New signs are emerging of renewed interest in New Zealand's property market. According to CoreLogic’s October Housing Chart Pack, mortgaged multiple property owners (MPOs)—often called “mum and dad” investors—made up 22.6% of all property purchases in September.
This resurgence invites questions about the broader investment landscape. Are there parallels between renewed interest in property and increased activity in other areas like shares, startups, and capital raising?
Below, we explore some parallels between housing market trends and broader investment activity, examining whether these sectors influence each other and what trends might emerge.
1. Investor confidence and economic cycles
When investor confidence rises, housing markets and other investment avenues, like stocks and startups, often see simultaneous surges. High investor confidence tends to drive capital across multiple sectors.
Conversely, during economic downturns or high inflationary periods, all types of investments—housing, stocks, and venture funding—may face slowdowns. New Zealand's recent economic climate has seen signs of easing inflation, which often encourages investors back into property markets, with flow-on effects for venture funding and stocks.
2. Interest rates and borrowing costs
In New Zealand, as in other countries, low interest rates reduce the cost of borrowing, making property investment and venture funding more attractive. Low rates can encourage investors to diversify into real estate and growth-oriented sectors like startups, where long-term gains may be anticipated.
When interest rates rise, property and high-risk investments (like startups) might feel the squeeze due to higher borrowing costs. However, some investors may view housing as a more stable asset class in such periods, potentially at the expense of startups and stocks, which can be more volatile.
3. Liquidity and risk tolerance
The liquidity of stocks often makes them a go-to choice for investors who want flexibility. Real estate, however, ties up capital longer, which can mean those entering the housing market are more committed to the asset class. When property markets see more investment, it can indicate higher risk tolerance in the economy, benefiting startups and capital-raising initiatives as well.
4. Trends in wealth generation and allocation
As investors gain from rising property values, they may use that equity for diversified investments, including angel investments and startups. For example, individuals who've gained from a strong property market might allocate some profits toward high-growth potential sectors like technology startups, creating a cycle where real estate gains fuel innovation.
In contrast, any softening in the property market can restrict cash flow, as homeowners and investors lose refinancing options. This could tighten available funds for early-stage investing, affecting capital-raising rounds for startups.
While property and startup investments are distinct in nature, they are both heavily influenced by economic conditions, interest rates, investor confidence, and regulatory policies. A robust housing market often signals economic stability, which can ripple into higher investment in startups and shares.