Love affair with housing boosts overall investor confidence

• Recent developments in the housing market have led to renewed confidence in investor's own homes as providing the best return on investments.

• In contrast, perceptions of rental property as providing the best return fell to a more than 15-year-low at 13%.

• Overall investor confidence has recovered somewhat this quarter, lifting from nett +8% to nett +11%.

• Investor confidence in Auckland trailed the rest of the country, sitting on net +6%, although still up from net +4% last quarter. 

It's all about housing this quarter, as signs of life in the property market saw investor confidence lift, according to the latest ASB Investor Confidence Survey.

For the three months to the end of December, investor confidence rose nett 3%, boosted by growing confidence in own homes as a solid investment.

Across the country, views of own home as providing the best return rose from 19% to 22%. This rise was driven by improved confidence in Auckland, where sentiment regarding one’s own home providing the best return on investments rose from 14% to 23%. In the rest of the country confidence in one’s own home providing the best return rose from 21% to 22%.

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

"The spring burst we've seen in the housing market has boosted confidence, but 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," says Tennent-Brown.

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

"While it's encouraging to see some expectations lift, we 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. 

"We’d like to see more confidence in investments outside of housing," says Tennent-Brown. "But it's a big ask, the love affair with housing just keeps on going, as we have seen over spring.

”View of rental property as providing the best return on investments appeared to dip this quarter in favour of own home, falling from 17% to 13%.

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

"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,” says Tennent-Brown.

Investor confidence varied significantly by region this quarter. Auckland remained the most downbeat with just 6% of respondents saying they thought return on investments would improve in the coming year, although this had risen marginally from the 4% last quarter. 

"Despite Aucklanders viewing their houses more positively in terms of investment, other factors are still dampening their enthusiasm," says Tennent-Brown.

Comparatively, Wellingtonians were much more confident, with 21% thinking return on investments would improve in the year ahead.

Fluctuation continued when it came to views of other types of investments, with 13% perceiving KiwiSaver as the best investment for returns, and 8% viewing managed funds and term deposits each as being the best investment for returns. 

"I encourage people to have a look at their KiwiSaver returns over 2019 – it's been a very good year for investments, with some very strong returns from a number of different funds. It would be nice to see those returns flowing through to an increase in confidence in KiwiSaver and managed funds over Term Deposits, which are paying very low rates these days," says Tennent-Brown.

ASB reports covering a range of commentary can be accessed at our ASB Economic Insights page: https://www.asb.co.nz/documents/economic-insights.html