Investor confidence has slipped across New Zealand, thanks in part to pessimism about returns on investment from term deposits. According to the latest ASB Investor Confidence Report, there has been a downward shift in this measure since the start of 2017, with investor confidence falling from 21 percent to 16 percent over the last quarter alone. While overall sentiment is still significantly higher than the recent low of 3 percent recorded at the start of 2016, expectations could drop further if housing fails to provide the same returns as previous years.
The ASB Investor Confidence Report defines investor confidence as the difference between those people who thought return on investment would improve over the next year and those who thought it would get worse. The majority of respondents were still positive, with 27 percent of people expecting their investment returns to increase over the next 12 months. While a significant 40 percent expected their returns to stay the same over the next year, only 12 percent thought their returns would decrease.
According to ASB senior wealth economist Chris Tennent-Brown, "Investor confidence has eased off the peak at the start of the year, but remains well above the levels of a couple of years ago... It continues to be disappointing to see quite low expectations regarding KiwiSaver and managed funds relative to term deposits." Housing is still viewed as the best investment by Kiwis, with confidence in this sector increasingly slightly over the quarter. Investment in a personal home had a net positive result of 23 percent over the quarter, with investment in rental properties recording 18 percent.
According to Tennent-Brown, there is a growing disparity between property and equity market returns and term deposit rates, which are currently between 2 and 4 percent: "A number of KiwiSaver balanced and growth-focused funds will have posted returns far higher than this over the last few years... It's been an amazing few years for sharemarkets, which is great for share investors, and the sharemarket gains have flowed through to really good returns for a number of growth-focused funds found in KiwiSaver schemes and managed funds."
While investor confidence is still much higher than recent lows, it could be on shaky ground if confidence drops regarding property market returns. There are already some early warning signs, with the Auckland Rental Property Investment Index decreasing this month as more people look to sell off some of their investment portfolio. The Auckland Rental Property Performance Index also decreased this month, as a growing number of investors believe the performance of the Auckland rental property market will decrease over the next 12 months.
If property prices keep slipping in Auckland and other key markets, we could see more investors selling off housing stock. The median sales price for Auckland residential properties decreased from $850,000 to $830,000 in June, with sales volumes also dropping from 2,610 to 2,083. While this could simply reflect the regular winter slowdown, it's important to note that prices are lower than they were this time last year. Prices were also down across the country according to Harcourts data, with the average selling price down by 3 percent to $598,409 in July, but still up 3.6 percent compared to July last year.
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