Auckland's largest real estate firm Barfoot & Thompson says price gains in Auckland over the past 10 years "have not been spectacular" and have offered investors only a "solid" return.
The firm, which accounts for around 40% of Auckland house sales, has done an "in-depth analysis" of the average sales price of three-bedroom Auckland properties. Three bedroom homes were chosen for the analysis as representing the sized house most commonly bought and sold.
"The long term trend shows that across the city as a whole, the average price for a three bedroom home has risen by 78% in the past decade, or 7.8% a year," B&T's managing director Peter Thompson said.
According to Interest.co.nz calculations this works out at a compounding growth rate of 5.94% a year.
"While this represents a solid return for those who have committed to home ownership over that period the level of increase is in line with the returns achieved from other forms of investment during a similar period," Thompson said.
"...While there has been strong capital growth, price gains have not been spectacular, particularly in the past five years."
For comparative purposes B&T used the NZX Asset Class Performance Report, showing annual returns for 10 years to June 2010. It showed that listed property returned 8.3%, corporate bonds 7.4%, government bonds 6.9%, NZ cash 6% and NZ shares 5.8%.
The B&T figures cover the 2003 to 2013 timeframe. According to the Reserve Bank's "inflation calculator" a basket of goods and services would have increased in cost by 28% (compounding inflation rate of 2.6% a year) between the second quarter of 2003 and the second quarter of this year.
Thompson said what the B&T analysis showed was significant variation in price increases across different areas of the city, "and that the price rise over the past five years is only a third of the price growth experienced between 2003 and 2008 – 17% compared with 51%".
The areas where the average price had increased the most in the past decade were Central and West Auckland.
"For the Central area the price of a three bedroom home has increased by 102% to $653,000, while West Auckland three bedroom homes have doubled in price to $449,000."
Thompson said the attraction of the Central area was its "well established infrastructure" and its closeness to the central business area.
"In West Auckland’s case buyers have recognised property in the area represented value for money, offered lifestyle choices and saw there would be improved access to the central city through the development of rail infrastructure."
However, "at the other end of the spectrum", the average price for a three bedroom home in Franklin and rural Manukau increased by 58% in the past 10 years, and now stood at $449,000.
“This area retains its rural heritage and represents lifestyle options that have disappeared from many other Auckland locations as the city has grown.
“As transport infrastructure improves between the city and the south, greater buyer attention is likely to refocused south.”
The area which has the highest average price for three bedroom homes is the Eastern Suburbs, where the price growth in the past decade has been 70%, and the average price now stands at $826,000.
"While individuals will have bought and sold properties at values with far greater variations than our sales figures show, our statistics are drawn from the sale of more than 13,000 three bedroom homes and provide an accurate overview of price movements in Auckland over the past 10 years," Thompson said.
40 Comments
Capital gains are just the icing. The true value of property investment is gained by a combination of buying undervalued property and getting good rental returns.
Of course if you bought at a 7% yield 10 years ago, added some value by making minor improvements (reconfigure for example) to make it a 10% yield, then have a 78% gain in rents (matching the capital gains say) then bingo you now return about 18% on the original investment.
So on the above basis (assuming rent growth = capital growth) then what is the total average return over the 10 years?
Let's do the calculation net of tax (assume 30% tax) and then factor back in the tax to get an equivalent pretax return:
Now this assumes that any monies earned from rents can be reinvested at the same rate of return (ie calculating an IRR), so after tax the total return would be 379% over 10 years which is 16.97%PA. The before tax equivalent would be a 775% return over 10 years or 24.2%PA.
Note that this calculation excludes the initial capital gain from adding value which may be another 30% say. Which would boost the return to 19.3%PA after tax (484% total after tax return) and 27.5%PA equivalent before tax (1039% total equivalent pre tax return).
Of course if you add in leverage at an average 7% over the period say, plus a low amount of money down say 10%, then the returns really go through the roof!!
Since you are playing with stats NZ numbers, here is an exercise, if you combine household debt with income it completely explains house prices until 2001. From 2002 to 2007 a bunch of extra money appears in NZ housing with any apparent increase in household debt or wages to pay for it. I would argue this means the extra money is coming from somewhere outside the traditional NZ cycle of income and borrowing. While you can argue about where the extra has come from, you can calculate how much extra was injected into the NZ housing market over these five years by the difference between house prices and what is explainable by debt and income. I make it about $233 billion for the total market when it was at it's high point in 2007 2007 (as expressed in 2013 dollars). I'd be interested in what anyone comes to as a figure.
Yeah PIs are certainly getting more efficient.
(Comment edited due to inappropriate and ridiculous comparisons, Ed. You can see our commenting policy here - http://www.interest.co.nz/news/65027/here-are-results-our-commenting-po…).
Christchurch landlords are being warned that asking desperate tenants to stump up "pet bonds" on rental properties is illegal.
http://www.stuff.co.nz/national/9085369/Landlords-in-dog-box-over-pet-b…
Why should the average joe outside of christchurch give a jack about all the whinging and moaning of ChCh property owners when this is being done.
Watch the capital cities across the ditch. Inner city suburbs.. Within the last two months SOLD signs are poping up left, right and centre.
I spotted a house next to a service station that had been on the market in April last year for about three months.. no taker. Three weeks ago it was on the market again and now with a SOLD sticker brightly across its For Sale sign..!
This is only the capital gains, right? Add in the rental yeild and you are looking at more like 15% PA. Add in leverege and tax advantages and you can see why property has been the best place to put your money. But how long can prices keep increasing ahead of salaries?
I look forward to the day when homes, yes HOMES, are no longer regarded as a means for some to make money and others to forever not be able to afford to own one.
Whether or not current prices reflect a good, bad or indifferent return entirely depends on which side of the front door you stand.
I'll bet you anything you like in the low-middle and low income areas that what you say is not the case. Those houses are not being snapped up by homeowners they are in the main nowadays owned by specualators and investors and the sooner they are "encouraged" out and homeowners encouraged in the better! Home ownership is a cornerstone of a decent society and it being turned into profit making ventures for what are often foreign residents is just wrong
raegun : Just vote for NZ Labour in 2014 ... problem solved ... they guarantee to build 100 000 houses , and to sell them for less than $ 300 000 a piece ...
And Cunliffe has already promised that he's gonna target the rich with vastly increased taxes ..... easy peasy , lots of someone else's munny in the coffers , to look after those voters who don't have as much ..
... life is so astronomically simple when you vote Labour : They will do it all for you !
The tendency for property investors to make themselve holier by differentiating themselves from speculators is laughable. It is the people that actually do something that prop up the economy and your unearned rental income and capital gains, but the very action of you stripping income out of the economy for nothing in return is parasitic on the economy.
Pi"s, smart enough to profit from their behaviour but to stupid to understand the wider consequences or social inplications.
But scarfie us PIs do give something back to the economy.
It's an increasingly efficient supply of accomodation.
This is something many thousands of people in New Zealand value enough to want to pay for. So you can't say that the money is unearned.
You should instead be acknowledging that us good-guy PIs are doing a great thing for the economy by providing housing at minimal costs, thus freeing up people's money so they can invest elsewhere.
Presumably they will be investing in places you consider more productive to the economy . That's fair enough if that's your view... but at least the good-guy PIs have made it possible for them to do what you think they should do.
Let's face it... because of the nice PIs they don't have to stick all their loot into a house do they, leaving nothing for the business they want to invest in.
So come on now mate... we aren't so bad after all are we?
Hi Animal lover.
I am a bit technically challenged so can't provide a direct link, but recently the stuff website carried an article quoting research stating rents as a percentage of income had fallen in the last ten years or so.
Seems that rental accommodation is being provided more efficiently relative to incomes.
Now that must be a good thing for the economy Animal lover.
My comments are not broad brush. If PIs can use their capital to provide the housng for people, efficiently, then those people can use their own capital to operate their own businesses.
It must be a good thing, don't you agree Animal lover.
scarfie should salute PIs... as I do now.
PS I don't "do nothing."
The interesting thing Animal Lover is that I have a world wide reputation for my actions in defence of Animals, creatures that don't have the ability to help themselves from the predatory behaviour of people.
An issue I faced with working close to a legend in the field is his machiavellian tendencies and total disregard for people. On one hand claiming the high ground for his lifetime of activist work but then harming people with his words and actions. Quite frankly the two behaviours don't add up and lead to the conclusion he is simply using volunteers and donations to support his egotistical lifestyle.
You can't claim to be righteous on one hand while screwing people over on the other. How can claim to love animals but harm people by stealing the rewards for their work they do with rent? Unearned income, do some reading of history as the behaviour and principles are not new.
If you were truly interesting in helping people into a house you would be endeavoring to facilitate opportunities for them to build their own. Why don't you help them with plans and give them four or five months time rent free, that way they can take time off work to undertake the work themselves? Facilitating people to build their own is the best way forward, read "A Timeless Way of Building" or learn some humanity from Tony Watkins. You won't because your words are hollow and attitude viscious. Same goes for the other couple of hypocrits on this thread.
Providing accommodation to the nation's renters , in the most cost efficient manner , is deemed to be " parasitic behaviour " ?
... if so , we as a society will benefit from more fleas & leeches , then ....
Ooooops , my bad , they're already getting a benefit , down at WINZ ....
Surely the ultimate redirection is to take a thread about property investing, throw in some irrelevancies about being kind to animals and charitable volunteers and use that as a case for providing 5 months free rent?
Property is theft is getting boring. Most people do the best they can within the framework of societies rules. Most people are not out to screw anyyone over. Most P.I. are in the industry for many reasons... for the magority screwing people over is simply not one of them otherwise their tenant pool would quickly dry up. Most landlords charge a fair price, for a fair service.
Property speculation is most definately apart from Property Investing, and is the symptom of the rules we have in place. Personally I invest for long term but I have nothing against speculators either, but personally think it is a risky game. So long as they play within the rules they are entitled to do what they want.
In any industry you will have sharks and people in it for the quick buck, in human history it has never been a good idea to tar everyone with the same brush be it race, religion or profession.
.. I'm more than a tadge confused that Mr scarfie cannot see that providing rental housing is just one in a vast multitude of goods & services available in our market system ....
If he's so irate that you're making healthy products why doesn't he harangue his local MP to change some of the investment rules relating to rentals ....
.. or he could just mow the lawn more than twice a year , and get his own landlord off his case !
Interesting point you make Gummy and your wind ups are generally appreciated cos I know they are over the heads of these other clowns. Actually that did go via my MP and I see him on a regular basis. Not that it does any good mind you. I also explained to him where Labour had gazumped National with their policy on non-resident foreign buyers and how allowing that to continue will shrink the money supply and economy. Also a point probably beyond the comprehension of the the average PI.
As for bitter, nah mate but somebody has got to tell it like it is or the average punter might believe all the PR nonsense here. I mean the other guys in this thread are at a minimum talking their book and probably paid trolls.
Read the comments from this piece in the SMH ....
http://smh.domain.com.au/real-estate-news/renters-on-rise-as-home-dream-fades-20130828-2sqq6.html
Many of the comments have hit the nail on the head, on how the property market in Aussie is rigged way too much towards PI's ......free market my &*&*^&*^ !!
Sounds like many of the younger ones have had a gutsful and are taking it further ..... and the Govt is turning a "blind eye" to it all ....... it all sounds just too "familiar" to me.....
The way I am hearing it Crazy Horse is that many investors are not doing so well. Increased competition from fellow landlords, static rents and even in some areas not enough tenants and plenty of empty houses.
The good side of course is the apparent capital gains, but that has a big whiff of tulip mania and a tricky place to be in. Not going to predict though.
Interest rates sort of trending upwards. Maybe. Again, not going to predict.
If - a big if - if the tide turns there will be a rush for the exit. Which will be jammed.
I think there are a few landlords out there with poor cashflow, houses that are deteriorating (which is living on capital) - and not in a position to fund an empty house for any time at all. Between a rock and a hard place. With that light at the end of the tunnel being a train.
For some time now a big proportion of those who have been sold up under mortgage duress have been multiple property owners.
I am not in that business. But if I was. I would not be relaxed.
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