The attractiveness of most types of residential properties as potential investments deteriorated in the fourth quarter (Q4) of last year, with declines in both gross rental yields and free cash flows.
The national indicative gross rental yield for three bedroom houses declined from 5.8% in Q3 last year to 5.6% in Q4.
The free cash flow, which is the amount of rental income left after the mortgage was paid, fell from $90 a week to $74 a week over the same period.
Interest.co.nz calculates gross rental yield and cash flow for the three main types of residential investment properties - three bedroom houses, two bedroom units/apartments and one bedroom unit/apartments, in each of the main urban districts throughout the country where there is significant rental activity.
This provides an apples-with-apples comparison of the relative attractiveness of residential property investment around the country and how that is changing over time.
The results are summarised in the three tables below, along with an explanation of the methodology used in the calculations.
Overall, they show both yields and cash flows deteriorated for three bedroom houses and two bedroom units/apartments between Q3 and Q$ last year, while one bedroom units/apartment were the stars of the show, posting not only much higher returns than other types of properties, but also an improvement between Q3 and Q4.
Of particular note are the very poor returns currently available from three bedrooms houses throughout the Auckland region.
Not only are their rental yields low, ranging from 3.1% in Orakei Ward to 5.0% in Manurewa-Papakura Ward, but all areas have negative cash flow after the mortgage was paid. (A map of the ward areas is at the bottom of this article).
The situation for investors would be even worse than those numbers suggest, because the cash flow figures do not take into account the effect of periods of vacancy or of outgoings such as rates, insurance and repairs and maintenance.
So investors buying into three bedroom houses in Auckland would need to have deep pockets to meet the ongoing cash flow requirements of these properties.
It also means they would be entirely dependent on capital gain to actually make any money and that is far from certain in the current market.
The figures also show how vulnerable investors' cash flows could be when interest rates start rising again, which they will do at some stage.
The figures were better for two bedroom units/apartments, but still not great.
The national gross yield and cash flow both declined between Q3 and Q4, and although cash flow after mortgage payments remained positive in most areas, it was still so low that investors would likely only be left with loose change after paying their outgoings.
One bedroom units/apartment were the only property type in this set to show increases in gross rental yield and cash flow in Q4, to 9.2% and $205 a week respectively.
Those suggest investors might have a reasonable chance of actually making some money from their investment. But there are a couple of fish hooks to watch out for with one bedders, particularly in Auckland.
Many of the one bedroom units in central Auckland are so-called shoebox apartments, and the market for these can be fickle because it is very dependent on overseas student numbers.
And many of the Auckland CBD apartments in general are on leasehold titles.
The cash flows for leasehold properties can look staggeringly good until you take ground rent payments into account, then not so much.
And investors in leasehold properties can't fall back on the prospect of capital gains. Those will generally go to whoever owns the freehold.
| Indicative Gross Rental Yields and Cash Surplus/Deficit After Mortgage Paid on Residential Investment Properties* | ||||
| Q3 & Q4 2024 | ||||
| Three Bedroom House | ||||
| Gross Rental Yield | Cash Surplus/Deficit | |||
| Q3 2024 | Q4 2024 | Q3 2024 | Q4 2024 | |
| Whangarei District | 5.9% | 5.6% | $93 | $69 |
| Auckland Region | 4.6% | 4.4% | -$68 | -$92 |
| Rodney Ward | 4.0% | 3.6% | -$162 | -$253 |
| Albany Ward | 4.3% | 4.2% | -$129 | -$133 |
| North Shore Ward | 4.1% | 4.0% | -$160 | -$186 |
| Waitakere Ward | 4.5% | 4.4% | -$81 | -$94 |
| Waitemata and Gulf Ward | 3.3% | 3.5% | -$488 | -$384 |
| Whau Ward | 4.2% | 3.9% | -$126 | -$189 |
| Albert-Eden-Puketapapa Ward | 4.0% | 3.8% | -$192 | -$234 |
| Orakei Ward | 3.6% | 3.1% | -$338 | -$500 |
| Maungakiekie-Tamaki Ward | 4.1% | 4.0% | -$172 | -$173 |
| Howick Ward | 3.9% | 3.8% | -$197 | -$212 |
| Manukau Ward | 4.8% | 4.8% | -$29 | -$25 |
| Manurewa-Papakura Ward | 5.1% | 5.0% | $4 | -$2 |
| Franklin Ward | 4.7% | 4.7% | -$48 | -$37 |
| Hamilton City | 5.1% | 5.0% | $11 | $4 |
| Tauranga City | 4.9% | 5.0% | -$14 | -$6 |
| Whakatane District | 5.3% | 5.4% | $31 | $48 |
| Rotorua District | 6.6% | 5.9% | $147 | $94 |
| Taupo District | 5.3% | 5.1% | $33 | $16 |
| Hastings District | 6.7% | 5.5% | $162 | $57 |
| Napier City | 5.4% | 5.8% | $52 | $98 |
| New Plymouth District | 5.8% | 5.8% | $84 | $82 |
| Whanganui District | 6.7% | 6.4% | $135 | $118 |
| Palmerston North City | 6.1% | 5.8% | $103 | $86 |
| Kapiti Coast District | 5.2% | 4.7% | $22 | -$47 |
| Porirua City | 5.7% | 5.2% | $81 | $21 |
| Upper Hutt City | 5.5% | 5.6% | $55 | $81 |
| Lower Hutt City | 6.1% | 5.9% | $120 | $108 |
| Wellington City | 5.0% | 5.0% | $0 | -$4 |
| Nelson City | 5.1% | 5.0% | $15 | -$5 |
| Marlborough District | 5.5% | 5.5% | $49 | $51 |
| Waimakariri District | 5.1% | 5.0% | $11 | $2 |
| Christchurch City | 5.3% | 5.1% | $35 | $14 |
| Selwyn District | 4.8% | 4.7% | -$34 | -$38 |
| Ashburton District | 6.0% | 5.3% | $80 | $33 |
| Timaru District | 5.8% | 5.7% | $65 | $58 |
| Queenstown-Lakes District | 4.2% | 3.9% | -$182 | -$258 |
| Dunedin City | 5.9% | 6.0% | $88 | $96 |
| Invercargill City | 6.8% | 7.1% | $133 | $156 |
| All of Aotearoa | 5.8% | 5.6% | $90 | $74 |
| Two Bedroom Unit/Apartment | ||||
| Gross Rental Yield | Cash Surplus/Deficit | |||
| Q3 2024 | Q4 2024 | Q3 2024 | Q4 2024 | |
| Whangarei District | 6.2% | 6.3% | $91 | $100 |
| Auckland Region | 5.8% | 5.4% | $82 | $43 |
| Rodney Ward | 5.5% | n/a | $51 | n/a |
| Albany Ward | 4.4% | 4.8% | -$86 | -$22 |
| North Shore Ward | 4.4% | 4.4% | -$82 | -$78 |
| Waitakere Ward | 5.7% | 4.6% | $66 | -$47 |
| Waitemata and Gulf Ward | 18.9% | 10.0% | $441 | $300 |
| Whau Ward | 5.2% | 5.1% | $17 | $15 |
| Albert-Eden-Puketapapa Ward | 5.2% | 5.2% | $28 | $25 |
| Orakei Ward | 4.6% | 4.6% | -$68 | -$50 |
| Maungakiekie-Tamaki Ward | 5.9% | 5.5% | $94 | $63 |
| Howick Ward | 5.1% | 5.1% | $7 | $10 |
| Manukau Ward | 6.2% | 5.5% | $117 | $51 |
| Manurewa-Papakura Ward | 5.0% | 5.4% | $1 | $40 |
| Franklin Ward | 6.3% | n/a | $117 | n/a |
| Hamilton City | 6.0% | 5.0% | $90 | $1 |
| Tauranga City | 6.1% | 5.4% | $109 | $46 |
| Whakatane District | n/a | n/a | ||
| Rotorua District | 6.3% | 6.7% | $99 | $134 |
| Taupo District | n/a | n/a | ||
| Napier City | n/a | 6.7% | n/a | $150 |
| Hastings District | 7.1% | 5.6% | $173 | $52 |
| New Plymouth District | 7.3% | 5.2% | $163 | $15 |
| Whanganui District | 7.5% | 8.2% | $147 | $166 |
| Palmerston North City | 6.6% | n/a | $108 | n/a |
| Kapiti Coast District | 6.1% | n/a | $112 | n/a |
| Porirua City | 5.9% | n/a | $88 | n/a |
| Upper Hutt City | n/a | n/a | ||
| Lower Hutt City | 6.6% | 8.4% | $144 | $256 |
| Wellington City | 6.6% | 6.5% | $148 | $141 |
| Nelson City | 5.7% | 5.9% | $55 | $83 |
| Marlborough District | 6.3% | 5.7% | $96 | $57 |
| Waimakariri District | n/a | n/a | ||
| Christchurch City | 6.3% | 6.1% | $103 | $92 |
| Selwyn District | n/a | n/a | ||
| Ashburton District | n/a | n/a | ||
| Timaru District | 6.4% | 6.8% | $83 | $118 |
| Queenstown-Lakes District | 5.4% | 5.8% | $52 | $97 |
| Dunedin City | 6.8% | 6.4% | $128 | $106 |
| Invercargill City | 8.9% | 7.3% | $168 | $122 |
| All of Aotearoa | 7.3% | 6.7% | $184 | $150 |
| One Bedroom Unit/Apartment | ||||
| Gross Rental Yield | Cash Surplus/Deficit | |||
| Q3 2024 | Q4 2024 | Q3 2024 | Q4 2024 | |
| Whangarei District | 6.2% | 5.6% | $75 | $44 |
| Auckland Region | 9.9% | 10.7% | $232 | $250 |
| Rodney Ward | n/a | n/a | ||
| Albany Ward | 4.9% | 4.5% | -$11 | -$59 |
| North Shore Ward | 5.8% | 5.0% | $65 | $4 |
| Waitakere Ward | n/a | n/a | ||
| Waitemata and Gulf Ward | 19.5% | 19.2% | $334 | $333 |
| Whau Ward | 6.5% | 8.3% | $106 | $183 |
| Albert-Eden-Puketapapa Ward | 6.2% | 6.7% | $95 | $125 |
| Orakei Ward | 5.4% | 7.5% | $38 | $182 |
| Maungakiekie-Tamaki Ward | 6.1% | 6.3% | $108 | $118 |
| Howick Ward | 5.4% | 5.3% | $36 | $30 |
| Manukau Ward | 6.7% | 7.5% | $107 | $142 |
| Manurewa-Papakura Ward | n/a | 5.7% | n/a | $50 |
| Franklin Ward | n/a | n/a | ||
| Hamilton City | 6.3% | $71 | ||
| Tauranga City | 6.7% | 5.4% | $116 | $44 |
| Whakatane District | n/a | n/a | ||
| Rotorua District | n/a | n/a | ||
| Taupo District | n/a | n/a | ||
| Napier City | n/a | n/a | ||
| Hastings District | 5.5% | 4.7% | $38 | -$20 |
| New Plymouth District | 9.0% | 6.8% | $199 | $111 |
| Whanganui District | n/a | n/a | ||
| Palmerston North City | n/a | 5.2% | n/a | $13 |
| Kapiti Coast District | n/a | n/a | ||
| Porirua City | n/a | n/a | ||
| Upper Hutt City | n/a | n/a | ||
| Lower Hutt City | 6.4% | 11.8% | $92 | $273 |
| Wellington City | 8.2% | 11.1% | $180 | $259 |
| Nelson City | 3.9% | 5.2% | -$120 | $14 |
| Marlborough District | n/a | n/a | ||
| Waimakariri District | n/a | n/a | ||
| Christchurch City | 5.8% | 6.7% | $55 | $105 |
| Selwyn District | n/a | n/a | ||
| Ashburton District | n/a | n/a | ||
| Timaru District | n/a | n/a | ||
| Queenstown-Lakes District | 9.6% | 7.2% | $263 | $160 |
| Dunedin City | 6.5% | 6.7% | $92 | $119 |
| Invercargill City | n/a | n/a | ||
| All of Aotearoa | 8.7% | 9.2% | $190 | $205 |
| Notes:* The Gross Rental Yield is based on purchasing a property at the REINZ's lower quartile selling price for each type of property in each district, and the annual median rent for the same types of properties in the same district sourced from Tenancy Services bond data. Cash surplus/deficit is the amount of rental income remaining after the mortgage has been paid. This assumes the property was purchased with a 40% deposit, with the mortgage payments calculated using interest rates of 5.68% in Q3 and 5.61% in Q4, both for 20 year terms. Both the yield and cash flow figures make no allowances for periods of vacancy, or outgoings such as rates, insurance or repairs and maintenance. Property details are marked n/a (not available) when there were two few of the particular type of property sold and/or rented during the quarter to produce reliable data. | ||||
Auckland Council Wards
18 Comments
But but but...the seminar chap promised endless capital gains. One born every day.
things will work with a reset of price expectations.
Housing market offering paltry returns for investors
This article is nothing more than a litany of falsehoods. Investors never live to regert their decisions
TTP.
The world has changed, Tim. I know a lot of buyers who bought during the peak - who now think for the same money now I could get ...... And I suspect that the early 2000's, with interest rates less than the house price inflation, aren't coming back. And a generation finding that house they bought needs a new roof, bathroom, windows after 50 years.
Many one bedrooms will also be used as Airbnbs and have been getting a free ride compared to other commercial properties, of which use net yields.
As they say, Gross for show but net for dough.
And one bedrooms will be mainly in a Body Corporate with those extra costs.
Airbnb's are probably excluded from these figures because they are unlikely to pay a bond to Tenancy Services, which is where the rental income figures come from.
Lets face it, on a yield basis you have to go back to about 2008-10 prices to have a viable business.......
its been a bubble ever since
Exactly. Must say it looks like the RE industry funding our property specuvestor trolls has dried up. All silent running.
On a site like interest.co which has a significant focus on property investment it seems odd to refer to property investors as "trolls". I suppose that's all we can expect from a very average man.
All's quiet on the Spruiker Front.
This article from yesterday is worth posting again:
New deals to lure Auckland renters: 'There are lots of options'
https://www.rnz.co.nz/news/business/545111/new-deals-to-lure-auckland-r…
Its just "Lipstick on a pig" according the Auckland property investors, which recommends investors cut their weekly rent if they are serious about attracting a tenant.
OUCH
Just an observation, I could be wrong, but it seems like a lot of these property investors don’t have kids. Offering free rent and groceries might be the closest they’ve come to parenting.
.
Property is looking like bond trading, fine if you can move holdings to the long book, but not so great if you hold them in a short/trading book.
There are/was a crowd on here that believe if you close your eyes, the mark to market losses are not real, this is an interesting way of dealing with reality, it will stop you using so called equity to expand your portfolio, as there will not be any equity.
Never mind, just hold/fund to maturity.
There are/was a crowd on here that believe if you close your eyes, the mark to market losses are not real, this is an interesting way of dealing with reality,
Kind of crazy when you dive into it though, given money is made from thin air and equity is only access to debt based on one's (the banks') perceived value of the asset being leveraged. All in all it is a bunch of hot air in a game where everyone is wary of who to trust based on what they can claw back if the proverbial hits the fan
There is significantly less hot air in the system now the DTI regulations are in place - much harder to leverage a portfolio unless you have a large external income to bring to the party.
There are/was a crowd on here that believe if you close your eyes, the mark to market losses are not real, this is an interesting way of dealing with reality, it will stop you using so called equity to expand your portfolio, as there will not be any equity.
Property investing has long been akin to a monkey flying a plane in Aotearoa. It's all pinned to the 'doubles every 7-10 year theory.' I don't dispute that this is the reality, however there's never been a proper explanation of the dynamics. For ex, relationship with money supply.
Haha wowee that got the cult excited, who would buy a rental with the aim to smash it on short term gains?
The spec/flip crowd is different…those fellas are hurting I’m sure, & it’s a meh level of empathy for them.
But to believe that someone who has a rental as a long term investment will see zero capital gains, or that it will stay negatively geared over the length of the investment is a wild assumption 🤦🏻♂️😂
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