Rental yields on residential investment properties have dropped below 4% in Auckland but are still mostly above 6% elsewhere

Residential property rental yields have fallen below 4% in many parts of Auckland but are above 6% in other main centres, according to the REINZ/interest.co.nz Rental Yield Indicator for the six months to September.

The Indicator tracks the gross rental yield* that would be achieved if a property was purchased at the REINZ’s lower quartile selling price in 56 locations throughout the country where there is substantial residential rental activity (see the table for below for the yield figures for all 56 locations).

The median annual rent for three bedroom houses in each area is then used to calculate the gross rental return that would be achieved on a lower quartile-priced property in the same area.

September’s report shows that four of the Auckland suburbs monitored by the Indicator now have indicative yields below 4% - Beach Haven/Birkdale 3.9%, Torbay 3.8%, Avondale 3.9% and Highland Park 3.6%, and none of the Auckland suburbs monitored has an indicative yield above 5% (see accompanying table).

That is a significant change from a year earlier when the lowest indicative yield in Auckland was 4.3% and five of the suburbs monitored had yields above 5%.

The underlying figures show that rents in Auckland have risen substantially over the 12 months to September, but have been outpaced by some extraordinarily high increases in lower quartile selling prices, which has pushed down the rental yields.

In the Beach Haven/Birkdale area of the North Shore which has traditionally been a popular area for renters and a happy hunting ground for residential property investors, the median rent for a three bedroom house increased from $465 a week in September 2014 to $495 a week in September this year, an increase of 6.5%

However over the same period the REINZ’s lower quartile selling price for Beach Haven/Birkdale rose from $521,000 in September 2014 to $657,000 in September this year, a massive 26.1% increase in 12 months, which pushed the rental yield down 4.6% to 3.9% over the same period.

Similarly in the west Auckland suburb of Glen Eden, which has traditionally also been a rental hot spot, the median rent on a three bedroom house increased from $410 a week in September 2014 to $450 a week in September this year, a rise of 9.8%.

However over the same period the lower quartile selling price in Glen Eden increased from $420,000 to $574,000, a massive 36.8% rise in 12 months, which pushed the gross rental yield down from 5.1% in September last year to 4.1% in September this year.

Similar if less dramatic trends are also evident in the Waikato and Bay of Plenty.

In the Hamilton suburbs of Fairfield/Fairview Downs the median rents increased 6.1% between September last year and September this year, while the lower quartile selling price increased by 23.8% over the same period, from $246,500 to $305,000.

That combination pushed the yield down from 7% to 6%.

And in Tauranga central and Greerton, the median rent increased 10.6% between September 2014 and September this year, while the lower quartile selling price increased 16.6% over the same period, rising from $290,000 to $338,000, which saw the yield decline from 5.9% to 5.6%.

In other regions the yields have been more stable.

In Wellington they remain above 6% on the Kapiti Coast and in the Hutt Valley and in the mid-5% range in central Wellington.

In the Christchurch suburbs monitored they have fallen slightly over the 12 months to September and In Dunedin they remain above 6%.

The big increases in rents and even bigger increases in capital values that have been evident in selling prices in the upper North Island have brought mixed blessings for investors.

Investors who have purchased recently at very low yields could be vulnerable if mortgage interest rates or other costs rise faster than rents, particular if that is accompanied by a fall in property values.

However those investors who have owned their properties for several years will have benefited greatly from both the rise in rental income and the increase in equity rising values would have created.

The increase in their cashflows would have been magnified by the falls in mortgage interest rates, creating not just a win/win, but a win/win/win situation for them.

However with yields so low, many investors are now wondering whether the capital they have tied up in Auckland residential property is working hard enough for them.

There are increasing signs that Auckland property prices may have peaked and that is causing some investors to cash up and redeploy their capital to other areas where prices are lower and the yields are better.

For some that means staying with residential property but reinvesting in locations such as Rotorua where yields in the suburbs monitored by the Indicator are between 6.6% and 8.7%.

Others are looking at different types of property such as commercial premises where the returns are generally higher than those achieved on residential properties.

But the great majority will probably just sit tight and play a long game, using the increased cash flow from rising rental returns to pay down debt, or simply enjoy the extra income.

*Gross rental yield is a property’s annual rent expressed as a percentage of its purchase price or value, before allowing for other costs such as rates, insurance, maintenance, periods of vacancy and mortgage interest payments. The Rental Yield Indicator uses the REINZ’s lower quartile selling price in each of the areas monitored and the corresponding median rent figure for three bedroom houses calculated by the Ministry of Business Innovation and Employment from the tenancy bonds received by its Building and Housing Division. 

For selected areas with high rental activity during the previous six months. Yields are for three bedroom houses, unless otherwise stated.
Town/region	Yield %*  Sep-15	Yield %* Jun-15	Yield %* Mar-15	Yield %* Dec-14	Yield %* Sep-14
Whangarei - Kamo/Tikipunga/Kensington	7.1	6.5	6.9	7.6	6.4
Rodney - Orewa/Whangaparaoa	4.3	4.5	4.5	4.6	4.8
North Shore:
Beachhaven/Birkdale	3.9	4.0	4.3	4.3	4.6
Torbay	3.8	4.0	4.5	4.6	4.5
Waitakere:
Glen Eden	4.1	4.3	4.6	4.9	5.1
Massey/Royal Heights	4.1	4.4	4.6	4.9	5.1
Henderson	4.1	4.4	4.7	4.9	5.0
Central Auckland:
Avondale	3.9	4.1	4.2	4.4	4.5
Manukau:
Highland Park	3.6	3.8	3.8	4.1	4.3
Papakura/Drury/Karaka	4.9	5.5	5.6	5.9	6.0
Franklin - Pukekohe/Tuakau	5.0	5.3	5.5	5.6	5.6
Hamilton:
Deanwell/Melville/Fitzroy	6.2	6.8	6.9	6.9	6.9
Fairfield/Fairview Downs	6.0	6.8	6.7	6.2	7.0
Te Kowhai/St Andrews/Queenswood	5.3	5.4	5.4	5.6	5.8
Cambridge/Leamington	5.2	5.5	5.5	5.6	5.9
Te Awamutu	6.3	6.5	6.2	6.3	6.4
Bay of Plenty:
Tauranga Central/Greerton	5.6	6.0	6.1	5.9	5.9
Bethlehem/Otumoetai	4.8	4.5	4.8	5.3	5.4
Mt Maunganui	4.7	5.4	5.7	5.6	5.2
Pyes Pa/Welcome Bay	5.3	5.9	5.7	5.7	5.8
Kaimai/Te Puke	6.2	6.4	6.2	6.2	5.7
Whakatane	7.3	6.7	6.3	6.7	6.9
Rotorua
Holdens Bay/Owhata/Ngapuna	8.7	N/A	N/A	N/A	N/A
Kuirau/Hillcrest/Glenholme	6.6	N/A	N/A	N/A	N/A
Ngongotaha/Pleasant Heights/Koutu	8.2	N/A	N/A	N/A	N/A
Hastings - Flaxmere	11.0	12.1	12.2	11.7	11.8
Napier - Taradale	5.5	5.3	6.2	6.3	6.1
Taranaki
New Plymouth/Moturoa	5.5	N/A	N/A	N/A	N/A
Waitara/Inglewood	8.0	N/A	N/A	N/A	N/A
Wanganui	14.9	N/A	N/A	N/A	N/A
Palmerston North
Kelvin Grove/Roslyn	7.2	N/A	N/A	N/A	N/A
Palmerston North Central	6.2	N/A	N/A	N/A	N/A
Takaro/Cloverlea/Milson	7.3	N/A	N/A	N/A	N/A
Kapiti Coast:
Paraparaumu/Raumati	6.1	6.2	6.1	6.1	5.9
Waikanae/Otaki	6.8	6.6	6.7	5.5	5.4
Upper Hutt
Heretaunga/Silverstream	6.1	N/A	N/A	N/A	N/A
Totara Park/Maoribank/Te Marua	6.8	N/A	N/A	N/A	N/A
Lower Hutt
Epuni/Avalon	5.1	N/A	N/A	N/A	N/A
Taita/Naenae	7.1	N/A	N/A	N/A	N/A
Wainuiomata	7.7	N/A	N/A	N/A	N/A
Wellington:
Johnsonville/Newlands	5.6	5.8	5.6	5.5	6.2
Vogeltown/Berhampore/Newtown	5.5	5.1	5.5	5.2	5.6
Tasman:
Motueka	5.3	5.3	5.5	5.6	5.5
Richmond/Wakefield/Brightwater	5.5	5.6	5.6	5.8	5.9
Nelson - Stoke/Nayland/Tahunanui	5.8	5.9	5.7	5.7	6.0
Blenheim	6.4	6.5	6.5	6.6	6.5
Christchurch:
Hornby/Islington/Hei Hei	6.2	6.2	6.3	6.5	6.3
Riccarton	4.9	5.9	5.2	4.9	5.1
Woolston/Opawa	6.6	6.8	7.3	7.2	8.0
Ashburton	6.9	7.0	6.8	6.7	7.2
Timaru	6.2	6.6	6.8	6.7	6.3
Queenstown/Frankton/Arrowtown	5.0	4.8	4.9	4.7	5.3
Dunedin
Kenmure/Mornington	6.6	N/A	N/A	N/A	N/A
Mosgiel	6.1	N/A	N/A	N/A	N/A
South Dunedin/St Kilda	8.2	N/A	N/A	N/A	N/A
Invercargill	9.0	6.7	9.0	9.2	9.5
Source : REINZ / MBIE * Yield is a property's annual rent expressed as a percentage of its purchase price. The yield figures in this table are gross (before allowing for vacancy and for costs such as rates, insurance, maintenance, mortgage interest and tax). The yields are calculated from the REINZ's lower quartile selling price for each area during the previous 6 months, and the median rent for newly tenanted three bedroom houses in the same areas/period which are calculated from new tenancy bonds received by the Ministry of Business Innovation and Employment.