By Greg Ninness
Falling house prices in Auckland made residential property a slightly more attractive investment option in the six months to March, according to interest.co.nz's latest Rental Yield Indicator figures.
The Indicator compares the gross rental yields that would be achieved in 56 locations around the country where there is a high level of rental activity, if a property was purchased at the REINZ's lower quartile selling price for three bedroom houses in each area, and rented out at the median rent for three bedroom houses in the same area.
A rental yield is the total rental income a property could earn in a year expressed as a percentage of its purchase price, and provides a standardised comparison of the relative income earning potential of rental properties in different locations.
Of the 10 Auckland suburbs monitored by the Indicator, the indicative yields in the six months to March were up in six areas, unchanged in three and down in one, compared to the six months to December (see table below).
The rise in yields was mainly caused by falling prices, with the lower quartile selling prices in eight of the 10 Auckland suburbs monitored falling in the six months to March compared to the six months to December.
The biggest fall in the lower quartile price was in Torbay on the North Shore, where it dropped by $31,000, from $830,000 in the six months to December to $799,000 in the six months to March.
In the other seven Auckland suburbs where prices fell, the declines ranged from $1000 in Beachhaven/Birkdale to $19,500 in Henderson.
The two suburbs where lower quartile prices increased were Pukekohe/Tuakau +$12,175 and Avondale +$26,250.
Over the same period, the median weekly rents increased in five of the 10 Auckland suburbs monitored, were unchanged in four and declined in one, compared to the six months to December.
So the general trend was that lower quartile prices overall were falling while rents were rising or flat, and that pushed up the gross rental yields, suggesting that buying an investment property in Auckland had become slightly more attractive in the first quarter of this year.
However rental yields in Auckland are still extremely low, with indicative Auckland yields in the Indicator ranging from 3.5% at Highland Park in the eastern suburbs to 4.6% in Pukekohe/Tuakau.
A general downturn
The combination of low rental yields, gradually rising mortgage interest rates, mortgage lending restrictions for investors and the potential absence of capital gains, have all contributed to a general downturn in investor activity in Auckland’s residential property market.
A similar trend is starting to emerge in the Waikato and Bay of Plenty, with lower quartile prices falling in parts of Hamilton and Tauranga, while median rents were either rising or static.
Around the rest of the country, things are different.
Rental yields are generally still higher in areas outside of the upper North Island, making them more attractive to investors, although they are falling back.
The decline in yields in areas outside of the upper North Island is largely being driven by continuing rises in lower quartile prices, with prices rising particularly strongly in the Wellington region.
Lower quartile prices have risen strongly in seven of the nine Wellington suburbs monitored by the Indicator, with exceptionally big rises on the Kapiti Coast and the Hutt Valley.
The biggest increase was in Waikanae/Otaki, where the lower quartile price in the six months to March was up a whopping $46,125 compared to the six months to December last year, while in in Paraparaumu/Raumati it was up by $37,625 over the same period.
There were also very strong prices rises in Lower Hutt and Wainuiomata, where the increases in the lower quartile prices in the suburbs monitored by the Indicator ranged from $28,250 to $34,300 between the six months to December last year and the six months to March this year.
Wellington yields down
However the big rises in Wellington prices have also sharply reduced yields in the region.
In the six months to March last year, the yields in the Wellington suburbs monitored by the Indicator ranged from 5.4% to 7.7%. In the six months to March this year they ranged from 4.2% to 5.9%, suggesting that the fundamentals for buying an investment property in Wellington were substantially less attractive now than they were 12 months ago.
 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 MBIE median rents in each area. |
||||||||||||
| Indicative Rental Yields (%) for the Six Months Ending: | ||||||||||||
| Town/region | Mar 2017 | Dec 2016 | Sep 2016 | Jun 2016 | Mar 2016 | Dec 2015 |
Sep 2015
|
Jun 2015
|
Mar 2015
|
Dec 2014
|
Sep 2014
|
Jun 2014
|
| Whangarei - Kamo/Tikipunga/Kensington | 5.4 | 5.4 | 5.9 | 6.1 | 6.0 | 5.6 | 7.1 | 6.5 | 6.9 | 7.6 |
6.4
|
5.9
|
| Rodney - Orewa/Whangaparaoa | 4.0 | 3.8 | 3.9 | 4.1 | 4.1 | 4.1 | 4.3 | 4.5 | 4.5 | 4.6 |
4.8
|
4.2
|
| North Shore: |
|
|
||||||||||
| Beachhaven/Birkdale | 3.7 | 3.7 | 3.7 | 3.7 | 3.9 | 3.8 | 3.9 | 4.0 | 4.3 | 4.3 |
4.6
|
4.9
|
| Torbay | 3.7 | 3.6 | 3.4 | 3.6 | 3.8 | 3.6 | 3.8 | 4.0 | 4.5 | 4.6 |
4.5
|
4.5
|
| Waitakere: |
|
|
||||||||||
| Glen Eden | 4.0 | 3.8 | 3.7 | 3.9 | 4.0 | 4.0 | 4.1 | 4.3 | 4.6 | 4.9 |
5.1
|
5.0
|
| Massey/Royal Heights | 4.0 | 3.9 | 3.8 | 4.1 | 4.1 | 4.0 | 4.1 | 4.4 | 4.6 | 4.9 |
5.1
|
5.0
|
| Henderson | 3.9 | 3.8 | 3.8 | 3.8 | 4.1 | 4.1 | 4.1 | 4.4 | 4.7 | 4.9 |
5.0
|
5.3
|
| Central Auckland: |
|
|
||||||||||
| Avondale | 3.6 | 3.6 | 3.7 | 3.6 | 3.7 | 3.7 | 3.9 | 4.1 | 4.2 | 4.4 |
4.5
|
n.a
|
| Manukau: |
|
|
||||||||||
| Highland Park | 3.5 | 3.5 | 3.4 | 3.3 | 3.3 | 3.6 | 3.6 | 3.8 | 3.8 | 4.1 |
4.3
|
4.6
|
| Papakura/Drury/Karaka | 4.3 | 4.4 | 4.4 | 4.7 | 4.8 | 4.8 | 4.9 | 5.5 | 5.6 | 5.9 |
6.0
|
6.0
|
| Franklin - Pukekohe/Tuakau | 4.6 | 4.4 | 4.3 | 4.5 | 4.9 | 5.0 | 5.0 | 5.3 | 5.5 | 5.6 |
5.6
|
5.8
|
| Hamilton: |
|
|
||||||||||
| Deanwell/Melville/Fitzroy | 4.8 | 5.0 | 5.1 | 5.4 | 5.3 | 5.5 | 6.2 | 6.8 | 6.9 | 6.9 |
6.9
|
6.9
|
| Fairfield/Fairview Downs | 4.9 | 4.8 | 4.8 | 5.1 | 5.4 | 5.7 | 6.0 | 6.8 | 6.7 | 6.2 |
7.0
|
6.9
|
| Te Kowhai/St Andrews/Queenswood | 4.4 | 4.3 | 4.6 | 4.7 | 4.7 | 4.9 | 5.3 | 5.4 | 5.4 | 5.6 |
5.8
|
5.5
|
| Cambridge/Leamington | 4.6 | 4.6 | 4.7 | 4.8 | 5.2 | 5.3 | 5.2 | 5.5 | 5.5 | 5.6 |
5.9
|
5.9
|
| Te Awamutu | 5.0 | 5.1 | 5.2 | 5.2 | 5.7 | 6.2 | 6.3 | 6.5 | 6.2 | 6.3 |
6.4
|
6.0
|
| Tauranga: |
|
|
||||||||||
| Tauranga Central/Greerton | 4.6 | 4.4 | 4.3 | 3.7 | 5.2 | 5.2 | 5.6 | 6.0 | 6.1 | 5.9 |
5.9
|
n.a.
|
| Bethlehem/Otumoetai | 4.1 | 3.7 | 4.2 | 4.2 | 4.6 | 4.8 | 4.8 | 4.5 | 4.8 | 5.3 |
5.4
|
5.2
|
| Mt Maunganui | 4.4 | 4.2 | 4.2 | 4.4 | 4.8 | 4.6 | 4.7 | 5.4 | 5.7 | 5.6 |
5.2
|
5.2
|
| Pyes Pa/Welcome Bay | 5.3 | 4.8 | 4.9 | 4.8 | 5.4 | 5.5 | 5.3 | 5.9 | 5.7 | 5.7 |
5.8
|
5.7
|
| Kaimai/Te Puke | 5.3 | 5.4 | 5.5 | 5.6 | 5.8 | 5.9 | 6.2 | 6.4 | 6.2 | 6.2 |
5.7
|
5.6
|
| Whakatane | 6.1 | 5.8 | 6.5 | 6.6 | 6.4 | 7.1 | 7.3 | 6.7 | 6.3 | 6.7 |
6.9
|
n.a.
|
| Roturua: | ||||||||||||
| Holdens Bay/Owhata/Ngapuna | 8.0 | 9.7 | 10.7 | 9.4 | 8.7 | 8.3 | 8.7 | n.a. | n.a. | n.a. | n.a. | n.a. |
| Kuirau/Hillcrest/Glenholm | 4.9 | 7.3 | 7.5 | 6.4 | 5.9 | 6.3 | 6.6 | n.a. | n.a. | n.a. | n.a. | n.a. |
| Ngongataha/Pleasant Heights/Koutu | 8.6 | 8.2 | 7.2 | 7.9 | 7.7 | 8.0 | 8.2 | n.a. | n.a. | n.a. | n.a. | n.a. |
| Hastings - Flaxmere | 8.9 | 8.6 | 9.4 | 9.3 | 10.9 | 11.5 | 11.0 | 12.1 | 12.2 | 11.7 |
11.8
|
12.0
|
| Napier - Taradale | 5.0 | 4.9 | 5.1 | 5.5 | 5.4 | 5.6 | 5.5 | 5.3 | 6.2 | 6.3 |
6.1
|
6.1
|
| Taranaki: | ||||||||||||
| New Plymouth Central/Moturoa | 4.7 | 5.3 | 5.1 | 5.4 | 5.8 | 5.4 | 5.5 | n.a. | n.a. | n.a. | n.a. | n.a. |
| Waitara/Inglewood | 8.1 | 7.0 | 7.7 | 7.7 | 8.8 | 8.9 | 8.0 | n.a. | n.a. | n.a. | n.a. | n.a. |
| Whanganui | 9.1 | 9.7 | 9.7 | 10.3 | 9.6 | 10.0 | 14.9 | n.a. | n.a. | n.a. | n.a. | n.a. |
| Palmerston North: | ||||||||||||
| Kelvin Grove/Roslyn | 6.6 | 6.6 | 7.0 | 7.3 | 7.4 | 7.2 | 7.2 | n.a. | n.a. | n.a. | n.a. | n.a. |
| Palmerston North Central | 5.9 | 5.6 | 6.5 | 6.3 | 5.6 | 5.5 | 6.2 | n.a. | n.a. | n.a. | n.a. | n.a. |
| Takaro/Cloverlea/Milson | 6.1 | 6.3 | 6.7 | 6.8 | 7.2 | 7.1 | 7.3 | n.a. | n.a. | n.a. | n.a. | n.a. |
| Kapiti Coast: |
|
|
||||||||||
| Paraparaumu/Raumati | 4.8 | 5.3 | 5.6 | 5.7 | 5.9 | 6.0 | 6.1 | 6.2 | 6.1 | 6.1 |
5.9
|
n.a.
|
| Waikanae/Otaki | 5.2 | 5.5 | 5.8 | 5.8 | 5.9 | 6.5 | 6.8 | 6.6 | 6.7 | 5.5 |
5.4
|
6.1
|
| Upper Hutt: | ||||||||||||
| Heretaunga/Silverstream | 4.7 | 4.6 | 5.3 | 5.6 | 5.8 | 5.8 | 6.1 | n.a. | n.a. | n.a. | n.a. | n.a. |
| Totara Park/Maoribank/Te Marua | 5.8 | 5.2 | 5.7 | 6.2 | 6.3 | 6.2 | 6.8 | n.a. | n.a. | n.a. | n.a. | n.a. |
| Lower Hutt: | ||||||||||||
| Epuni/Avalon | 5.1 | 5.6 | 5.1 | 5.5 | 5.8 | 5.2 | 5.1 | n.a. | n.a. | n.a. | n.a. | n.a. |
| Taita/Naenae | 5.8 | 6.1 | 6.2 | 6.5 | 6.8 | 6.9 | 7.1 | n.a. | n.a. | n.a. | n.a. | n.a. |
| Wainuiomata | 5.9 | 6.3 | 7.0 | 7.2 | 7.7 | 7.7 | 7.7 | n.a. | n.a. | n.a. | n.a. | n.a. |
| Wellington: |
|
|
||||||||||
| Johnsonville/Newlands | 4.9 | 4.8 | 4.8 | 5.2 | 5.5 | 5.4 | 5.6 | 5.8 | 5.6 | 5.5 |
6.2
|
5.9
|
| Vogeltown/Berhampore/Newtown | 4.2 | 4.1 | 4.6 | 4.9 | 5.4 | 5.2 | 5.5 | 5.1 | 5.5 | 5.2 |
5.6
|
5.8
|
| Tasman: |
|
|
||||||||||
| Motueka | 4.0 | 4.0 | 4.7 | 5.3 | 5.2 | 5.4 | 5.3 | 5.3 | 5.5 | 5.6 |
5.5
|
5.2
|
| Richmond/Wakefield/Brightwater | 4.7 | 4.6 | 4.8 | 5.3 | 5.3 | 5.3 | 5.5 | 5.6 | 5.6 | 5.8 |
5.9
|
6.0
|
| Nelson - Stoke/Nayland/Tahunanui | 5.1 | 5.1 | 5.2 | 5.3 | 5.5 | 5.7 | 5.8 | 5.9 | 5.7 | 5.7 |
6.0
|
6.0
|
| Blenheim | 5.8 | 6.3 | 6.5 | 6.5 | 7.0 | 7.0 | 6.4 | 6.5 | 6.5 | 6.6 |
6.5
|
6.1
|
| Christchurch: |
|
|
||||||||||
| Hornby/Islington/Hei Hei | 5.6 | 5.7 | 6.1 | 6.1 | 6.0 | 6.0 | 6.2 | 6.2 | 6.3 | 6.5 |
6.3
|
6.4
|
| Riccarton | 5.0 | 5.2 | 5.5 | 5.0 | 5.7 | 5.0 | 4.9 | 5.9 | 5.2 | 4.9 |
5.1
|
5.7
|
| Woolston/Opawa | 6.2 | 6.5 | 6.6 | 7.4 | 6.3 | 6.4 | 6.6 | 6.8 | 7.3 | 7.2 |
8.0
|
7.9
|
| Ashburton | 8.3 | 8.4 | 6.3 | 6.1 | 6.2 | 7.0 | 6.9 | 7.0 | 6.8 | 6.7 |
7.2
|
6.8
|
| Timaru | 6.0 | 5.9 | 6.1 | 6.4 | 6.5 | 6.4 | 6.2 | 6.6 | 6.8 | 6.7 |
6.3
|
n.a.
|
| Queenstown/Frankton/Arrowtown | 4.3 | 4.1 | 4.5 | 4.3 | 4.6 | 5.2 | 5.0 | 4.8 | 4.9 | 4.7 |
5.3
|
5.4
|
| Dunedin: | ||||||||||||
| Kenmure/Mornington | 7.5 | 6.5 | 6.3 | 6.7 | 7.9 | 7.1 | 6.6 | n.a. | n.a. | n.a. | n.a. | n.a. |
| Mosgiel | 5.5 | 5.7 | 5.7 | 5.7 | 6.4 | 6.4 | 6.1 | n.a. | n.a. | n.a. | n.a. | n.a. |
| South Dunedin/St Kilda | 7.9 | 7.5 | 8.1 | 7.4 | 7.2 | 8.0 | 8.2 | n.a. | n.a. | n.a. | n.a. | n.a. |
| Invercargill | 8.3 | 7.9 | 8.3 | 8.4 | 8.7 | 9.1 | 9.0 | 6.7 | 9.0 | 9.2 |
9.5
|
n.a.
|
| *Yield is a property's annual rent expressed as a percentage of its purchase price. The 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 Tenancy Services of the Ministry of Business Innovation and Employment for the same areas/period. | ||||||||||||
36 Comments
even broader, income is last century
ask Tesla..
"at $308 a share, the stock brushes up against its all-time high, giving Tesla a market capitalization of $50 billion, just shy of GM’s $51 billion. But they don’t even compare. In March, GM sold 63 times as many cars in the US as Tesla. Over the past eight years, GM earned $47.1 billion; Tesla lost $2.7 billion."
Your comment is a little simplistic. Tesla is planning a 1000% increase in volumes over the next 2 years, they have additional non car related business - batteries - which is gaining increased attention, and they are at the forefront of self driving vehicles which if it meets predictions will be the biggest economy disruption since the internet. So to just compare current car sales doesn't tell the whole story. Having said that, I'd probably sell Tesla at its current price because I'm risk adverse. That doesn't mean that are overvalued.
i think the point is pretty obvious. There is ZERO fundamentals backing the hype... income no longer matters right?
http://wolfstreet.com/2017/04/24/4-short-sellers-explain-why-they-targe…
This party has ended, it's hobbling along the edge of the cliff face, being held up by the remaiing hot air from the decomposing bodies at the bottom. So sad it's tragic, but give an hour or so we will have another 50 posts telling us how great ppty continues to be.
Didn't even look at the 2 highest yielding Palmy suburbs highbury and awapuni - over 7% yields there still as is; 9% if willing to manufacture some yield via light reno, added room, sleep out etc; Find me a city with those yields that also has consistent population growth. Touching 90k population; gizzy 40k, rotorua 60k?, nothing bigger between Welly and Hamilton
Wouldn't it be wonderful if yield rates mattered? If we treated property as an investment based on its income generation rather than capital gains. If this happened then people would consider how it stood against other investments, such as the productive sector. It also means that they would recognise depreciation and then reinvest in property to maintain its value, rather than assuming it would increase in value regardless of the care they took of it.
Cowpat, property is in the real asset class which means over the long term it is expected to keep up with inflation. Of course it is not guaranteed but buying wisely mitigates the risk and usually the return exceeds inflation.
Consider the difference, after thirty years, of a term deposit and a property both yielding 4%. Which one is likely to have kept up with inflation?
If property isn't inflation proof it is the closest thing to it. The rent goes up with inflation too.
You are painting a pretty big picture when you use those words "over the long term" Zach
The fact is Auckland property prices trend up and down and you wisely buy in the lows not the highs The highs being when you sell.
I know this will all have greater meaning to you as the Auckland housing market prices decline further.
enjoy your remarks Keep it up
Cowpat,
I don't usually agree with Zachary,but here he is absolutely right. It is just silly to judge an asset class by its performance over a few months,or even rather longer. I am primarily a stockmarket investor,with only a very modest investment property exposure and I know that longer term,both provide total returns well in excess of inflation. I came to NZ in 2003 and began buying equities shortly afterwards. I still have my initial holdings,such as F&P Healthcare,Trustpower and Port of Tauranga.
From someone who has struggled to buy in Wellington until recently, and had to pay a highly inflated price, or be stuck with a high rent, I believe it is solely a lack of supply due to an increase in population. Also people want to live in the right 'zone' for the good Wellington schools and colleges. Maybe they should remove school zoning? Largely comes down to a lack of planning by the people high up.
In recent years most property investors were only interested in the tax free capital gain.
I have attended several of these so called property seminars that are advertised on the radio. They kept banging on about the tax free capital gain and how the Government tax allowances were going to pay for your house.
No attention is paid to the yield. This was not the case before the housing market got out of control. Commercial property, by contrast is valued in nearly all cases by the yield.
Now that house prices are dropping in Auckland, a lot of these investors will be in for a shock when their investment will be returning a negative capital gain and a yield less than they could get in a term deposit.
I guess over the last two years that has actually been true - at least for upper quartile Tauranga which has gone gangbusters. Two bedroom units selling for over 900K!!!. I went to an open home in Acacia place a couple of years ago - the open home was crawling with baby boomers. House sold for crazy low 550 or something. I'm kicking myself for now because I knew what was going on and was on the edge of handing a S&P to the agent which would in retrospect have won the house. Unfortunately, I have a prejudice against flat roves. It's worth 7 or 8 now! oh well what does Judge Judy say - coulda shoulda woulda.
Linklater, that sounds very nice. You might find this website interesting https://homes.co.nz/
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