Mega landlords tipped to grow

Medium and large investors are expected to increase their property holdings in the next 12-18 months as mum and dad investors start selling up in the face of rising costs.

Following discussions with a number of larger investors, James Wilson, head of valuations at property data company Valocity, says there is an intention emerging to grow portfolios off the back of smaller investors selling up.

And there may be a whole new breed of mega landlord on the horizon.

Auckland University economist Robert Macculloch warns first home buyers may face even wealthier competitors as banks look to become buyers, purchasing homes directly rather than offering mortgages in order to capitalise on runaway capital gains.

Banks in the UK and US have already started buying up residential property, and at least one of New Zealand’s biggest banks – ASB – has taken notice.

Wilson says discussion with investors suggested heftier tax bills resulting from the ending of mortgage deductibility and rising costs from the likes of the Healthy Homes Standards were expected impact smaller investors hardest.

As they get rid of investment properties, it is likely many will be snapped up by eager firsthome buyers.

Wilson says larger investors generally treat their portfolios like a business. This meant they often have more funds and reserves, and are well-placed to acquire stock sold by smaller investors.

However, Wilson doesn’t expect there to be a fundamental change to the makeup of the market, or for mega landlords to suddenly become the biggest rental providers.

Auckland University economist Robert Macculloch meanwhile warns banks and other large institutions may start purchasing property directly, rather than handing out mortgages.

This has already begun happening in the US and Britain, he says, where it was reported Lloyds aims to be renting out 50,000 homes by 2031.

‘‘The big fish are thinking: why should we let this first-home buyer buy something which they are going to double their money on in the next five years? The banks are thinking: why don’t we double our money on it?’’ Macculloch says.

‘‘They are thinking: we should have bought the place instead of them and just rented it to them.’’

There’s very little that can be done to stop the buy-up if it starts, Macculloch says.

‘‘They can’t ban them from buying that asset.’’

An ASB spokeswoman says the bank is aware of banks in UK and US starting to buy residential property.

‘‘This approach is not something we are actively considering at this time,’’ she said. ‘‘However, we do provide a lot of support for social housing developments and regularly lend to developers specialising in housing builds for New Zealanders on lower income.’’

Westpac, ANZ and Kiwibank all say they do not invest directly in residential property, and have no plans to do so.

Macculloch says pension funds and asset managers may also join the market. This does appear to be happening.

A recent announcement of the country’s largest build-to-rent scheme by Kiwi Property hinted that building to hold rather than sell was becoming a more attractive idea, Macculloch says.

Developer NZ Living also recently announced a partnership with Kiwisaver provider Simplicity that could make the new entity the country’s secondbiggest landlord.

Andrew Sowry helps manage Senate Investment Trust, which is estimated to own between 50 and 200 properties. He agrees with Valocity’s prediction, and says the trust remains an active buyer in the market and that there’s a ‘‘buy at any price’’ mentality created by so few properties hitting the market.

He describes large portfolio holders such as Senate as ‘‘quintessentially the people the Government talks about when they target the property industry’’ but says they are probably ‘‘the only ones who are impervious to all their policies’’.

That is because while small investors would struggle to foot the bill of risings costs, big investors have the equity and the reserves to carry on.

‘‘On the whole ma’s and pa’s were willing to bend with the wind, but now the wind is so strong that the tree would snap.’’

Sowry says many small investors are now at breaking point.

‘‘It’s made them sit down and say: ‘Why are we bothering? We might as well just get out, take the capital gains, and go and buy a jet-ski.’’