is NOT what we are experiencing.

  • Yes – things may be taking a little longer. Quite usual this time of year.
  • Yes – there are a lot more properties on the market. This is not an indication of a falling demand but more the outcome of properties becoming harder to sell. Owners are therefore entering the rental sector.
  • No – rents are not dropping. Christchurch average rent $575.
  • Yes – immigration remains high
  • Yes – interest rates remain high
  • Yes – bank finance remains hard to qualify for.
  • Yes – new lending to income criteria will make it harder on potential borrowers.
  • Yes – the removal of first home subsidies will make it harder on potential
  • borrowers.
  • Yes – unfortunately many New Zealanders are living in fear of losing their employment.
  • Yes – the cost of living remains high – though inflation is falling.
  • Yes – it remains a good time to be a landlord.

So, we remain buoyant and confident in the residential rental sector. It is evident that some of the issues raised in this article do impact on other parts of the country and may well come to Christchurch over time. So, we all need to remain alert.

Having said that residential rentals remain a good investment it is fair to say that some investors are leaving the sector – or at least not expanding their portfolios.

Reserve bank figures show that the number of mortgages approved to residential property investors fell from almost 7,000 per month in mid-2016 to just over 2,000 per month in April 24. Further investigation shows that indicative rental yields have become so low that many rental properties would in fact have significant negative cash flows. Currently investors are not confident that capital gains on the property would offer encouragement to proceed with the investment.

For residential property to regain its former position of providing reliable and worthwhile income stream there would need to be:-

  • A substantial drop in property prices
  • A substantial increase in rents
  • A major decline in mortgage interest rates
  • A mix of all three.

It is recognised that such downturns in the economics are cyclical and that many long-term investors will not be deterred.

The media continues to inform us that the property sales sector is slow and in trouble. We came across this list of reasons as to why this is so.

  • Rising / high interest rates
  • High inflation
  • Stagnant wage growth
  • Increased supply
  • Tightening lending criteria
  • Decline in foreign investment
  • Employment uncertainty
  • Economic uncertainty
  • Government housing policies
  • Slowdown in population
  • Negative market sentiment
  • Affordability crisis
  • Rising construction costs

We think these are self-explanatory.