Auckland landlords expect to raise rents 5% or less

Property

Barfoots says most landlords are expecting to raise their rents by 5% or less, driving yields down even lower

29th Sep 14, 11:07am by Greg Ninness

<a href="http://www.shutterstock.com/">Image sourced from Shutterstock.com</a>

Most residential landlords in Auckland expect to increase the rents they charge by 5% or less in the next 12 months, according the latest landlord survey by Barfoot & Thompson.

Barfoots is the largest real estate agency in the Auckland region and surveys the owners of rental properties it manages bi-annually.

The latest survey showed that two thirds of landlords were expecting to increase rents in the next 12 months but most expected the increase to be 5% or less.

At the average rent of $472 a week for a three bedroom home in Auckland, that could be an increase of up to $24 a week.

Only 20% were expecting to increase rents by more than 5%.

However in most cases the higher rents would be insufficient to cover the increased costs landlords were facing, which would lower rental returns which were already at very low levels.

The increases will not be sufficient to compensate them for the higher outgoings they will be facing, Barfoots said.

"They are already facing higher outgoings in the form of increases from council rates, mortgage borrowing costs and insurance, and anticipate even further increases in mortgage rates within the next 12 months," Barfoot director Kiri Barfoot said.

Based on an average selling price of $677,000 for a three bedroom home and average rent of $472 a week, the average gross rental return would be 3.63%.

"If landlords follow through with their stated intentions, the rate of return in the coming 12 months will be even lower, she said.

The low returns could be affecting the attractiveness of rental property as an investment.

Two thirds of the landlords in the survey said they were not intending to increase the size of their portfolio in the next 12 months, while 6% said they intended reducing it.

"Among existing landlords, in a market where property prices are increasing and costs are rising, there is not a great appetite to buy more property," Barfoot said.

However 85% of landlords in the survey expected the value of their portfolio to increase over the next 12 months.

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15 Comments

by BigDaddy | 29th Sep 14, 1:42pm 1411951337

From Olly Newland's website:

"There is a thundering mistake in this calculation, making the story meaningless.

Somebody in Barfoots should be taken out and beaten on the soles of their feet with a loaded stick.

The average rental property value is way way less than $677,000.

The vast majority of rental properties are in the $350-$450K region and the averge rental around $350-$450 per week = a gross return of approx 5.2%.

It is true that the dearer the house the higher the rent, but it does not go up in a straight line because of the "grunt" factor i.e. the ability of people to pay more whatever the value of the property."

He's right as usual.

by Stephen Hulme | 29th Sep 14, 1:44pm 1411951479

hmmmmm- ....the "grunt" factor i.e. the ability of people to pay more whatever the value of the property.

What about the collective value of the construction contracts - apparently the government knew no limit with our money - now in the hands of Fulton Hogan.

Fulton Hogan, the privately held construction firm, lifted annual earnings 43 per cent as it cut its costs in the face of falling Australian revenue, and is looking to grow its water, rail and airport units.

Net profit rose to $138.2 million in the 12 months ended June 30 from $96.5 million a year earlier, the Christchurch-based company said in a statement. Read more

by The Bear | 29th Sep 14, 2:12pm 1411953175

And so we see the beginning of the end of this latest, and most ridiculous, property cycle. The less economically literate landlords attempt to push through an above inflation rent increase. Nice way to shoot yourself in the foot.
Given there is a glut of rentals on the market we will see a nice amount of churn for those more mobile. For those who have difficulty moving (eg school zones) their rent increase will flow through nicely to inflation and get the RBNZ thinking again about interest rate rises. Just the mention of rent rises will have employees asking for pay rises, embedding inflation expectations. Result!
Some of us have been liquidating property portfolios over the past 12 months and should be nice and ready to pick up some distressed bargains in around 12 months time.

by BigDaddy | 29th Sep 14, 2:21pm 1411953712

If there is a "glut" of rental property on the market. rents would be going down, not up.

They are going up and the facts, no matter how unappetising to some, show it to be so.

You won't find many tenants in Auckland ( or Christchuch for that matter) who have had their rent reduced.

by frazz | 29th Sep 14, 2:37pm 1411954662

What facts Big Olly, can you provide some to back up your comments? I have not heard of any rent increases from friends of late, and the choice or rentals is increasing...not decreasing. The market will decide what the rent is worth not the landlords.

by rastus1 | 29th Sep 14, 2:51pm 1411955470

There is a difference between expect, hope and want. Did the survey inlcude these alternative answers? Do landlords answer with expect in the hope that survey results may have an impact on rental market expectations and thus more chance their tennants will agree?

I am sure B&T would prefer to see a positive answer to such a question - keep the market pumping, seems to me this may be a meaningless survey, quite probably geared towards such a result.

by BigDaddy | 29th Sep 14, 3:25pm 1411957547

Disbelievers despair.

Rents have risen by as much as 25% in some areas, and certainly risen in the vast majority of areas.

Read Crockers latest report:

http://www.crockers.co.nz/media/88716/auckland%20rental%20table%20-%20a…

by The Bear | 29th Sep 14, 8:19pm 1411975167

Beware the fine print. You have pulled a single data point out of the table from an unrepresentative column that the table authors specifically state at the top is highly volatile given the lack of sample data (i.e. in this case 4 bed Remuera houses for rent).

Maybe you should have chosen the 17% growth for Takapuna 4 bedders. Oh wait, but then ask why not the -15% (ie decline) for Takapuna 1 beds. Oh darn it, why not just take the representative 3% growth for 2 and 3 beds which are the bulk of rental supply...

Rent rises struggle to hit inflation levels in Auckland. Because there is no shortage of housing. But there are rising interest rates coming for landlords next year.

by frazz | 29th Sep 14, 3:44pm 1411958663

Thanks Big Olly..stats for Aug - 2 bedroom Auckland rise of 4% average (wow), but would like to see YTD. Remuera and Takapuna rents are rising of 25%...nice if you own property in those two suburbs.

by BigDaddy | 29th Sep 14, 9:34pm 1411979686

A rise is a rise is a rise.

by spottie | 30th Sep 14, 9:17am 1412021836

by Your Landlord | 30th Sep 14, 12:45pm 1412034331

In the last six months I have increased the rents on all the properties I own. I also note trademe.co.nz numbers. In the greater Auckland area trade me had just over 4000 houses advertised for lease throughout the winter months. In the last two weeks trade me has been advertising circa 3200 houses to lease.

This indicates a significant reduction in supply . We have not got to summer yet.

by frazz | 1st Oct 14, 8:43am 1412106206

Yup summer is when the students head home in droves. Has anyone noticed but deflation is now the big worry around the world, not inflation.

by steven | 1st Oct 14, 9:02am 1412107353

It was noticed and commented on here and say by Paul Krugman and Steve Keen since then. This is why we had/have QE etc.

regards

by pbates | 1st Oct 14, 4:33pm 1412134435

It just shows how out of line rental returns are to property prices..either rents will go up or property prices will fall as the gross returns are very low. Capital gains will decrease with rising interest rates on the move.