Strong house price growth meant residential rental yields were falling in the first three months of the year - then along came Coronavirus

Strong house price growth meant residential rental yields were falling in the first three months of the year - then along came Coronavirus

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.

*This article was first published in our email for paying subscribers. See here for more details and how to subscribe.

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110 Comments

It will be interesting to see what impact the flood of short term holiday lets/Airbnb's will have on both the long term rental market and those being off loaded to be sold on the main property market, Now that international tourism is a distant memory for some time to come.

The housing market will likely dip - but it will prove more resilient than many people here dare believe......

NZ's response to COVID-19 has been impressive and not gone unnoticed globally - further raising NZ's status on the world stage.

In short, multitudes of people from abroad want to live here.

The medium/long term prospects for NZ property are excellent.

TTP

Wrong, they won't dip - Orr's team followed every of my advises, yesterday removal of LVR, FHB deposits. PM assurances that not under her watch the CGT ever happening, also no one shall sell their houses for loosing jobs. Soon May further reduction of OCR, told Orr never to mention a word of DTI - NZ has been built resiliency the past 30 years into F.I.RE economy by neoliberals architect, it's been designed to be cumbersome/difficult to undo, just like that RMA - wages subsidy (it's direct rerouted to Landlords & Banks loan service),QEs, borrow/loan more overseas phantom number bonds - All these re-assuring measures are to confide the key engine market of NZ economy, so? don't wait buy now. Borders will be opening soon for US & Chinese buyers, capital movement here=people movement, This is your RE opportunity NZ.

"Soon May further reduction of OCR"

LOL.

17
up

Define “dip”. Would not surprise me if that was more than -30% in many places. Interesting news story this morning (RNZ) about quite a large oversupply of housing in Queenstown now, and of course large increase in unemployment. It’s going to be quite a while before tourism gets back to anywhere near where it was. A large amount of Airbnbs will/have turned long term rentals. Voila, housing shortage (if there was one) gone, now we have oversupply. End of the building boom too.

a 30% drop in house price for an owner occupier with an LVR of 80% will result in negative equity. Refer scenarios outlined below.

TTP agree with you that housing market is more resilient and that is the reason chances of it falling like stock market (40% to 50%) is limited but the DIP that even you are accepting now is key.

Dip it will be and will start from 10% and where it ends, no one knows but remember that even best case scenarion of 10% or 15% DIP may be fatal for many and may have domino effect along with job and business loss for many which is inevitable.

Being hopeful and positive is good and reason why so many lotto tickets are sold in NZ.

Richard1965, Any investor who has ever worked out the odds of winning lotto places their money elsewhere. I like value investor Mohnish Pabrai’s motto, look for investments where the odds are: heads I win, tails I don’t lose much.

The thing with lotto is that the downside risk is minuscule compared to the potential (albeit very unlikely) earnings in case of the black swan event called "winning the jackpot". I buy a dip every other week because I can afford to lose $12 a month, in order to have a non-zero chance of winning millions of dollars. Although I would never call it an actual investment - it's low stakes gambling.

Which investment would you prefer?:
1) a loss of 50% in equity value?
2) a loss of 75% in equity value?

It certainly seems like an easy decision.
Yet people recommending buying property may be choosing option 2 above.
Look at some elementary mathematics that some may have overlooked.

An example: assume a potential owner occupier has a $200 deposit to purchase a house.

A) $200 invested in FNZ.NZ (sharemarket)
1) share price on February 20,2020 was $3.24 - so that means 61.7 shares purchased
2) share price today $2.68. That means the 61.7 shares are worth $165.43
3) Decline in equity value of 17%
4) even a 40% drop in the market price means an equity value of $120

B) $200 invested in house
Equity value invested is $200
House price: $1,000
Mortgage at 80% LVR: $800

House price falls 15% to $850
Mortgage is $800
Equity value is $50 ( or fall of 75%)

Summary
1) option A equity value $120 - fall of 40%
2) option B equity value $50 - fall of 75%

TTP seems to have forgotten that most people use debt to buy a house. Some people take comfort in the low volatility of the house price, yet may be overlooking the basic mathematics of leverage.

People really should be ignoring any property buying recommendations from those that are unable to grasp simple financial mathematics. Those recommendations could be financially fatal, and entirely ruin a person's future financial security.

A reminder for all potential owner occupier buyers and current owner occupiers - choose your scenario and act accordingly.

Which will the owner occupier regret most:
1) missing out on future potential gains in equity?
2) potential loss of their savings invested as the initial deposit for purchase of the house or even potential negative equity?

For owner occupiers, a reminder of the impact of leverage (it amplifies property price changes both on the up and down):

Scenarios of financial impact of leverage on equity, assuming an 80% LVR for owner occupier, for a recent $100 property purchase, $20 initial deposit, mortgage $80.

A) Scenario - property price rise:
1) property price rises 5% to 105, mortgage 80, equity 25, so 25% gain in equity value from 20.
2) property price rises 10% to 110, mortgage 80, equity 30, so 50% gain in equity value from 20.
3) property price rises 15% to 115, mortgage 80, equity 35, so 75% gain in equity value from 20.
4) property price rises 20% to 120, mortgage 80, equity 40, so 100% gain in equity value from 20.
5) property price rises 25% to 125, mortgage 80, equity 45, so 125% gain in equity value from 20.
6) property price rises 30% to 130, mortgage 80, equity 50, so 150% gain in equity value from 20.
7) property price rises 35% to 135, mortgage 80, equity 55, so 175% gain in equity value from 20.
8) property price rises 40% to 140, mortgage 80, equity 60, so 200% gain in equity value from 20.
9) property price rises 50% to 150, mortgage 80, equity 70, so 250% gain in equity value from 20.
10) property price rises 100% to 200, mortgage 80, equity 120, so 500% gain in equity value from 20. (i.e if they believe that the property price doubles every 10 years)

Remember, the owner occupier must be able to hold on under ALL economic environments (including any potential significant reduction in household income).

B) Scenario - property price falls:
1) property price falls 5% to 95, mortgage 80, equity 15, so 25% loss in equity value from 20.
2) property price falls 10% to 90, mortgage 80, equity 10, so 50% loss in equity value from 20.
3) property price falls 15% to 85, mortgage 80, equity 5, so 75% loss in equity value from 20.
4) property price falls 20% to 80, mortgage 80, equity is zero, so 100% loss in equity value from 20.
5) property price falls 25% to 75, mortgage 80, equity is NEGATIVE 5, so 125% loss in equity value from 20.
6) property price falls 30% to 70, mortgage 80, equity is NEGATIVE 10, so 150% loss in equity value from 20.
7) property price falls 35% to 65, mortgage 80, equity is NEGATIVE 15, so 175% loss in equity value from 20.
8) property price falls 40% to 60, mortgage 80, equity is NEGATIVE 20, so 200% loss in equity value from 20.

10
up

ttp ...where are those amazing highly skilled and well paid jobs, that would attract them here in the first place ? ....or will they just be very wealthy overseas people buying a "bolthole" to get out of their own crappy country..... do we really need people here that are only totally interested in themselves and their own "personal security"...as if they have got that much money, leave them to stay in their homeland and help out their own communities/society.

So credit to the Labour-led government?

With a foreign buyer ban and no immigration, 'multitudes of people from abroad want to live here' doesn't really count for much. And between now and when our borders open again, if the housing market starts to tank, watch to see if those people have the same interest. Many wanted here so they could make money via tax free capital gains in housing.

Yeah and even if National got in the next election and removed the Foreign Buyers Ban, don't expect to see Chinese money flooding in like before. Quote from this mornings figures: "In China, their tax revenues fell -21% in February in the heart of their pandemic outbreak. And then they fell -26% in March when they were supposed to be recovering. Further, profits at their large SOE companies fell -60% in the first quarter of 2020. China has taken a severe economic hit."

China has no money now, they even won't accept their cityzens coming back from Russia. They have closed the land borders between Russia and China and told their cityzens in Russia that not to come back to China during covid 19 situation. Because they dont have money to look after these people if they are infected. China buyers also withdraw their money from Hong kKong real estate market. This covid 19 thing has changed the ways how this world opperate. Don't expect the old ways will come back.

In short, multitudes of people from abroad want to live here.

Wow - where do you get these ideas from ? Your morning walk ? Constitutional ? The local Priest (at 2m of course) ?

Amazing ! (say this like rick from the Young Ones) - Are you sure you arent Ashley Church.

TTP , as a British ex-pat, in many ex-pat online groups, I believe there will also be great downside pressure on immigration. We all just experienced the horror of realising that we can't just hop on a plane and fly home, that if our parents and loved ones fall ill, or die, we are stranded on the other side of the world from them. And the entire world also just experienced how hard it is to be physically separated from each other and may decide not to take that for granted again for some time. For every person that may believe NZ is some kind of virus free utopia, there will be another who wouldn't possibly risk even the flight here (airports being a high risk area for contracting the virus) but also being so far away from the people they loved. Stories of those stranded, unable to get flights, borders closing have flooded the media.

I had never in my wildest dreams thought that settling in NZ would mean that I may never see my Mum or best friend again (high risk groups over in the UK) and yet we had to have those conversations and face those realities just in case. Every single person who considers immigrating now has to consider that the world is not as easily connected as we assumed.

Indeed

So basically the plans to prevent affordable housing for younger generations boil down to:

1. Devaluating their and pensioners' savings.
2. Trying to sell the country to foreign buyers instead.

I really wonder why young folk are starting to view property investors and the politicians and central bankers who do everything they can to inflate property and devalue savings as parasites in NZ society.

"multitudes of people from abroad want to live here"

Yeah and it's going to be political kryptonite to let them in when our unemployment rate is in double digits.

Jeez, I thought spruikers were deluded before COVID-19 but you're plumbing new depths.

"The medium/long term prospects for NZ property are excellent."

Some highly leveraged property owners who took that advice and bought might be unhappy with you if they recently bought in Queenstown ...

15
up

Rents are already starting to fall on TradeMe. Clearly lots of landlords are worried by the increase in supply and reduced ability to pay. Just need the RBNZ to let the same thing happen to property values. Maybe then we would get some investment in productive assets for a change.

Please advise us all of what this investment into productive assets, that many go on about???
Is it the sharemarket?.
Sorry, did you say the sharemarket???
How on earth do you think that people who want to invest and keep their money safe, are going to want to do that?
People aren’t going to be wanting to gamble with their already reduced retirement.funds with the sharemarket, when they can get far better guaranteed returns thru property investing in certain places in NZ!
Many posters on Interest.co won’t bother with property because it takes some effort, and they are not up for effort!

Care to elaborate how much JK looses on his ANZ shares?

11
up

In the name of all that's holy, it's LOSES. Note loosens, not looses - LOSES

I am lost for words!

You may need to have a check of those blood pressure meds. The GP may need to increase the dose.

Lose the hounds!

In the name of all that's holy, it's LOSES. Note loosens, not looses - LOSES

I'm generally anal about spelling and grammar. And like you, using 'looses' for 'loses' does my head in too.

Please also mention Brought and Bought... People that just brought a new house drive me crazy.

Its TEST NOT TIST

I see it so often as well, a man can only take so much...

TM2 ...those "certain places"don't happen to be Christchurch and it's environs, per chance ?

Anywhere at all in NZ where you can be certain of getting a decent tenant and a return of around 6% and with upside!
Yes, Christchurch is my preference as I know what to buy and always with upside.
Now is going to be a good time to be buying as this government has scared the shite out of many!

11
up

Christchurch is still having quakes and its getting more ghetto like each time I go down there. Bad investment.

Why is it a bad investment.
Quakes are nothing here now and everything is insured fully.
People in ChCh have made millions since 2010 earthquakes, more so than anywhere else in the country.

Yes mostly with tax payers money.

"certain"
Ahhhhhhhhhhh.

LOL.

11
up

I definitely can't be bothered with the effort of property investment, as I do live by the adage "time is money". I also can't be bothered with all the costs that go with property like maintenance, interest, rates, fees, insurance, times when it won't be tenanted, someone turning it into a P lab, the list goes on. The sharemarket isn't a gamble, unless you don't do your homework. I've retained a war chest for exactly a moment like this, so will be opening it up over the next year or two as there are gains to be made for the patient. And I certainly won't have to put as much effort, or risk, as investing in a single asset class like property.

Lastredact, your choice as to what you want to invest in.
The fact is that most wont bother and that is why they will not be able to retire when they are 65, because they haven’t invested wisely.
Most successful property investors will always be available to assist people that are interested to become financially independent.
You are correct sharemarket is very easy to do but as this shows, is just a total gamble.
Who would’ve thought that Air NewZealand shares would crash as badly.

It isn't a total gamble. This isn't Lotto. You see Air NZ "crashing badly". I now see Air NZ as a viable option for significant capital gains.

exactly, buy low sell high, basic theory for investment. if housing price is very high, that makes it not an attractive investment, not even mention that you need to get mortgage to invest into it.

Who would've thought AirBnb is going to be a similar bloodbath to Air NZ and that the rental market is **absolutely, 100%** going to get swamped???
...
...
More pertinently, who is still kidding themselves that it's not going to be?

lastredact
"I definitely can't be bothered worth the effort of property investment"
No effort at all; clearly you don't read comments on this site. "Landlords are leeches" (about forty upticks) and they "need to get of their bums and do something productive" (over 25 upticks).
P.S. The cynic in me

People think all sorts of things about landlords. I simply can't be bothered with being one - don't see the appeal

I wish I had found out the one thing about property investment and development when young that I found out in comparatively recent years. That is; if you are too scared, lazy, unskilled, or time-short to do do property stuff, pay other people to do those bits, and you will still be better off than if you hadn't done property stuff. It has worked, is working, and will work for me in the future! I am hoping to die aged 104, with half a dozen property projects all half done, using the above theory. The main reasons for doing them are the fun and the money. Not money for itself, but because in our society, possession of money gives one choices.

"pay other people to do those bits"

Yet another cost on housing.....which I don't have on my shares and ETFs. Well there is some cost, fees on the services I use to buy & sell said investments. But that is nowhere near all the "bits" that often are required on a house.

What do you mean you only want half-finished property projects? Should always finish what you've started, especially on a house.You should see the unconsented disaster that's been left on a property neighbouring mine.....

TM2, investing in the sharemarket takes just as much effort as investing in property, at least it should. More people don’t know much about the companies they invest in. People should stick to low cost index funds if they don’t want to put in the effort to know what to look for in financial statements. And buy when there is max fear around, not max confidence! Easy to say, not easy to do.

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This may surprise you. Many people invest in business directly. Some do it for the return, some do it because they have a moral compass and understand that to have a thriving economy, swapping houses at ever increasing prices between ourselves does not benefit the country at all, it is, in fact, a very negative thing.
I would suggest buying a house and renting it out doesnt take anywhere near the skill of developing and growing a business that directly employs people and produces things.
So like you I say F it to property.

Moral compass is Bollacks!
No one goes into business Just for moral reasons!
So productive sector to you means owning a business?
Unfortunately by owning that business is going to cost so many their total income and will cost not only themselves but their employees their income.
Fortunately there are many investors in Nz that are prepared to put their money into housing so that we can provide a roof over peoples heads.

People invest in houses to make money and accumulate capital. Given the way rents have gone in this country over the past decade, I strongly doubt there's much altruistic providing "a roof over peoples heads". I think you need to leave the property investor lobbying to Ashley Church.

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∆∆∆ this guy....
Am such of hearing how landlords have the best interests of their tenants at heart just so they can put a roof over their tenants heads. Absolute crock of shit.
You do it to make money, pure and simple, which comes at the expense of those who cannot afford houses. You use equity to continously outbid those who are wanting to get their own place and then crow what a good boy am i.
Makes me sick to my stomach. Before you go on I am 44 and we own our house freehold. People always say 'why not get some investment property?' - because I don't want to promote houses going up or instill any more competition in a game that is all over a basic requirement.

The main reason why people these days need Landlords is because there are Landlords. No different to a Landlord walking into a supermarket, buying up all the milk on his credit card and selling it on the street for a profit. Except that would require some business acumen.

This is such an ignorant comment. Anyone who is competent and works for an international/national company will likely have opportunities to take up roles in other countries or cities. These will usually start as 2 to 5 year assignments. Do you think they want to sell their house and buy a new one in a new city? I'll put you out of your misery, the answer is no. They will want to find a high quality rental. If anyone on here had actually been in this position, they would appreciate good landlords.

This example may account for 1% of rentals max.

Not true, how many scarfies in Dunedin etc etc etc. I've given other examples before and i can't be bothered repeating,

What you mean is your home is unencumbered rather than “freehold”
Most houses in Nz are freehold rather than leasehold.
As an investor At auction I only pay what I want to pay rather than competing competitively, and I can guarantee that I have never once paid true market value for anything.

Because i have time to waste during this lock down, Ill waste it on you, then Ill go train my puppy, he picks things up pretty quickly :

"Unfortunately by owning that business is going to cost so many their total income and will cost not only themselves but their employees their income."

Can you repeat that in English ? Do you class yourself as a business owner ? So dont go into business because if you go under your employees wont have a job. But they had a job and an income while that business was viable. FYI - I employ 5 people, who will still have jobs at the end of this. How many do you directly employ ?

"Fortunately there are many investors in Nz that are prepared to put their money into housing so that we can provide a roof over peoples heads."

So if you didnt put that money into that house, the house would disappear ? You carry on like you operate on the highest moral playing field, and yet you state that no one goes into business for morality reasons. First there was Bishop Tamaki, now Pope TM2.

Would never say sharemarket. Buying an existing stock is hardly producing anything. What we want to achieve, is people purchasing real assets, that actually benefit productivity. Investing in property is fine to protect your wealth if you want, but as a country, we should promote investment in things that make the country better off.

Do the math, what proof have you got to show that rents are dropping on Tradme?.?

I've been paying close attention to the values of two bedroom properties in Wellington over the past two years. Have grown very quickly, and $450-$500 per week was the new norm. Now places are appearing in inner suburbs for sub $400.

Following my advises, Orr's team already announced to remove the LVR, FHB deposits. Soon incoming May further reduction's in OCR. DTI out of question, OZ Banks are all prudent enough with their loans. PM has guaranteed that those loose their jobs, doesn't have to sell their houses, means? all this initial wage subsidy was a clear indication of rental income assurances for both private/commercial Landlords. Please, do understand Kiwis in neoliberal F.I.RE based economy? the RE productivity sectors will be the key Essential services. It's clear reckoning times to those got a rain money from wages subsidy, loan relief/deferral, redundancies payment, Tourism/ Hospitality/Restos/Hotel/Motel/Travel industries - to immediately snap up those AirBnB on the market, commercial properties & RE listing, Banks are waiting for you - RE is the key stable and sure bet for any of your future endeavour, it's your leaning back post. Very Assuring 'Investment'.

And this is why the market must be allowed to do what it does best .

When property prices reach a point where there is a decent yield , then people will buy them at that price level , thus providing a floor price.

If one could find a decent rental to buy with a rental yield of 5% , it would make sense

I agree, "Price Discovery". No different to the US stock market and bananas PE ratios - doesn't make sense. When the new normal/price discovery shows a decent yield v.s. Bank profit based capital appreciation, people should once again invest. If not you are just perpetuating the lie that is the Debt Pyramid serving only Bank Profits. The whole world has been sucked into a never ending model of Central Bank Debt - why?

Good time to buy oil - but only if you can take delivery. Perhaps we should top of the tanks at Marsden Point, and every petrol station to their max holding ability. Yes the global "dot" of NZ surviving, but other parts of the world the wheels are starting to fall off.

Whack a few sheets of polythene lining in Mt Eden and fill 'er up. Plenty of natural storage around Auckland. Maybe get a realistic looking eruption if we get the Skycity guys to do the lining.

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For 5% yield in Auckland house price has to fall in many area by 20% to 30%.

Agree with you boatman that once yield is 5% or more will be attractive but for that will have to wait., for now.

The housing market Fortunately is just not in Auckland.
Prior lockdown we could get 6% p.a. On newly purchased nice property in ChCh.
Prices in ChCh house on house will not be dropping but some may sell lower than they are worth if sellers having been financially disadvantaged and need to sell for cash injection into business.

"Prior lockdown we could get 6% p.a".. so what is it now -6%?

If "some" houses sell in Christchurch then those prices achieved will affect similar houses in similar locations. That is how valuers work. Prices will drop in Christchurch just like everywhere else. Just how much they fall will reveal itself in the next year or so or even longer. The ANZ is expecting housing to drop more than our GDP is going to fall. At this stage they are indicating 10-15%. That gives us an idea of where we are going. As always it pays to be diversified.

Cobblers Gordon.
We don’t tend to sell nor will we ever need to sell, so price is irrelevant when we are able to achieve on average 10% on purchase and no rents aren’t dropping on our properties.
What other people sell their property for does not affect us one iota, and If some people do sell for less than they want, it is their choice.

I told you to sell down but you know better. You will regret not doing so. There is going to be carnage in both commercial and residential property markets. And you always spout on about property owners being in control. The day Jacinda announced Level 4 put paid to that fallacy.

Don't be silly. The beauty of housing is there is no spot pricing. If the average house price is $800k, and then the market struggles to find a single buyer for the next 12 months, the average house price is still $800k. You cannot lose with housing.

I truly hope Nzdan your comment was done in 'complete sarcasm' ..... please don't tell me you actually believe what you wrote ? I wouldn't want to be your bank !

THE NZDAN 2

@ Nzdan .........."Sheer Brilliance"

Nzdan,
if TM2 is returning 6% on his investment. What if he can't find tenants, surely having to pay the mortgage with no income equates to negative returns?

He buys under true market value, properties with upside etc. He only rents to professional couples, with plenty of prospective tenants such as lawyers, accountants and quantity surveyors camping in tents outside his rentals anticipating the day one becomes vacant.

TM2 .....can you answer this one question, with a "YES' or a "NO" answer .....Have ANY of your tenants been affected in any way, with their "cash flow" (your mortgage repayments) by this "economic disruption" we are seeing now ? ....Please just a one word answer, thank you.

I guess TM2's answer will be NO. He's probably already kicked them out as soon as he suspected they have income. Despite claiming he's providing a roof over the heads.

Yes!
We have today reduced a rent by $30 temporarily for a lady on her own that works at the airport.
We did this because we are very fair and reasonable and she has been with us for over 5 years and is a model tenant.
No issues with any of the others and if there were others at some stage, there is enough fat in the system to never ever be a problem.

My prediction is that Chch properties will remain reasonably stable with no more than a 5% decline given they present 'fair value' in a normal functioning market. What perhaps many Auckland based readers may not realise is even if all properties in NZ were to say decline by 15% as the ANZ has predicted the absolute $ drops in value are particularly severe in AKL over other regions.

Median house price in AKL in march - $950k, 15% drop = $142k
Median house price in CHCH in March - $490k, 15% drop= $73k

Wages are reasonably similar across NZ so if these predicted drops were to push you under water the pool is a lot deeper in AKL and might make it harder to touch the bottom.

Maybe 4% is a decent yield now?

If you can’t get a 6% yield with upside, then why bother as there are always good deals to be done!

Is anyone tracking flatting or taking in lodgers?

Occurs to me, that people who have taken a loss of income or been spooked by the worsening financial climate, might consider letting out a room? Isn't that always the advice to anyone struggling to meet their mortgage?

What would be the impact of this on rents?

Yes home owners renting out rooms will have a big impact, further diluting the rental market. I remember my experiences during the GFC in 2008 in the UK. The Government was advising people to rent out rooms tax free, to help them pay their mortgages. Not only that but we experienced the rise of the Reluctant Landlords (People renting out their homes because they couldn't get the sale prices they wanted). I watched my rental rates drop quite dramatically.

Hi Gingerninja,

If you don't want to take in a lodger, letting out a room for storage can be a good idea.

In cities like Wellington and Auckland, there's always a shortage of storage facilities.

TTP

Hi TTP.

Hell to the no. We're already full to the rafters with stuff in storage!

Also, we don't have a mortgage or debt of any kind so we're fine to ride this out. I was more wondering if anyone had been observing changes in that market as they do the other aspects of the rental markets.

The agents mobile phones will busy next week. Its obvious now that the market is about to plummet and there is absolutely nothing anybody can do about it. We are going back to 2006 prices.

I recon it will be more like 2014 sales prices, just deducting the massive surge of Chinese and subsequently Auckland buyers that pushed up the NZ market from 2014 to 2017. The more recent price increases were due to large falls in mortgage rates and increase house hold debt, trying to prop up house prices in AKL.

Question now is - Will mortgage rates continue to drop? My guess is not in the short term.

If we hit 2007 prices, i'll be down $10k but still have 15% equity.

Where can you find the value of your house to a particular year? I can only get the Dec 2008 RV which presumably would have been lower than 2007 value?

You can't, I just went off previous sales data on QV, 2007 is when the previous owner bought our place. It was however 27% over RV at the time.

If our house price fell to the 2007 RV then we'd be underwater, but that would also equate to a 60% fall in price. Percentages vs dollars though. Our mortgage is only 1.5 times our annual household income, so i'm hoping that if we ever hit a scenario like that the bank will have bigger fish to fry than us.

@ Keen Observer | 22nd Apr 20, 7:39am
"Wrong, they won't dip".. NZ is within reach of a great recession, may even be an economic depression, unemployment at double-digit, massive debts, no tourism for the next 12 months at least.
Sir, you have won today's prize for the most optimistic comment. Please come down and claim your prize.

Buyers will dip..... Price will follow buyers in market..... So......

Hi Chairman Motor Moa,

Sorry - but that's b_llsh_t,

There are plenty of tourists in this country and many of them are here for long holidays. Given the inadequate responses of many developed countries to Covid-19, plenty of tourists will find ways of extending their stay here.

It so happens that I have tourists living on either side of me. Neither want to return to their homeland any time soon. In fact, they're keen to migrate here.

TTP

Are they wealthy? Or will they be needing jobs? If the latter, then....

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TTP are you living in a caravan park?
May be true but I bet some can't wait to get out and back to their countries.. Also, are they buying houses or buying beaten up old vans and use the great outdoor as their toilet facilities?

Hi TTP, anything for arguments.

Like it or not but next few years will be very bad not only for NZ but world over, so accept it.

Their is light at the end of the tunnel....but......not sure where we stand in the tunnel now, may be at the beginning.

How many tourists are going to come if they are required to spend the first 14 days in isolation?

You can rabbit on about immigration all you like.
It will be *dead* so long as we have elevated unemployment.

You think we're going to even let Hooray Henrys in to work retail for their Gap Yah when we have Jet Pilots in WINZ queues?
Mate, emerging from this lockdown is going to be a shocking reality check for you.

Don't worry, we'll all be here for moral support when you come to your sense.

Fortunately NZ investors not as extended as in Aus
But, those who have multiple properties with bet on that price rises will raise equity to cover revolving loan increases, are in big trouble.
of course, we do not have figs for this, whereas Aus does, in detail.

Ignorance is bliss.....

It is pretty obvious that anyone who is financially extended today, on last years investment prices, and it does not matter what one has invested in, they will be absolutely screwed. They are the ones to buy off at the next few months' prices, or the next year's prices.

Great viewing - Martin North and George Gammon

https://youtu.be/3thero3El1I

Spot on and quite scary.

Hopes of getting good discounted property deals are diminishing...
There are a lot of things they are doing in the back ground which they not telling us.
To take property off peoples’ mind is like taking Macdonalds and coffee away from people. Drive throughs will be crazy next week..

As an aside I have been told today by someone who imports and sells cars that he has heard there are literally thousands of cars about to hit the market as people try to get out of lease and finance deals. The numbers are unprecedented and will clog up the system for some time. Moral to the story. Firstly if you are looking for a car do not rush into it. Secondly there are going to be some amazing deals to be had. The car dealerships and the finance companies involved are going to be under some considerable pressure financially. We keep talking about houses dropping in price but we fail to talk about such things as boats, cars and batches which will hit the market as people try to shore up their balance sheets. My cousin who is an accountant in practice says the accounts that have not been paid by professionals are the ones he is most worried about. In good times they have bought the nice home, batch, boat and car as finance was cheap but with their practices under pressure something has to be sold to reduce the interest costs.

Good point Gordon, How long would you give the wait time on a good car deal at the moment?

I have no idea but possibly months. As more and more businesses fail to reopen or reopen then fail more houses,cars and other items will hit the market.

One of the metrics I'm using to gauge this is Ford Ranger listings on Trademe. The most popular ute for the last few years, how much many will come onto the market to free up some cash?