By Greg Ninness
House prices rose more strongly than rents in the first quarter of the year, pushing down rental yields for investors, according to interest.co.nz’s Rental Yield Indicator.
The Indicator tracks the Real Estate Institute of New Zealand’s lower quartile selling prices for three bedroom houses in 56 locations around the country where there is a high level of rental activity, and compares that with median rents for three bedroom houses in the same areas.
That allows us to track changes in the gross returns investors could achieve over time, indicating whether returns are rising or falling and the relative attractiveness of residential property compared to other types of investments.
In the six months to March prices increased in 49 of the districts monitored compared to the six months to December last year, declined in four and were unchanged in three (see table below for the yield trends in all 56 locations monitored).
The period from December to March is usually the busiest time of year for the residential rental market and usually records some of the biggest rent increases, but rents rose in just 37 districts, declined in seven and were unchanged in 16 compared to the six months to December.
As a result, indicative yields declined in 34 districts, rose in 15 and were unchanged in seven.
In Auckland, the country’s biggest rental market by far, prices increased in all of the areas monitored except Pukekohe, where the lower quartile price for three bedroom houses dropped from $565,000 to $550,000 while the median rent for three bedroom houses was unchanged at $480 a week.
That pushed the indicative yield for Pukekohe up to 4.5% from 4.4% in the three months to December.
Indicative yields in Auckland ranged from 3.4% in Highland Park, which was unchanged from December, to 4.6% in Papakura, down from 4.7% in December.
The areas with the highest yields in the country, suggesting the best rental returns, were Ashburton with 7.3%, followed by Whanganui 7.0% and Holdens Bay/Owhata/Ngapuna in Rotorua at 6.8%.
The areas with the lowest indicative yields, suggesting the lowest rental returns, were all in Auckland - Highland Park in the eastern suburbs at 3.4%, followed by Avondale in the inner west at 3.7% and Beachhaven/Birkdale and Torbay on the North Shore, both on 3.9%.
Auckland was the only place in the country to have areas where the indicative yields were below 4%.
In Wellington indicative yields ranged from 4.3% in the central Wellington City suburbs of Vogeltown/Berhampore/Newtown to 5.3% in the Upper Hutt suburbs of Totara Park/Maoribank/Te Marua.
In Christchurch the indicative yields ranged from 4.4% to 5.9% and in Dunedin they were in the 4.6% to 5.4% range.
However these figures reflect the market conditions before the COVID-19 lockdown started to bite at the end of March and the number of property sales and new rental agreements completed since then will have slowed to a trickle.
There is considerable uncertainty about where property prices and rents will end up when the market finally cranks back into life, but it’s likely that yields could be significantly changed over the next few months.
It seems likely that both prices and rents will fall, the question is by how much.
There’s a reasonable chance that prices will fall at a greater pace than rents, which would push yields up.
That could create opportunities for investors in this low interest rate environment, particularly those who have plenty of equity.
But those with low equity and stretched cash flows could find themselves in a world of pain.
The table below shows indicative yields to March 2015. An expanded version of the chart, showing all of the quarterly figures, is available here.
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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 residential rental yields for the six months ending: | |||||||||
| Town/region | Yield % Mar 2020 | Yield % Dec 2019 | Yield % Sep 2019 | Yield % Jun 2019 | Yield % Mar 2019 | Yield % Mar 2018 | Yield % Mar 2017 | Yield % Mar 2016 | Yield % Mar 2015 |
| Whangarei: | |||||||||
| Kamo/Tikipunga/Kensington | 5.3 | 5.4 | 5.5 | 5.3 | 5.3 | 5.4 | 5.4 | 6.0 | 6.9 |
| Rodney - Orewa/Whangaparaoa | 4.0 | 4.1 | 4.2 | 4.2 | 4.2 | 4.0 | 4.0 | 4.1 | 4.5 |
| North Shore: | |||||||||
| Beach Haven/Birkdale | 3.9 | 4.1 | 4.2 | 4.1 | 3.8 | 3.8 | 3.7 | 3.9 | 4.3 |
| Torbay | 3.9 | 3.9 | 4.0 | 4.0 | 3.8 | 3.7 | 3.7 | 3.8 | 4.5 |
| Waitakere: | |||||||||
| Glen Eden | 4.0 | 4.2 | 4.3 | 4.3 | 4.0 | 3.8 | 4.0 | 4.0 | 4.6 |
| Massey/Royal Heights | 4.2 | 4.3 | 4.3 | 4.3 | 4.0 | 4.2 | 4.0 | 4.1 | 4.6 |
| Henderson | 4.3 | 4.4 | 4.6 | 4.4 | 4.1 | 4.2 | 3.9 | 4.1 | 4.7 |
| Central Auckland: | |||||||||
| Avondale | 3.7 | 4.2 | 4.3 | 4.2 | 3.9 | 3.7 | 3.6 | 3.7 | 4.2 |
| Manukau: | |||||||||
| Highland Park | 3.4 | 3.4 | 3.5 | 3.8 | 3.4 | 3.7 | 3.5 | 3.3 | 3.8 |
| Papakura/Drury/Karaka | 4.6 | 4.7 | 4.7 | 4.8 | 5.1 | 4.6 | 4.3 | 4.8 | 5.6 |
| Franklin - Pukekohe/Tuakau | 4.5 | 4.4 | 4.5 | 4.6 | 4.7 | 4.7 | 4.6 | 4.9 | 5.5 |
| Hamilton: | |||||||||
| Deanwell/Melville/Fitzroy | 4.7 | 4.9 | 5.0 | 5.0 | 4.9 | 5.1 | 4.8 | 5.3 | 6.9 |
| Fairfield/Fairview Downs | 4.9 | 4.8 | 4.9 | 4.7 | 4.4 | 4.6 | 4.9 | 5.4 | 6.7 |
| Te Kowhai/St Andrews/ Queenswood | 4.2 | 4.3 | 4.6 | 4.5 | 4.6 | 4.7 | 4.4 | 4.7 | 5.4 |
| Cambridge/Leamington | 4.4 | 4.3 | 4.5 | 4.4 | 4.4 | 4.3 | 4.6 | 5.2 | 5.5 |
| Te Awamutu | 4.9 | 5.1 | 5.0 | 4.9 | 4.9 | 4.9 | 5.0 | 5.7 | 6.2 |
| Tauranga: | |||||||||
| Tauranga Central/Greerton | 4.6 | 4.6 | 4.5 | 4.8 | 5.5 | 4.7 | 4.6 | 5.2 | 6.1 |
| Bethlehem/Otumoetai | 4.2 | 4.1 | 4.3 | 4.2 | 3.7 | 4.3 | 4.1 | 4.6 | 4.8 |
| Mt Maunganui | 4.3 | 4.1 | 4.2 | 4.4 | 4.6 | 4.4 | 4.4 | 4.8 | 5.7 |
| Pyes Pa/Welcome Bay | 4.5 | 4.7 | 4.5 | 4.7 | 4.8 | 4.4 | 4.8 | 5.4 | 5.7 |
| Kaimai/Te Puke | 5.1 | 5.3 | 5.2 | 5.3 | 5.0 | 4.9 | 5.3 | 5.8 | 6.2 |
| Whakatane | 5.2 | 5.5 | 5.7 | 5.4 | 5.7 | 6.3 | 6.1 | 6.4 | 6.3 |
| Rotorua: | |||||||||
| Holdens Bay/Owhata/Ngapuna | 6.8 | 6.3 | 6.1 | 6.5 | 6.1 | 7.8 | 8.0 | 8.7 | n.a. |
| Kuirau/Hillcrest/Glenholm | 4.9 | 4.9 | 5.4 | 6.0 | 4.9 | 5.8 | 4.9 | 5.9 | n.a. |
| Ngongotaha/Pleasant Heights/Koutu | 6.0 | 5.9 | 5.5 | 6.0 | 6.1 | 6.7 | 8.6 | 7.7 | n.a. |
| Hastings - Flaxmere | 6.1 | 6.3 | 7.0 | 7.9 | 8.2 | 9.6 | 8.9 | 10.9 | 12.2 |
| Napier - Taradale | 4.3 | 4.7 | 4.5 | 4.6 | 5.0 | 4.6 | 5.0 | 5.4 | 6.2 |
| Taranaki: | |||||||||
| New Plymouth Central/Moturoa | 4.6 | 5.4 | 5.5 | 4.7 | 5.3 | 4.6 | 4.7 | 5.8 | n.a. |
| Waitara/Inglewood | 6.3 | 6.3 | 7.7 | 6.7 | 7.6 | 6.4 | 8.1 | 8.8 | n.a. |
| Whanganui | 7.0 | 7.4 | 7.6 | 7.8 | 8.1 | 9.0 | 9.1 | 9.6 | n.a. |
| Palmerston North: | |||||||||
| Kelvin Grove/Roslyn | 5.4 | 5.2 | 5.3 | 5.7 | 5.6 | 6.3 | 6.6 | 7.4 | n.a. |
| Palmerston North Central | 4.9 | 4.7 | 4.8 | 5.3 | 5.3 | 5.0 | 5.9 | 5.6 | n.a. |
| Takaro/Cloverlea/Milson | 5.1 | 5.2 | 5.5 | 5.6 | 5.6 | 6.0 | 6.1 | 7.2 | n.a. |
| Kapiti Coast: | |||||||||
| Paraparaumu/Raumati | 4.5 | 4.5 | 4.7 | 4.8 | 4.5 | 4.9 | 4.8 | 5.9 | 6.1 |
| Waikanae/Otaki | 4.3 | 4.5 | 4.4 | 4.7 | 4.5 | 5.4 | 5.2 | 5.9 | 6.7 |
| Upper Hutt: | |||||||||
| Heretaunga/Silverstream | 4.7 | 5.2 | 5.1 | 5.1 | 4.9 | 4.8 | 4.7 | 5.8 | n.a. |
| Totara Park/Maoribank/Te Marua | 5.3 | 5.0 | 5.2 | 5.3 | 5.2 | 5.6 | 5.8 | 6.3 | n.a. |
| Lower Hutt: | |||||||||
| Epuni/Avalon | 4.4 | 4.7 | 4.9 | 4.8 | 5.2 | 5.0 | 5.1 | 5.8 | n.a. |
| Taita/Naenae | 4.9 | 5.3 | 5.3 | 5.0 | 5.4 | 5.7 | 5.8 | 6.8 | n.a. |
| Wainuiomata | 5.0 | 5.1 | 5.3 | 5.3 | 5.5 | 5.6 | 5.9 | 7.7 | n.a. |
| Wellington: | |||||||||
| Johnsonville/Newlands | 5.0 | 4.7 | 4.7 | 4.7 | 4.9 | 4.9 | 4.9 | 5.5 | 5.6 |
| Vogeltown/Berhampore/Newtown | 4.3 | 5.0 | 5.0 | 5.0 | 4.6 | 4.9 | 4.2 | 5.4 | 5.5 |
| Tasman: | |||||||||
| Motueka | 4.3 | 4.0 | 4.0 | 4.2 | 4.3 | 4.2 | 4.0 | 5.2 | 5.5 |
| Richmond/Wakefield/Brightwater | 4.3 | 4.3 | 4.3 | 4.5 | 4.4 | 4.5 | 4.7 | 5.3 | 5.6 |
| Nelson - Stoke/Nayland/Tahunanui | 4.5 | 4.7 | 4.7 | 4.7 | 4.6 | 4.9 | 5.1 | 5.5 | 5.7 |
| Blenheim | 5.1 | 5.6 | 5.5 | 5.3 | 5.3 | 5.6 | 5.8 | 7.0 | 6.5 |
| Christchurch: | |||||||||
| Hornby/Islington/Hei Hei | 5.9 | 5.8 | 5.8 | 5.8 | 5.9 | 5.7 | 5.6 | 6.0 | 6.3 |
| Riccarton | 4.4 | 4.3 | 4.4 | 5.9 | 5.2 | 5.2 | 5.0 | 5.7 | 5.2 |
| Woolston/Opawa | 6.3 | 6.6 | 6.4 | 6.4 | 6.5 | 7.8 | 6.2 | 6.3 | 7.3 |
| Ashburton | 7.3 | 7.5 | 6.3 | 5.7 | 5.8 | 5.3 | 8.3 | 6.2 | 6.8 |
| Timaru | 5.6 | 5.7 | 5.8 | 6.0 | 6.1 | 5.8 | 6.0 | 6.5 | 6.8 |
|
Queenstown/Frankton/ Arrowtown |
4.0 | 3.7 | 4.0 | 4.2 | 4.0 | 4.2 | 4.3 | 4.6 | 4.9 |
| Dunedin: | |||||||||
| Kenmure/Mornington | 4.6 | 4.7 | 5.2 | 5.3 | 5.1 | 5.9 | 7.5 | 7.9 | n.a. |
| Mosgiel | 4.8 | 5.0 | 5.2 | 5.3 | 5.2 | 5.6 | 5.5 | 6.4 | n.a. |
| South Dunedin/St Kilda | 5.4 | 5.7 | 6.2 | 6.5 | 6.9 | 7.6 | 7.9 | 7.2 | n.a. |
| Invercargill | 6.6 | 6.7 | 7.1 | 7.0 | 7.2 | 7.9 | 8.3 | 8.7 | 9.0 |
|
Source: Base data from 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 6 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 that type of property in that area. |
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