The rental yields on residential investment properties are likely to remain attractive to investors in spite of the sharp rise in prices that occurred in the second half of last year, according to interest.co.nz's Rental Yield Indicator.
The Indicator tracks the Real Estate Institute of New Zealand's lower quartile selling price, and the median rent for three bedroom houses in 56 locations around New Zealand where there is a high level of rental activity.
It uses that data to produce an indicative gross rental yield for each location, allowing an apples-with-apples comparison to be made of the potential gross returns in each location.
The latest update, based on lower quartile prices and median rents over the six months from July to December last year, provided indicative yields ranging from a low of 3.3% in Queenstown, to 7.0% at Owhata in Rotorua. Rental yield is the rental income a property could provide in a year, expressed as a percentage of its purchase price.
In Auckland, the country's busiest rental market, the indicative yields were all below 5%, ranging from 3.6% at Highland Park in the city's eastern suburbs to 4.7% at Pukekohe on the city's southern flank.
Yields above 5% are also becoming less common around the rest of the country, especially in the Waikato and Bay of Plenty. However Rotorua stands out as an exception, with yields in the suburbs monitored there ranging from 5.1% to 7.0%.
Rotorua has long been a happy hunting ground for residential property investors chasing rental income and it's easy to see why.
The REINZ's lower quartile selling prices for three bedroom houses in the Rotorua suburbs of Owhata and Ngongotaha were around $364,000 over the six months from July to December last year, while the median rents for three bedroom houses in the same suburbs were $485 to $489, which would provide gross rental yields of 6.9% to 7.0%
At those prices, many investors would have enough equity in their own homes to be able to purchase a property in Rotorua without needing to raise a mortgage, although with interest rates being so low they probably would have at least some debt.
Many investors might find that is a better proposition than investing in somewhere like the Auckland suburb of Beach Haven, where there is a high percentage of rental properties but where the lower quartile price over July-December was just under $800,000 and the indicative yield was just 3.9%.
Other districts where the Indicator suggests prices are affordable and the yields similarly attractive are Flaxmere in Hastings, Waitara in Taranaki, Whanganui, Ashburton, St Kilda in Dunedin and Invercargill.
With mortgage interest rates likely to remain near record lows for the short term at least, and returns from other types of investment such as bank deposits and shares also at modest levels, in seems likely that investor interest in residential property will remain elevated for some time.
However if investors are chasing a reasonable rental income stream, they may be forced to look for opportunities in the provinces rather than the main centres.
The table below shows the indicative yields in all 56 locations monitored by interest.co.nz, going back to December 2018. However if comparing the latest figures with those from previous periods, please read the note at the bottom of the table about the series break in the underlying data. The full table, going back to September 2014, can be viewed 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:|
|Yield % Dec 2020||Series break*||Yield % Sept 2020||Yield % June 2020||Yield % March 2020||Yield % Dec 2019||Yield % Sept 2019||Yield % June 2019||Yield % March 2019||Yield % Dec 2018|
|Rodney - Orewa||4.4||---||4.1||4.1||4.0||4.1||4.2||4.2||4.2||4.1|
|Franklin - Pukekohe||4.7||---||4.6||4.6||4.5||4.4||4.5||4.6||4.7||4.6|
|Cambridge - Leamington||4.5||---||4.4||4.3||4.4||4.3||4.5||4.4||4.4||4.5|
|Hastings - Flaxmere||6.1||---||6.0||5.9||6.1||6.3||7.0||7.9||8.2||8.3|
|Napier - Taradale||4.6||---||4.5||4.3||4.3||4.7||4.5||4.6||5.0||5.1|
|Palmerston North Central||5.1||---||4.7||4.4||4.9||4.7||4.8||5.3||5.3||5.2|
|Nelson - Stoke||4.6||---||4.5||4,6||4.5||4.7||4.7||4.7||4.6||4.5|
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.
*Series break note: In November 2020 Tenancy Services changed the geographical boundaries of many of the suburb groupings it uses to collate the bond data from which it calculates median rents. This is likely to have affected the median rent figures used in the indicative yield calculations displayed in the above table. For this reason, the indicative yield figures from December 2020 onwards should not be compared with those prior to December 2020, because any comparison may not be on an apples-with-apples basis.