The latest ASB Investor Confidence for the quarter ending June 30 shows that a net 22% of respondents expected rental property to provide them with the best returns.

Managed investments, which was the second favourite with investors, fell during the quarter to third place and was replaced by term deposits.

ASB Jonathan Beale says the results for rental property are consistent with the bank's Housing Survey, in which the Auckland region had by far the most optimistic outlook for house prices, confidence in rental property investment was strongest in the upper North Island.  

"Not surprisingly," he says, "confidence in rental property returns and house price growth are showing strong correlation, with house price growth enjoying a strong run since late last year and rental property confidence climbing higher in its wake."

"However, with the RBNZ intent on reining the housing market in, and early signs it is starting to have some success, house price growth is likely to start softening over the second half of the year. 

“Looking forward, the strength of optimism in rental property may now soften,” Beale says.  “There have been renewed calls for measures to slow the housing market, with a focus on property investment. Interest rates have increased markedly of late, which will bite into the cash flows of highly geared investors. Going forward, the sums for future investment property purchasers may be less palatable.”