By Greg Ninness
The fundamentals for residential investment property are slowly improving as rents rise and property prices ease, according to interest.co.nz's Rental Yield Indicator.
Gross rental yields rose in 25 of the 56 locations throughout the country monitored by the Indicator compared to the six months to March, declined in 18 and were unchanged in 13. This is based on lower quartile selling prices and median rents for three bedroom houses in the six months to June.
The latest figures suggest the residential investment market is continuing to turn slowly, with capital gains drying up and rental returns becoming more important for investors.
The Indicator previously showed, in the six months to December last year, that gross yields rose in 17 of the 56 areas monitored, declined in 28 and were unchanged in 11, as rising property prices continued to outpace rents. But in the six months to March this year, yields were rising in more places than they were declining in, with rises in 25 locations, declines 21 and no change in 10.
These latest figures show that trend is strengthening, as yields decline in fewer locations, although the change is gradual and the yields remain at very low levels in most main centres (see table below).
A gross rental yield is a property's annual rent expressed as a percentage of its purchase price or capital value.
A higher yield indicates a higher return for investors and when yields are rising it suggests rents are rising relative to property prices, while falling yields suggest prices are rising relative to rents, reducing investor returns.
Since interest.co.nz started the Indicator in September 2014, yields have generally fallen as property prices surged, outpacing growth in rents.
But the latest figures suggest that trend bottomed out last year and has now started to turn.
However it may be some time before yields in places like Auckland start to look attractive again to investors.
In the six months to September 2014, the yields in the Auckland suburbs monitored by the Indicator ranged from 4.3% to 5.6% but in the six months to June this year they ranged from 3.6% to 4.7%.
In Hamilton they have declined from a range between 5.8% and 6.9%, to between 3.6% and 4.6% over the same period. Most locations show similar trends (refer table below).
Of the 56 locations monitored by the Indicator, the lowest yield was in Highland Park in east Auckland on 3.6%, while the highest was Flaxmere in Hastings on 9.2%.
Four of the 10 suburbs in Auckland had yields below 4%, compared to six Auckland suburbs that had sub 4% yields in June last year.
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.
| Indicative gross rental yields for the six months ending: | ||||||||||||||||
| Town/region | Yield % June 2018 |
Yield % March 2018 |
Yield % Dec 2017 | Yield % Sept 2017 | Yield % June 2017 |
Yield % March 2017 | Yield % Dec 2016 | Yield % Sept 2016 | Yield % June 2016 | Yield % March 2016 | Yield % Dec 2015 |
Yield %
Sept 2015
|
Yield %
June 2015 |
Yield %
March 2015
|
Yield %
Dec 2014
|
Sept 2014
|
| Whangarei: | ||||||||||||||||
| Kamo/Tikipunga/Kensington | 5.5 | 5.4 | 5.5 | 5.3 | 5.5 | 5.4 | 5.4 | 5.9 | 6.1 | 6.0 | 5.6 | 7.1 | 6.5 | 6.9 | 7.6 |
6.4
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| Rodney - Orewa/Whangaparaoa | 4.0 | 4.0 | 4.0 | 4.0 | 4.0 | 4.0 | 3.8 | 3.9 | 4.1 | 4.1 | 4.1 | 4.3 | 4.5 | 4.5 | 4.6 |
4.8
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| North Shore: |
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| Beach Haven/Birkdale | 3.9 | 3.8 | 3.8 | 4.0 | 3.8 | 3.7 | 3.7 | 3.7 | 3.7 | 3.9 | 3.8 | 3.9 | 4.0 | 4.3 | 4.3 |
4.6
|
| Torbay | 3.7 | 3.7 | 3.6 | 3.6 | 3.6 | 3.7 | 3.6 | 3.4 | 3.6 | 3.8 | 3.6 | 3.8 | 4.0 | 4.5 | 4.6 |
4.5
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| Waitakere: |
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| Glen Eden | 3.9 | 3.8 | 3.9 | 3.9 | 3.9 | 4.0 | 3.8 | 3.7 | 3.9 | 4.0 | 4.0 | 4.1 | 4.3 | 4.6 | 4.9 |
5.1
|
| Massey/Royal Heights | 4.2 | 4.2 | 3.9 | 3.9 | 3.8 | 4.0 | 3.9 | 3.8 | 4.1 | 4.1 | 4.0 | 4.1 | 4.4 | 4.6 | 4.9 |
5.1
|
| Henderson | 4.1 | 4.2 | 4.1 | 4.1 | 4.0 | 3.9 | 3.8 | 3.8 | 3.8 | 4.1 | 4.1 | 4.1 | 4.4 | 4.7 | 4.9 |
5.0
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| Central Auckland: |
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| Avondale | 4.0 | 3.7 | 3.6 | 3.6 | 3.5 | 3.6 | 3.6 | 3.7 | 3.6 | 3.7 | 3.7 | 3.9 | 4.1 | 4.2 | 4.4 |
4.5
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| Manukau: |
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| Highland Park | 3.6 | 3.7 | 3.6 | 3.8 | 3.6 | 3.5 | 3.5 | 3.4 | 3.3 | 3.3 | 3.6 | 3.6 | 3.8 | 3.8 | 4.1 |
4.3
|
| Papakura/Drury/Karaka | 4.7 | 4.6 | 4.7 | 4.7 | 4.3 | 4.3 | 4.4 | 4.4 | 4.7 | 4.8 | 4.8 | 4.9 | 5.5 | 5.6 | 5.9 |
6.0
|
| Franklin - Pukekohe/Tuakau | 4.6 | 4.7 | 4.7 | 4.8 | 4.8 | 4.6 | 4.4 | 4.3 | 4.5 | 4.9 | 5.0 | 5.0 | 5.3 | 5.5 | 5.6 |
5.6
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| Hamilton: |
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| Deanwell/Melville/Fitzroy | 5.1 | 5.1 | 4.9 | 4.8 | 4.8 | 4.8 | 5.0 | 5.1 | 5.4 | 5.3 | 5.5 | 6.2 | 6.8 | 6.9 | 6.9 |
6.9
|
| Fairfield/Fairview Downs | 4.7 | 4.6 | 4.6 | 4.5 | 4.5 | 4.9 | 4.8 | 4.8 | 5.1 | 5.4 | 5.7 | 6.0 | 6.8 | 6.7 | 6.2 |
7.0
|
| Te Kowhai/St Andrews/Queenswood | 4.7 | 4.7 | 4.6 | 4.6 | 4.5 | 4.4 | 4.3 | 4.6 | 4.7 | 4.7 | 4.9 | 5.3 | 5.4 | 5.4 | 5.6 |
5.8
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| Cambridge/Leamington | 4.6 | 4.3 | 4.2 | 4.4 | 4.4 | 4.6 | 4.6 | 4.7 | 4.8 | 5.2 | 5.3 | 5.2 | 5.5 | 5.5 | 5.6 |
5.9
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| Te Awamutu | 5.0 | 4.9 | 5.1 | 5.0 | 5.1 | 5.0 | 5.1 | 5.2 | 5.2 | 5.7 | 6.2 | 6.3 | 6.5 | 6.2 | 6.3 |
6.4
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| Tauranga: |
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| Tauranga Central/Greerton | 4.8 | 4.7 | 4.8 | 5.1 | 4.7 | 4.6 | 4.4 | 4.3 | 3.7 | 5.2 | 5.2 | 5.6 | 6.0 | 6.1 | 5.9 |
5.9
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| Bethlehem/Otumoetai | 4.2 | 4.3 | 4.3 | 4.1 | 4.0 | 4.1 | 3.7 | 4.2 | 4.2 | 4.6 | 4.8 | 4.8 | 4.5 | 4.8 | 5.3 |
5.4
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| Mt Maunganui | 4.6 | 4.4 | 4.2 | 4.3 | 4.4 | 4.4 | 4.2 | 4.2 | 4.4 | 4.8 | 4.6 | 4.7 | 5.4 | 5.7 | 5.6 |
5.2
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| Pyes Pa/Welcome Bay | 4.6 | 4.4 | 4.6 | 4.7 | 4.3 | 4.8 | 4.8 | 4.9 | 4.8 | 5.4 | 5.5 | 5.3 | 5.9 | 5.7 | 5.7 |
5.8
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| Kaimai/Te Puke | 4.8 | 4.9 | 5.5 | 5.0 | 4.9 | 5.3 | 5.4 | 5.5 | 5.6 | 5.8 | 5.9 | 6.2 | 6.4 | 6.2 | 6.2 |
5.7
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| Whakatane | 6.1 | 6.3 | 6.0 | 6.1 | 6.0 | 6.1 | 5.8 | 6.5 | 6.6 | 6.4 | 7.1 | 7.3 | 6.7 | 6.3 | 6.7 |
6.9
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| Roturua: | ||||||||||||||||
| Holdens Bay/Owhata/Ngapuna | 7.8 | 7.8 | 7.4 | 9.3 | 10.5 | 8.0 | 9.7 | 10.7 | 9.4 | 8.7 | 8.3 | 8.7 | n.a. | n.a. | n.a. | n.a. |
| Kuirau/Hillcrest/Glenholm | 5.4 | 5.8 | 4.9 | 5.6 | 5.5 | 4.9 | 7.3 | 7.5 | 6.4 | 5.9 | 6.3 | 6.6 | n.a. | n.a. | n.a. | n.a. |
| Ngongotaha/Pleasant Heights/Koutu | 6.0 | 6.7 | 7.6 | 8.5 | 6.2 | 8.6 | 8.2 | 7.2 | 7.9 | 7.7 | 8.0 | 8.2 | n.a. | n.a. | n.a. | n.a. |
| Hastings - Flaxmere | 9.2 | 9.6 | 9.8 | 9.9 | 9.3 | 8.9 | 8.6 | 9.4 | 9.3 | 10.9 | 11.5 | 11.0 | 12.1 | 12.2 | 11.7 |
11.8
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| Napier - Taradale | 4.7 | 4.6 | 4.4 | 4.4 | 4.9 | 5.0 | 4.9 | 5.1 | 5.5 | 5.4 | 5.6 | 5.5 | 5.3 | 6.2 | 6.3 |
6.1
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| Taranaki: | ||||||||||||||||
| New Plymouth Central/Moturoa | 4.8 | 4.6 | 4.7 | 5.4 | 4.9 | 4.7 | 5.3 | 5.1 | 5.4 | 5.8 | 5.4 | 5.5 | n.a. | n.a. | n.a. | n.a. |
| Waitara/Inglewood | 6.5 | 6.4 | 6.1 | 6.0 | 7.2 | 8.1 | 7.0 | 7.7 | 7.7 | 8.8 | 8.9 | 8.0 | n.a. | n.a. | n.a. | n.a. |
| Whanganui | 9.0 | 9.0 | 8.9 | 8.7 | 8.6 | 9.1 | 9.7 | 9.7 | 10.3 | 9.6 | 10.0 | 14.9 | n.a. | n.a. | n.a. | n.a. |
| Palmerston North: | ||||||||||||||||
| Kelvin Grove/Roslyn | 6.2 | 6.3 | 6.5 | 6.3 | 6.5 | 6.6 | 6.6 | 7.0 | 7.3 | 7.4 | 7.2 | 7.2 | n.a. | n.a. | n.a. | n.a. |
| Palmerston North Central | 5.1 | 5.0 | 4.9 | 5.5 | 6.0 | 5.9 | 5.6 | 6.5 | 6.3 | 5.6 | 5.5 | 6.2 | n.a. | n.a. | n.a. | n.a. |
| Takaro/Cloverlea/Milson | 6.1 | 6.0 | 5.9 | 6.2 | 6.2 | 6.1 | 6.3 | 6.7 | 6.8 | 7.2 | 7.1 | 7.3 | n.a. | n.a. | n.a. | n.a. |
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| Kapiti Coast: |
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| Paraparaumu/Raumati | 5.0 | 4.9 | 5.0 | 5.0 | 4.9 | 4.8 | 5.3 | 5.6 | 5.7 | 5.9 | 6.0 | 6.1 | 6.2 | 6.1 | 6.1 |
5.9
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| Waikanae/Otaki | 4.5 | 5.4 | 5.2 | 4.7 | 4.7 | 5.2 | 5.5 | 5.8 | 5.8 | 5.9 | 6.5 | 6.8 | 6.6 | 6.7 | 5.5 |
5.4
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| Upper Hutt: | ||||||||||||||||
| Heretaunga/Silverstream | 4.9 | 4.8 | 5.0 | 5.4 | 4.7 | 4.7 | 4.6 | 5.3 | 5.6 | 5.8 | 5.8 | 6.1 | n.a. | n.a. | n.a. | n.a. |
| Totara Park/Maoribank/Te Marua | 5.6 | 5.6 | 5.6 | 5.7 | 5.8 | 5.8 | 5.2 | 5.7 | 6.2 | 6.3 | 6.2 | 6.8 | n.a. | n.a. | n.a. | n.a. |
| Lower Hutt: | ||||||||||||||||
| Epuni/Avalon | 4.7 | 5.0 | 4.5 | 4.8 | 4.9 | 5.1 | 5.6 | 5.1 | 5.5 | 5.8 | 5.2 | 5.1 | n.a. | n.a. | n.a. | n.a. |
| Taita/Naenae | 5.5 | 5.7 | 5.9 | 5.5 | 5.6 | 5.8 | 6.1 | 6.2 | 6.5 | 6.8 | 6.9 | 7.1 | n.a. | n.a. | n.a. | n.a. |
| Wainuiomata | 5.6 | 5.6 | 5.6 | 5.7 | 5.9 | 5.9 | 6.3 | 7.0 | 7.2 | 7.7 | 7.7 | 7.7 | n.a. | n.a. | n.a. | n.a. |
| Wellington: |
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| Johnsonville/Newlands | 4.9 | 4.9 | 4.6 | 5.0 | 5.0 | 4.9 | 4.8 | 4.8 | 5.2 | 5.5 | 5.4 | 5.6 | 5.8 | 5.6 | 5.5 |
6.2
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| Vogeltown/Berhampore/Newtown | 5.0 | 4.9 | 4.3 | 4.5 | 4.5 | 4.2 | 4.1 | 4.6 | 4.9 | 5.4 | 5.2 | 5.5 | 5.1 | 5.5 | 5.2 |
5.6
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| Tasman: |
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| Motueka | 4.2 | 4.2 | 4.5 | 5.0 | 4.4 | 4.0 | 4.0 | 4.7 | 5.3 | 5.2 | 5.4 | 5.3 | 5.3 | 5.5 | 5.6 |
5.5
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| Richmond/Wakefield/Brightwater | 4.5 | 4.5 | 4.6 | 4.8 | 4.6 | 4.7 | 4.6 | 4.8 | 5.3 | 5.3 | 5.3 | 5.5 | 5.6 | 5.6 | 5.8 |
5.9
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| Nelson - Stoke/Nayland/Tahunanui | 4.8 | 4.9 | 4.9 | 4.8 | 5.0 | 5.1 | 5.1 | 5.2 | 5.3 | 5.5 | 5.7 | 5.8 | 5.9 | 5.7 | 5.7 |
6.0
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| Blenheim | 5.7 | 5.6 | 5.5 | 5.7 | 5.6 | 5.8 | 6.3 | 6.5 | 6.5 | 7.0 | 7.0 | 6.4 | 6.5 | 6.5 | 6.6 |
6.5
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| Christchurch: |
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| Hornby/Islington/Hei Hei | 5.9 | 5.7 | 5.8 | 5.6 | 5.6 | 5.6 | 5.7 | 6.1 | 6.1 | 6.0 | 6.0 | 6.2 | 6.2 | 6.3 | 6.5 |
6.3
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| Riccarton | 5.6 | 5.2 | 5.7 | 5.1 | 4.7 | 5.0 | 5.2 | 5.5 | 5.0 | 5.7 | 5.0 | 4.9 | 5.9 | 5.2 | 4.9 |
5.1
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| Woolston/Opawa | 7.4 | 7.8 | 6.7 | 6.2 | 6.0 | 6.2 | 6.5 | 6.6 | 7.4 | 6.3 | 6.4 | 6.6 | 6.8 | 7.3 | 7.2 |
8.0
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| Ashburton | 5.2 | 5.3 | 5.8 | 6.3 | 7.0 | 8.3 | 8.4 | 6.3 | 6.1 | 6.2 | 7.0 | 6.9 | 7.0 | 6.8 | 6.7 |
7.2
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| Timaru | 5.6 | 5.8 | 6.2 | 6.0 | 5.7 | 6.0 | 5.9 | 6.1 | 6.4 | 6.5 | 6.4 | 6.2 | 6.6 | 6.8 | 6.7 |
6.3
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| Queenstown/Frankton/Arrowtown | 4.2 | 4.2 | 4.3 | 4.4 | 4.6 | 4.3 | 4.1 | 4.5 | 4.3 | 4.6 | 5.2 | 5.0 | 4.8 | 4.9 | 4.7 |
5.3
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| Dunedin: | ||||||||||||||||
| Kenmure/Mornington | 6.2 | 5.9 | 5.4 | 5.8 | 6.3 | 7.5 | 6.5 | 6.3 | 6.7 | 7.9 | 7.1 | 6.6 | n.a. | n.a. | n.a. | n.a. |
| Mosgiel | 5.8 | 5.6 | 5.4 | 5.4 | 5.4 | 5.5 | 5.7 | 5.7 | 5.7 | 6.4 | 6.4 | 6.1 | n.a. | n.a. | n.a. | n.a. |
| South Dunedin/St Kilda | 7.3 | 7.6 | 7.6 | 8.6 | 8.0 | 7.9 | 7.5 | 8.1 | 7.4 | 7.2 | 8.0 | 8.2 | n.a. | n.a. | n.a. | n.a. |
| Invercargill | 8.2 | 7.9 | 7.9 | 8.9 | 8.3 | 8.3 | 7.9 | 8.3 | 8.4 | 8.7 | 9.1 | 9.0 | 6.7 | 9.0 | 9.2 |
9.5
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Source : 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 six 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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82 Comments
Whilst rental yields may be slowing rising they are well short of interesting landlords to invest.
For the majority of regions the net yields is well south of 5%. Take off expenses including insurance, rates, maintenance and periods of non-occupancy and this is, as retired poppy points out, is at best compatible but likely less compared to term deposits which are without the time and effort, and any risks associated with either poor tenants or loss of capital with any further cooling of the property market.
This is reality and I am not expecting any sympathy. Yes, rental property owners have done well over the past eight years or so, but in the absence of likely capital gains, rents and the market have a long way to go to be attractive.
RBNZ mortgage figures show that new mortgages for property investors are at a low since data was first collected; this is not a result of LVRs but more so low yields and as said, there needs to a considerable increase in yields to entice most landlords to continue to invest further.
Oh, the days at Property Investor Association meetings when the talk was that if the yield wasn't 10%, then the property wasn't worth it.
The housing market has been relatively flat since around Oct/Nov 2016 - especially in Auckland.
It will pick up sooner or later - and quite possibly sooner than some people here anticipate. (After all, in terms of selling prices, the market has demonstrated far more resilience than many here anticipated a couple of years ago.)
The figures show that FHB's are becoming more active in the market. Auction clearance rates have shown an increase through June and July. Interest rates are still falling. And, further, there's a general expectation that rent increases will be sustained - owing to both population demand pressures and to offset the costs to landlords of meeting the new regulatory requirements (which in my view are well-justified).
Any one of the above by itself might not mean much - but put them together and property investors start to see a bit of light.
Investors are shrewd enough: buying in a flat market and having a longer time horizon can make sense, even when yield is relatively low........
The old "long-term hold" strategy has served many investors well in the past. They are prepared to wait for capital growth.
But if you're getting old, devoid of good management (including people) skills and are generally unmotivated, then term deposits - together with your pension/Goldcard, FlyBuys points and funeral plan - might suffice. (Indeed, there are many retirees who fall into this category.)
TTP
At your stage of life its a good option. Many young folk don't have cash sitting around to invest and live off. I took some risks and invested in property and I'm glad I did. I know what you saying is safe advice but it's irrelevant when they don't have enough to invest. They have to make the money first.
TTP
Pleased that you have confidence in the future of the property market rising.
However, following the last period of significant rise in the market (from memory about 2001-2004/5) the market remained flattish for the next five years without significant capital gains to be made. As this recent rise has been far more significant, I see the flattish period being as long, if not longer, as yields and income vs prices for FHB to improve significantly; a rise in interest rates likely over the next few years will extend this period further.
I am one who believes that there will not be a significant fall in the market and the fairly sustainability prices this winter period is evidence of this.
However, there is not currently the yields there to attract significant numbers of property investors. The reality is that an investor entering the market at the moment is likely to be facing an effective negative return (even if only 1 or 2%) after expenses.
Given that the 1% or 2% loss on a $500,000 property is effectively $5,000 to $10,000 per year, is it really worth it in the vain hope that there is to be further growth in the market???
I suggest that astute investors will be holding off for a few years yet.
The recent property party is over, and the next party won't be for some years more.
So who are the potential property buyers buying at current prices / current yields in Auckland?
1) Cashflow oriented buy and hold investors? - unlikely given low gross rental yields
2) capital gain oriented investors? - yes,
a) those who have high incomes and can deduct the losses on the property against their income for tax purposes
b) property trader / renovators - those hoping to buy at a discount from a potential future resale price, who renovate the property (aka "add value") for future sale
c) small time property developers - those buying residential real estate with excess land, i) looking to build an additional residential dwelling on that land. ii) looking to remove an existing dwelling and build a number of additional residential dwellings on that land (such as townhouses or apartments)
3) owner- occupiers
4) foreign investors looking to park their cash offshore
TTP
Interesting that you note that the Auckland market has been flat since Oct/Nov 2016.
I am not one to want to score points but . . .
I remember making the call at that time (i.e. in both Oct & Nov 2016) that the Auckland market had peaked and there was a TTP who was predicting a post Christmas surge in prices and that TTP's call continued for at least some time.
Must of been a different TTP. :)
printer8, TTP said this in Feb 2017 "A fall of a mere 12% over the next 3-4 years would be a soft-landing, given the spectacular gains of the recent past. So, hardly a forecast to get too uptight about. But the fall could be more pronounced than that - shouldn't rule that out."; https://www.interest.co.nz/property/86171/nz-house-prices-look-set-fall…
TTP is cagey about why his forecasts have since changed so dramatically. I for one am pretty sure he now sells houses.
IMPORTANT
Hi printer 8,
No, definitely only one TTP here - and it's me.
BUT: I did not contribute here (i.e. register) until February 2017 as my profile shows. (I have been a member for 1 year and 5 months.)
THUS: I did not make any prediction here (or make any comment whatsoever) in Oct and Nov 2016.
PRINTER8: You have NOT been truthful in your post above. I hope you will now retract the post and make the appropriate apology. Otherwise, your credibility is wiped.
FINALLY: It's just as well you are not into scoring points, because you have failed dismally on this occasion.
TTP
Hi printer8,
Thanks for your apology.
That's decent of you and appreciated. (As far as I'm concerned the matter is now over and forgotten.)
And, yes, even though the overall housing market has been relatively flat for some time now, there have instances where certain suburbs/cities/regions have recorded increases in (average or median) price over particular time periods - sometimes referred to as "spikes" or "surges". Of course, the converse has also occurred: there have been downward price movements too.
TTP
Well for some period I thought that there might be a correction.
As proof that one can change one's mind especially based on factors, I have done-so.
The relatively continuing high rates of immigration and surprising continuing low rates of interest continue to support the housing market. However, withdrawal of many property investors and prices exceeding many FHB, future supply of KiiwiBuild homes, plus fewer foreign investors due to changing regulations and perception as to the likely capital gains to be made are all likely to put downward pressure.
I am of the opinion that the NZRB want to keep stable house prices for wider economic stability (and it is one reasons that we haven't seen the rise in the OCR as with the US Fed which we re currently below).
So I've put my head on the block; a subdued property market for the medium future at least with the NZRB using the OCR and LVRs ensuring that.
When will the market take off again? Remember that this last housing boom was due to an external factor; namely the GFC and the world becoming awash with cheap money as the US et al printed money. So what is the next external factor that could trigger another boom - there is nobody with credibility that can predict either what that will be or when it will occur.
So in the meantime; for property investors will need to see yields improve some what, and for FHB they will gradually need to ensure that they can save sufficiently to be in catch-up mode.
There is a good likelihood that I may be proved wrong.
P.S. I thought my admission of error was far better than Donald's.
printer8, you hit the nail on the head. While FHB's save (receive interest income) and play catch up mode there's a global backdrop of debt driven risk building globally. Patience is key while the fallout of post GFC money printing/debt explosion and building trade disputes is still unfolding. If FHB's get this wrong by entering immediately after a decade where the price for housing ownership has been dictated by greedy speculation, it's could easily become life destroying.
Going forward, only the sad and undisciplined speculator will seek to discourage others saving much larger deposits so to to rid themselves of the remorse for paying top dollar themselves.
If people can recall, during the housing the NZRB were concerned that the traditional OCR was not sufficient a tool to control the housing market increase hence the introduction of LVRs. The government's foreign buyer constraints are a further control,
For the future; I don't think that we will see a property boom such as that of the past eight years; it is not desirable for either economic stability nor for social (i.e. FHB home ownership) reasons.
The RBNZ has now two tools to moderate the housing market and Adrian Orr has signaled the medium term future - a 2 to 3% annual increase which is inline with inflation expectations.
The housing boom was not a conspiracy aimed at the millennial as some think; rather the cheap money readily available .
TTP actually, more or less, called the interim bottom amidst most people calling him a fool and saying he would eat his words.
Ill add an important factor, if you could literally go out and buy a genuinely positive cash flowing asset at 100% finance everyone would be doing it until it wasn't positively flowing. From there on only people who understand an income streams growth can be discounted in to today's prices are buyers, and they know they can purchase a negative flowing asset today in the understanding that it will be positively flowing in the future. The period of time a person will wait for that event becomes a major component in pricing.
The pool of investors who understand this process use to be very small but is now much larger and so it is hard to see the bargains of the past appearing in the future without some major market failure like the banks collapsing or similar.
Jump in to excel and input a 500k house, at 500k debt at HSBC's 3.85%. Put yield at 4.25%, apply 20% costs and grow the rent at 3% p.a. Remember to amortize the loss or you will miss the point. Run it over 20 years and take a look at 1) when was it flowing positively and 2, when do you break even and 3. what is the value of the debt subtracted from the value of the house if the house doesnt change value at all.
Then consider that a cash buyer in the S&P is looking at waiting the full 20 years to break even.
You can also ask yourself, whats that 500K property going to be worth in 20 years... Probably not less than today so its a pretty solid bet youre okay, unless, interest rates rise a bunch :-D
But thats the way its always been, cant make outsized returns without increased risk.
what a load of codswallop!
if you believed half of what you write, you should put your money where your mouth is.
In Auckland
clearance rates are still rubbish - overall in the 30 - 40%
Prices are dropping in some places flat in others
Inventory is still high and is going to explode in the spring
Sales rates for June the 2nd worst since 2011
Make sure you get citizenship.
Many who exported themselves to Aussie, and their Children, didn't think the benefits of Aussie Citizenship thru sufficiently. As a result we are now receiving the criminally inclined that have never lived in NZ and have no family network at all. Approx 1300 to date. Fantastic.
Yes, that's one area of concern for me. Theoretically I should qualify for permanent residency based on their skills shortage list, but life doesn't always go the way you plan it.
I'm not much worried about being deported for committing crimes though - more about just the general benefits.
And like many other european NZers, I have the europe option due to ancestory. There are very few countries there where'd I'd be better off than Aus though.
saving_for_auss, google 'RRV" for Return Resident Visa - this is a very short cut to get Aust citizenship if you qualified. I know many Kiwis went to a huge expenses to get PR and eventually Citizenship, turned out they can get it through RRV process for less than 6-700 bucks
To justify risks/expense of being a Landlord/speculator, yields need to rise a lot. Tenants now maxed out. Try an early exit to save equity, IRD reaps it. Landlords are starting to wear it. Hamilton, a playground for Auckland based speculators priced out of their own city, has certainly peaked too. Where Auckland goes, Hamilton follows closely behind.
Here is quite an interesting perspective on property bubbles and offers 4 measures to identify when housing is overpriced and likely to correct.
-Price to Rent Ratio (or Yield)
-Relative Prices
-Affordability
-Price to Replacement Cost
In this article a gross rental yield of 6 or 7% is fairly priced, anything less is degrees of over pricing, anything more is under-priced.
According to the article NZ property is in a bubble on 3/4 measures. The 4th being replacement costs (which varies across NZ) mostly due to the cost of the land.
https://www.globalpropertyguide.com/real-estate-school/How-to-avoid-buy…
How are residential property valuations arrived at for bank lending purposes, buyer, & seller purposes?
The most recent comparable property transaction method - i.e recent sales of comparable properties in the area. This is how virtually all property valuers arrive at their basis for property valuations for residential property. Lenders, buyers and sellers all commonly use this as their only valuation metric - this is very useful for those planning to transact in the next 12 months, as it gives an indication of potential transaction value. This is reliable for most of the time, but it doesn't tell you when the market price is at extremes peaks or troughs.
The reliance on comparable market transactions as the sole valuation metric in the market place is a big part of the reason of asset price bubbles occur, as most people don't refer to other valuation metrics to check the reasonableness of the property price. These other house valuation metrics that you list are not commonly used by most unsophisticated investors, and hence get caught out at market price peaks..
In the leafy suburb of Mt Eden in Auckland, for a 3 BDRM house, the gross rental yields are averaging 2.0% - in current economic conditions, that is just nuts in my opinion. Yet owner occupiers are buying at these price levels as they are using most recent comparable transaction value as a basis to determine whether the price they are paying is cheap or expensive.
@ TTP
a. You're putting words in my mouth
b. I'm single
c. I'll be renting in Perth
d. Is for your reading comprehension
All jokes and jabs aside, people are largely free to vote with their feet. I can't click my fingers and make NZ as I wish it to be, but I can move to where I believe a better quality of life/housing is to be had.
As Perth has no letting fees, higher quality yet cheaper housing .. it's cheaper for me to fly to Perth and rent a furnished apartment than move down the road here in NZ.
It's possible his parents paid the house off entirely. It's the goal of most wealthy chinese people to leave and live in societies built by waiguoren - he may well just be maintaining the property on their behalf. Very likely an only child as well, so will face a lot of pressure to look after both parents as well as 4 grandparents.
Currently seeing 36 properties in Auckland (TM) advertising one week free rent. This is a bit of a change. Will be interesting to see what happens if new apartment supply comes on line and the Pretend Tertiary Education sector is asked to comply with the law more than in the past.
Understandable Double-GZ, I've put the rates of my freelance services up 25%. Saying that, I've had less customers since .. but advertising and general business costs have increased so my prices have had to reflect that.
If people refuse to pay the extra 25% I'll just stop offering my services (close my business) and move to Perth sooner - what will you do with your house/rates/mortgage?
DGZ one of my old workmate has few properties around Kingsland, they raised their rent few months ago.. two of their rentals ended up with extra tenants and there is bugger all they can do about it. The extra persons simply moved out on inspection day and move back in next day. You'd be surprised how common this is now. So good luck for raising the rent
Looks like a bit of a typo. What he means is they are stacking extra people in the house to split the rent with, but hiding it from the landlord by having them vacate for the inspection day. Bed in the lounge which is very common in London when doing your OE. Have even rented out our wood shed and Pantry (it was a large one but fitted a bed ok) when I was a student, mainly to help mates out. They simply paid a share of expenses in those days.
Every year the Property Institute releases a list of predictions. In 2017, every prediction was correct. Prediction #2 on their 2018 list is:
The cost of renting will continue to rise and this will replace the cost of housing as the number one housing issue in 2018
I will not let out a secrete by saying that every savvy and prudent landlord adjusts his/her rents regularly ( usually annually) in conjunction with his / her previous years' expenses + any known anticipated charges coming his way in the next year ... these commonly mount to CPI+1% ( so anywhere between 2-3% pa) -- In the case of Hamilton, they had a significant rate rise from July this year (9.5%) and a similar one next year -- so rents there jumped quite a lot recently ( most of the rates increase was passed to tenants) - I know that the resultant Property yields have stayed the same as last year. so we need to be careful with numbers and know what is behind them.
Some landlords overlook rent adjustment and either keep rents unchanged because the property is old and paid for itself ages ago, so any money is good money, others don't realise that they have to fork the difference if they do not adjust properly on time. I know few of these that are charging almost half market rate because of years of neglect.
Rent adjustment is a personal decision, the 2-3% increase only covers actual property owning and running cost increases like rates, insurance, interest rate variations, and regular maintenance ( excluding repairs and improvements).
Long term landlords are in the business of running a rental service regardless of yield and CG fluctuations -- these terms and charges only amuse novice outsiders or tenants who recently became expert economical analysts counting the Landlord's pennies and cents and advising on the merit of property investment.
It has been a long known industry rule-of-thumb that rents usually lag behind property price appreciation ( in a stable market) by about 9 -12 months and they catch up when properties take a breather, and this is just that - business as usual.
Eco Bird, wake up dreamer! Tenants are not the cash cows that will replace the evaporating capital gains. Rent price increases are laging well behind property appreciation. This is evidenced in well publicised statistics. Its more governed by wage growth. If what you said had any truth to it, gross yields would still be around 6-7% in Auckland!
Agree, I am seeing tenants move rather than put up with increases. In fact i wonder if there is a chart or data showing the average length of a tenancy and if that is decreasing? eg i it was say 2 years 10 years ago but is now 1.5years then the Q is why the increased turnover?
@David C?????
I think the dream of adding 3% every year (say) onto a tenant is making some huge and un-justified assumptions around a tenants ability to pay. Now this may well be the case for some tenants but from my limited view of ppl I know tenants move and I am seeing that happen enough that on a macro view I think that the market rate is already maxed out by the landlord. So unless we see wage increases and/or the Govn increases rent subsidies I think most land lords will struggle. The nurses despute of course will be followed by other public service workers expecting substantial pay increases and striking to get it so landlords might actually get lucky. Funny of course as I bet most didnt vote Labour but it will be Labour that gives then that wind fall.
“It has been a long known industry rule-of-thumb that rents usually lag behind property price appreciation ( in a stable market) by about 9 -12 months and they catch up when properties take a breather, and this is just that - business as usual.”
Sorry but if you’re inferring that’s what’s going to happen here to save landlords on yields that’s nonsense. Rents are predominantly driven by income growth, and prices are predominantly driven by credit conditions. You can’t borrow to pay rent, and you can’t pay rent or a purchase price with income or mortgage credit you don’t have. Income growth and credit growth can be heading in different directions or at different velocities, which is what we have seen here. Wage growth is going nowhere, prices are crazy due to low rates and aggressive lending. There is no god given rule that rents and prices are synchronised in the short or even medium term. To get back to anywhere near a sensible rental yield in Auckland by reliance on simple wage inflation would literally take decades. Your understanding of how the rental and sales markets work worries me a bit
Ecobird. Would you perchance be related to the Oozlum Bird?
@ bobster, RP, Steven and others
You clearly want everything for nothing and expecting others to fork out for your living expenses too. It's ok, but reflect who you really are !
The purpose of my previous post was to open your eyes as to what the facts are in the market in the last 20 years until present
Most landlords thought that tenants were maxed out in 2013 - 2014 , but the fact was that demand was sudude then , so rental prices ( Auckland) were capped to smaller changes. the Rental, just like any other, is governed by supply and demand and more demand affects rents and shortage of supply increases them - note the REINZ comments regarding rent rise in future lately
https://www.nzherald.co.nz/nzh-search/NZH/rent+rise/1/
Rent increases have been around the 2% because of low inflation numbers - this has very little to do with emotions - property renting is a business , not a charity. The only Charity around to support living cost inflation is the Gov through AS and other benefits ...
When the Gov adjusts fire levies, EQC charges and hence insurance premiums shoot up everyone has to pay his/her fair share, same for Council rates.
In some towns and areas , rents were lagging too far behind property prices and huge jumps YoY in these resulted in big jumps in rents.
As to why people move more now than 10 - 15 years ago? that depends on the tenant .. WINZ customers rarely move unless the family size is exploding out of proportion with the property size, and they never complain about rent rise ....
People are more on the move more frequently in recent years because of job changes and opportunities, buying a house, divorce, kids schools, upgrading to a better property. moving in together .. etc
rentals are not eternal homes at constant rent and the idea that a family should make the rental its Home for ever is absurd. they should buy a property and see what it's like to run it.
Want a stagnant stable rent for life?, apply for a HNZ and get a state house ... good luck with that!
Tenants have choices in moving when the rent does not suit them.
I make it clear to every new tenant ( in writing) at the beginning of the tenancy before signing any rental agreement that they should expect an annual rent rise around 2-3 % next year to cover possible running cost appreciations if there are no cost hike surprises, and I explain why these reviews are done annually.
I don't see any resistance to that from keen and understanding tenants and never had a vacancy for years. In fact most of them tell me that that is great so they can plan for it ahead. That is why I always had great tenants making themselves at home and look after my property -
You are free to disagree and continue jumping up and down ... But it is what it is ... and expect more rises on the horizon as this CoLs continues fiddling with the markets and chasing more landlords out.
Moan, moan, moan....just trying to explain that the mathematics of what you are saying doesn’t add up. It’s not a moral judgment, it’s just that I don’t think you have a good grasp of what actually drives the rental market and the sales market. They have some common drivers but they are not the same thing. One is exclusively about income levels and accomodation demand, the other is primarily about the availability of mortgage credit.
Oh dear.....there you go again. Why is it whenever anyone attempts to put a rationale argument to you about how markets work you turn it into an issue of moral character? For you it’s “you’ve got to be in to win”, it’s about “making sacrifices”, renting is for “losers”, anyone who doesn’t think property is a good investment is a “doom and gloom merchant” or a “moaner” who has their “head in the sand”? We are discussing where from here on in is a good place to park your money. It’s a question of how will the market(s) behave. You’ve done well over the last 15 years or so, but the question is what happens now. But your response to any type of critical analysis is almost Trumpian: any suggestion that the investment gains you have currently made are not permanent is viewed as an attack on your status as a canny investor in property. Get...over...it.
With every reply and comment you prove to everyone here that you are a fool attacking the messenger you hate and just try somehow to discredit what he is saying ... I am not the only one you do this stupid thing with..
So, Don't cry when you get a tough response and play the innocent, you started this nonsense and should man up for its consequences...
if you are unable to take criticism then don't throw stones...and put words in my mouth ! or others ...
You and some others are shit stirrers provoking people who are older, more experienced and wiser than you lot , by miles .. all in the name of protecting your political affiliation and has nothing to do with financial or investment discussions or parking your money etc ,, it is obvious that all you like to do is to moan and promote hatred against landlords and investors and just complain about how unlucky you are ... that is obvious to all and sundry ...
So, if you can't take the heat Bobster Boy, get out of the kitchen and respect yourself if you want to be respected
EcoBird, NZ Herald is reporting rents in some up market areas of Auckland are starting to fall; https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12…
Its very much early days and right on que with falling house prices - as predicted.
4 bed, 3 bath, 2 car in Glendene 2017-CV, $1,025,000 sold in March 900K; https://www.barfoot.co.nz/605389
Estimated gross rental yield on this price is 3.5%! No wonder they're falling!
"rentals are not eternal homes at constant rent and the idea that a family should make the rental its Home for ever is absurd. they should buy a property and see what it's like to run it." Yeah well that applied until a decade or two ago, now it now longer applies for many people. In many countries there is such a thing life time rentals and it is time for it to be a thing here. You don't like it - fine -then you can always change businesses.
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