Why are some investors finding it harder than others? This week's key developments for property investors

In the current market, gross yields on investment properties are only around 3%, while mortgage interest rates are as high as 7%. This makes it very difficult for investors to earn sufficient returns by buying rental properties. The gap between rental returns and mortgage costs requires owners to find NZ$350–450 each week from other sources to maintain their cash flow. With such a large shortfall, clearly fewer investors are willing to enter the property market than before.

Of course, these calculations apply only to investors entering the market. Longer-established investors are likely to have bought investment properties at lower prices with smaller mortgages. They are also likely to have raised rents recently, which will further reduce their debt levels. This helps explain why we have yet to see existing owners selling their investment properties en masse.

For first-home buyers, the absence of mortgage-funded investors should theoretically make it easier to buy homes that meet their needs. Clearly, however, this still depends on saving a sufficient deposit and meeting banks' lending criteria.

The latest figures released by Stats NZ last week showed that gross domestic product (GDP) fell 0.1% in the fourth quarter of 2023, following a 0.3% decline in the third quarter. This means GDP has grown in just one of the past five quarters, and the picture looks even worse when strong population growth is taken into account.

Should we be worried? CoreLogic property economist Kelvin Davidson sees no need to panic. He explained that, with April approaching, these figures are already historical and confirm that the economy was struggling earlier. This is also consistent with the Reserve Bank of New Zealand's expectations: tackling high inflation by raising interest rates to reduce spending and economic activity. Davidson stressed that the latest weak economic figures might slightly increase the likelihood of an OCR cut at the end of this year rather than in 2025, but this is far from certain.

This week, the Reserve Bank of New Zealand will release mortgage data for February. Recently published figures show that lending volumes are slowly rising, and this trend is likely to continue. New growth may come from increased home-buying activity, while bank refinancing and equity withdrawals remain subdued. Meanwhile, lending rules remain relatively strict and low-deposit finance is still difficult to obtain, so high-net-worth borrowers are driving demand for loans.

Notably, 57% of existing mortgages are on fixed rates and will be repriced within the next 12 months. This means the process of repricing home loans in the current high-interest-rate environment is not yet over. Some borrowers still face repayment risks that warrant close attention.

ANZ will release its consumer and business confidence indices for March this Thursday. Ideally, the figures will show an improvement in business confidence, alongside clear signs of easing in business input costs, prices and inflation expectations. To some extent, this would further reduce the likelihood of another OCR increase and strengthen expectations of a faster decline in mortgage interest rates.

Stats NZ will also release employment data for February this Thursday. Employment has been trending upwards recently, which is very helpful for borrowing households adjusting to current high interest rates.