The residential property market appears to be turning back towards investors’ favour in most of Auckland and parts of the Wellington region.
Interest.co.nz’s Residential Investment Yield Indicator suggests the combined effects of falling house prices and rising rents are driving up rental returns in Auckland and parts of Wellington, making residential property relatively more attractive for investors.
The Indicator tracks the median rent for three bedroom houses in 56 locations around the country where there is a high level of rental activity, based on bond data from Tenancy Services, and combines that with lower quartile selling price data from the Real Estate Institute of New Zealand for three bedroom houses in the same locations.
That information is then used to provide an indicative gross rental yield for each of those 56 locations, allowing an apples-with-apples comparison of the relative attractiveness of investing in each of those areas, based on underlying rental returns. Actual returns will, however, vary depending on factors such as how much debt investors take on, the maintenance requirements of individual properties and vacancy levels.
The latest figures for the six months to the end of June show a particularly strong trend in Auckland, where rental yields were up in seven of the 10 suburbs tracked, unchanged in one and down in two, compared to the six months to the end of March.
That was driven by increases in median rents in eight of the 10 suburbs tracked (rents were unchanged in the other two), and declines in lower quartile selling prices in eight of the 10 suburbs.
The increase in rents was between $10 and $20 a week compared to the six months to March, which would have boosted landlords’ rental income.
At the same time, lower quartile selling prices were down noticeably.
For example in the Beachhaven/Birkdale district of Auckland’s North Shore, the median rent for a three bedroom house increased from $555 a week in the six months to March to $570 a week in the six months to June.
Over the same period the lower quartile selling price of three bedroom houses in the same area declined from $763,750 to $724,500.
That pushed the indicative gross rental yield for that area up from 3.8% to 4.1% over the same period.
The indicative yields rose by similar amounts in Torbay, Glen Eden, Massey, Henderson, Avondale, and Highland Park.
In Orewa/Whangaparaoa the indicative yield was unchanged at 4.2% because the median rent was unchanged at $570 a week, while the lower quartile selling price declined by less than $5000, which was not enough to move the yield.
Going against the trend, yields declined in Papakura from 5.1% to 4.8%, and in Pukekohe from 4.7% to 4.6%, largely on the back of rising lower quartile prices.
Other areas that showed strong trends were Taranaki/Whanganui, Hawke's Bay and Lower Hutt, where yields were uniformly down, driven by rising prices that outpaced increases in rents.
But those trends were reversed on the Kapiti Coast and in Upper Hutt, where rental growth and mostly softer prices pushed yields up.
However it remains to be seen whether the higher yields in Auckland will be enough to attract investors back into that market in serious numbers, especially with uncertainty in the sharemarket, a lack of capital gains in residential property and meagre term deposit rates.
At this stage the answer is probably not.
Although the latest indicative yields paint an improving picture for property investment in Auckland, the indicative yields are still only in the 3.8% to 5.1% range and mostly under 5%, which probably won’t get people too excited.
And many will be worried that prices could fall further.
Yields aren’t a lot higher in the Waikato and Bay of Plenty and most of Wellington, where there is also high tenant demand for rental properties. However it may be a different story if the trend continues.
With interest rates at historic lows and likely to fall further and capital gains receding, investors will be keeping a close eye on yields as they weigh up their investment options.
The table below shows the changes in indicative rental yields in all 56 locations monitored between June 2017 and June 2019. The full Rental Yield Indicator table, showing indicative yields going back to the six months ended September 2014, is available here.
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 Indicative gross rental yields for three bedroom houses in 56 selected areas with high rental activity during the previous six months. Based on REINZ lower quartile selling prices and median rents recorded by Tenancy Services' Bonds Centre in each area over the previous six months. |
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| Indicative gross residential rental yields for the six months ending: | ||||||
| Town/region | Yield % June 2019 |
Yield % March 2019 |
Yield % Dec 2018 |
Yield % Sept 2018 |
Yield % June 2018 |
Yield % June 2017 |
| Whangarei: | ||||||
| Kamo/Tikipunga/Kensington | 5.3 | 5.3 | 5.5 | 5.5 | 5.5 | 5.5 |
| Rodney - Orewa/Whangaparaoa | 4.2 | 4.2 | 4.1 | 3.9 | 4.0 | 4.0 |
| North Shore: | ||||||
| Beach Haven/Birkdale | 4.1 | 3.8 | 3.8 | 3.9 | 3.9 | 3.8 |
| Torbay | 4.0 | 3.8 | 3.9 | 3.9 | 3.7 | 3.6 |
| Waitakere: | ||||||
| Glen Eden | 4.3 | 4.0 | 4.1 | 4.1 | 3.9 | 3.9 |
| Massey/Royal Heights | 4.3 | 4.0 | 4.0 | 4.0 | 4.2 | 3.8 |
| Henderson | 4.4 | 4.1 | 4.2 | 4.1 | 4.1 | 4.0 |
| Central Auckland: | ||||||
| Avondale | 4.2 | 3.9 | 3.9 | 4.1 | 4.0 | 3.5 |
| Manukau: | ||||||
| Highland Park | 3.8 | 3.4 | 3.3 | 3.3 | 3.6 | 3.6 |
| Papakura/Drury/Karaka | 4.8 | 5.1 | 5.0 | 4.9 | 4.7 | 4.3 |
| Franklin - Pukekohe/Tuakau | 4.6 | 4.7 | 4.6 | 4.5 | 4.6 | 4.8 |
| Hamilton: | ||||||
| Deanwell/Melville/Fitzroy | 5.0 | 4.9 | 4.9 | 5.1 | 5.1 | 4.8 |
| Fairfield/Fairview Downs | 4.7 | 4.4 | 4.4 | 4.8 | 4.7 | 4.5 |
| Te Kowhai/St Andrews/Queenswood | 4.5 | 4.6 | 4.7 | 4.7 | 4.7 | 4.5 |
| Cambridge/Leamington | 4.4 | 4.4 | 4.5 | 4.6 | 4.6 | 4.4 |
| Te Awamutu | 4.9 | 4.9 | 4.9 | 5.1 | 5.0 | 5.1 |
| Tauranga: | ||||||
| Tauranga Central/Greerton | 4.8 | 5.5 | 5.1 | 4.9 | 4.8 | 4.7 |
| Bethlehem/Otumoetai | 4.2 | 3.7 | 4.0 | 4.2 | 4.2 | 4.0 |
| Mt Maunganui | 4.4 | 4.6 | 4.5 | 4.6 | 4.6 | 4.4 |
| Pyes Pa/Welcome Bay | 4.7 | 4.8 | 4.7 | 4.5 | 4.6 | 4.3 |
| Kaimai/Te Puke | 5.3 | 5.0 | 5.1 | 5.1 | 4.8 | 4.9 |
| Whakatane | 5.4 | 5.7 | 5.9 | 5.8 | 6.1 | 6.0 |
| Roturua: | ||||||
| Holdens Bay/Owhata/Ngapuna | 6.5 | 6.1 | 6.3 | 7.0 | 7.8 | 10.5 |
| Kuirau/Hillcrest/Glenholm | 6.0 | 4.9 | 4.9 | 5.5 | 5.4 | 5.5 |
| Ngongotaha/Pleasant Heights/Koutu | 6.0 | 6.1 | 6.5 | 6.7 | 6.0 | 6.2 |
| Hastings - Flaxmere | 7.9 | 8.2 | 8.3 | 8.4 | 9.2 | 9.3 |
| Napier - Taradale | 4.6 | 5.0 | 5.1 | 4.9 | 4.7 | 4.9 |
| Taranaki: | ||||||
| New Plymouth Central/Moturoa | 4.7 | 5.3 | 5.1 | 4.6 | 4.8 | 4.9 |
| Waitara/Inglewood | 6.7 | 7.6 | 7.4 | 6.6 | 6.5 | 7.2 |
| Whanganui | 7.8 | 8.1 | 8.2 | 8.5 | 9.0 | 8.6 |
| Palmerston North: | ||||||
| Kelvin Grove/Roslyn | 5.7 | 5.6 | 5.7 | 5.9 | 6.2 | 6.5 |
| Palmerston North Central | 5.3 | 5.3 | 5.2 | 5.1 | 5.1 | 6.0 |
| Takaro/Cloverlea/Milson | 5.6 | 5.6 | 5.7 | 5.8 | 6.1 | 6.2 |
| Kapiti Coast: | ||||||
| Paraparaumu/Raumati | 4.8 | 4.5 | 4.8 | 5.2 | 5.0 | 4.9 |
| Waikanae/Otaki | 4.7 | 4.5 | 4.4 | 4.5 | 4.5 | 4.7 |
| Upper Hutt: | ||||||
| Heretaunga/Silverstream | 5.1 | 4.9 | 5.0 | 4.9 | 4.9 | 4.7 |
| Totara Park/Maoribank/Te Marua | 5.3 | 5.2 | 5.3 | 5.6 | 5.6 | 5.8 |
| Lower Hutt: | ||||||
| Epuni/Avalon | 4.8 | 5.2 | 5.1 | 4.5 | 4.7 | 4.9 |
| Taita/Naenae | 5.0 | 5.4 | 5.5 | 5.4 | 5.5 | 5.6 |
| Wainuiomata | 5.3 | 5.5 | 5.5 | 5.3 | 5.6 | 5.9 |
| Wellington: | ||||||
| Johnsonville/Newlands | 4.7 | 4.9 | 5.1 | 5.0 | 4.9 | 5.0 |
| Vogeltown/Berhampore/Newtown | 5.0 | 4.6 | 4.4 | 4.3 | 5.0 | 4.5 |
| Tasman: | ||||||
| Motueka | 4.2 | 4.3 | 4.4 | 4.3 | 4.2 | 4.4 |
| Richmond/Wakefield/Brightwater | 4.5 | 4.4 | 4.3 | 4.3 | 4.5 | 4.6 |
| Nelson - Stoke/Nayland/Tahunanui | 4.7 | 4.6 | 4.5 | 4.7 | 4.8 | 5.0 |
| Blenheim | 5.3 | 5.3 | 5.3 | 5.4 | 5.7 | 5.6 |
| Christchurch: | ||||||
| Hornby/Islington/Hei Hei | 5.8 | 5.9 | 5.8 | 6.0 | 5.9 | 5.6 |
| Riccarton | 5.9 | 5.2 | 5.1 | 5.6 | 5.6 | 4.7 |
| Woolston/Opawa | 6.4 | 6.5 | 7.1 | 7.2 | 7.4 | 6.0 |
| Ashburton | 5.7 | 5.8 | 6.3 | 6.3 | 5.2 | 7.0 |
| Timaru | 6.0 | 6.1 | 6.1 | 5.8 | 5.6 | 5.7 |
| Queenstown/Frankton/Arrowtown | 4.2 | 4.0 | 4.1 | 4.3 | 4.2 | 4.6 |
| Dunedin: | ||||||
| Kenmure/Mornington | 5.3 | 5.1 | 5.5 | 5.7 | 6.2 | 6.3 |
| Mosgiel | 5.3 | 5.2 | 5.3 | 5.5 | 5.8 | 5.4 |
| South Dunedin/St Kilda | 6.5 | 6.9 | 6.4 | 6.8 | 7.3 | 8.0 |
| Invercargill | 7.0 | 7.2 | 7.7 | 8.3 | 8.2 | 8.3 |
|
Source: Base data from REINZ / MBIE *Yield is a property's annual rent expressed as a percentage of its purchase price. The indicative yield figures in this table are gross, and are calculated from the REINZ's lower quartile selling price for three bedroom houses in each area during the previous 6 months, and the median rent for three bedroom houses calculated from new tenancy bonds received by the Ministry of Business Innovation and Employment for the same areas/period. This gives an indication of the gross rental yield that would have been achieved in each area if a three bedroom house was purchased at the lower quarter price and rented at the median rent for that area. |
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