Landlords may be cheering capital gains but low rental yields make bargains hard to find

Landlords may be cheering capital gains but low rental yields make bargains hard to find

Gross rental yields on new residential  property investments remain under 5% in  parts of Auckland and between 5% and 6% in many other parts of the country, according to the latest REINZ/Interest.co.nz Rental Yield Indicator.

A gross rental yield is the annual rent a property could generate expressed as a percentage of its purchase price.

The Indicator monitors the median value of new tenancy bonds lodged with the Ministry of Business Innovation and Employment in 40 areas around the country where there a high level of rental activity and calculates a gross yield for each area using the REINZ's lower quartile selling prices for the same areas.

In both cases the figures for all but one of those areas were for three bedroom houses (Grafton in Auckland was the exception and used figures for two bedroom apartments) because these were the most commonly rented types of properties in each area.

They were drawn from unconditional sales made and bonds received in each of those areas over the previous six months.

So the Indicator measures the gross yield that would be achieved if an investor had bought a property at the lower quartile selling price for that area over the last six months, and then rented it out at the median rent for that area.

Of the 11 suburbs monitored in the Auckland region, five had yields under 5% for the six months to September, with the lowest being Highland Park in west Auckland where it was 4.3%.

The highest yield was for 2 bedroom apartments in inner city Grafton, at 12.2%. which was the highest yield of all the areas monitored.

South of the Bombays yields improved markedly, ranging from 5.8% to 7% in the suburbs monitored in the Waikato and 5.2% to 6.9% in the Bay of Plenty.

Investors in the capital are also likely to find richer pickings than their Auckland cousins with yields in the 5.4% to 6.2% range.

In Christchurch they ranged from 5.1% in Riccarton to 8% in Woolston/Opawa.

Because of slight changes made to the boundaries used to collect the data in seven areas monitored since the last edition of the Indicator, it was only possible to make comparisons between the September  and June figures for 33 areas.

Of those, yields increased in 15 areas, declined in 11 and were unchanged in seven.

 
for selected areas with high rental activity during the previous six months
 
Town/region
Yield %*
Sep-14
Yield %*
Jun-14
Whangarei - Kamo/Tikipunga/Kensington
6.4
5.9
 
 
 
Rodney - Orewa/Whangaparaoa
4.8
4.2
 
 
 
North Shore:
 
 
Beachhaven/Birkdale
4.6
4.9
Torbay
4.5
4.5
 
 
 
Waitakere:
 
 
Glen Eden
5.1
5.0
Massey/Royal Heights
5.1
5.0
Henderson
5.0
5.3
 
 
 
Central Auckland:
 
 
Avondale
4.5
n/a
Grafton (2 brm apartment)
12.2
n/a
 
 
 
Manukau:
 
 
Highland Park
4.3
4.6
Papakura/Drury/Karaka
6.0
6.0
Franklin - Pukekohe/Tuakau
5.6
5.8
 
 
 
Hamilton:
 
 
Deanwell/Melville/Fitzroy
6.9
6.9
Fairfield/Fairview Downs
7.0
6.9
Te Kowhai/St Andrews/Queenswood
5.8
5.5
 
 
 
Cambridge/Leamington
5.9
5.9
     
Te Awamutu
6.4
6.0
 
 
 
Tauranga:
 
 
Tauranga Central/Greerton
5.9
n/a
Bethlehem/Otumoetai
5.4
5.2
Mt Manganui
5.2
5.2
Pyes Pa/Welcome Bay
5.8
5.7
Kaimai/Te Puke
5.7
5.6
     
Whakatane
6.9
n/a
     
Hastings - Flaxmere
11.8
12.0
 
 
 
Napier - Taradale
6.1
6.1
 
 
 
Kapiti Coast:
 
 
Paraparaumu/Raumati
5.9
n/a
Waikanae/Otaki
5.4
6.1
 
 
 
Wellington:
 
 
Johnsonville/Newlands
6.2
5.9
Vogeltown/Berhampore/Newtown
5.6
5.8
 
 
 
Tasman:
 
 
Motueka
5.5
5.2
Richmond/Wakefield/Brightwater
5.9
6.0
     
Nelson - Stoke/Nayland/Tahunanui
6.0
6.0
     
Blenheim
6.5
6.1
 
 
 
Christchurch:
 
 
Hornby/Islington/Hei Hei
6.3
6.4
Riccarton
5.1
5.7
Woolston/Opawa
8.0
7.9
     
Ashburton
7.2
6.8
 
 
 
Timaru
6.3
n/a
 
 
 
Queenstown/Frankton/Arrowtown
5.3
5.4
 
 
 
Invercargill
9.5
n/a

Source : REINZ / MBIE

Yield is a property's annual rent expressed as a percentage of its purchase price. The yield figures in this table are gross, and are calculated from the REINZ's lower quartile selling price for each area during the previous 6 months, and the median rent calculated from new tenancy bonds received by the Ministry of Business Innovation and Employment for the same areas/period. Some areas such as New Plymouth, Palmerston North and Dunedin have been excluded because the geographic areas used by the REINZ and MBIE to collate their data did not match.

 

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6 Comments

I'm pretty happy with my 8.7% in Linwood, Christchurch then. 

Correct me if I'm wrong but doesn't yields below 6% mean that the rent-demand is not as high as we might think? And doesn't it mean that if rent demand is not that high there isn't actually a problem of supply?
I learnt that rent yields in urban areas below 5% is not interesting at all and selling should be preferred, while this percentage would be bigger in holiday destinations.
I would expect higher rent yields in Auckland if we really believe that there is a problem of supply.

So yield is not important? That means that the investors you speak of don't care about the amount of income they receive from their property investments. This reminds me of the sort of clap trap that was spouted by property spruiking outfits such as Blue Chip that led to so many gullible mum and dad investors falling into financial disaster. This nonsense of yours heads down the same path.

Greg...  Yield is important....BUT...  In a world where Central Banks with their Monetary policy and QEing is  having the effect of Capital chasing yield and forcing it down..
This is not going to end anytime soon.... but when it does it will probably be ugly...
SO... If you are an invester who requires high yield...you will be left behind..   It is a volatile risky game... now
NZ is one cycle behind the USA and Europe...   we still have a spread in interest artes...  ie..ocr is 3.5%...     so there is still lots of room  for asset price gains.....  and still room for the Reserve Bank to drop OCR to 0 during the next serious downturn.... Having said that.. with our open Capital borders ...we are affected by Global Monetary policy....and the Global economic Climate... ( deleveraging environment )
I love Ray DAlio
http://video.cnbc.com/gallery/?video=3000316201
I suppose thats' the beauty of Real Estate.... the dynamics change from decade to decade...
My comments might seem an irony to you.... because I actually agree with you.....  BUT  we live in a fucked up world where Central Banks have been causeing havoc ever since the Greenspan years..
just my view.

Was just re-reading Benjamin Graham's securities anaylsis over the weekend (Im a pretty fun guy...); and in 1934 he had all this so perfectly figured out.  Great read to remind yourself of the difference between speculation (buying on a prediction of future price moves) and investment (buying at below intrinsic value based on current and past valuation measures).

This shows there is too much money chasing residential property investment , and the market is hopelessly distorted .
It gets dangerous when the investment is sustained by tax breaks , and out-of -kilter interest rates