Rental yields drop below 5% in most parts of Auckland and under 6% in much of the rest of the country

Rental yields drop below 5% in most parts of Auckland and under 6% in much of the rest of the country

Landlords looking to add to their portfolios may struggle to find residential investment properties providing reasonable returns in many parts of the country, as property prices continue to rise faster than rents.

The latest Rental Yield Indicator shows that yields (a property's annual rent expressed as a percentage of its purchase price) continued to decline in Auckland, Hamilton, Wellington, Nelson, Christchurch and Queenstown in the second half of last year, (see table below).

The Indicator uses the Real Estate Institute of New Zealand's lower quartile (bottom 25%) selling price and matches it with new tenancy bond data collected by the Ministry of Business, Innovation and Employment, to produce the likely rental yields that could be achieved in 40 areas from around the country where there is a high level of rental activity.

A notable feature of the December figures is that they suggest newly purchased rental properties in most parts of the Auckland region would be likely to be provide gross rental income yields of under 5% a year.

The only exceptions to that were in inner city Grafton, where sales are dominated by student accommodation, and in Papakura and Franklin on Auckland's southern flank, where yields were below 6%.

However those figures are for gross yields, which do not take into account the effect of vacancy rates and regular costs which landlords face such as rates, insurance and maintenance, which eat away at the net returns that they would receive.

That means residential property in Auckland is increasingly likely to be a low yielding investment when compared to other property assets such as listed property stocks, many of which which have been providing dividend yields around 5-6% and commercial property syndicates which can provide cash returns of 8% or more.

It also suggests many people investing into the Auckland property market will be relying on future capital gains to make a reasonable return on their investment.              

Although the indicative yields are higher outside of Auckland, it is often not by much, with yields in much of the Bay of Plenty, Wellington, Nelson, and Queenstown being below 6%.

See the table below for the December Indicative Yield figures for all 40 locations monitored by Interest.co.nz, and the comparative figures for the six months to September and six months to June last year.

Indicative gross rental yields for selected areas with high rental activity during the previous six months
 
Town/region      Yield %*       6 months to   Dec 14
       Yield %*        6 months to
Sep-14
         Yield %*          6 months to 
Jun-14
Whangarei - Kamo/Tikipunga/Kensington 7.6
6.4
5.9
   
 
 
Rodney - Orewa/Whangaparaoa 4.6
4.8
4.2
   
 
 
North Shore:  
 
 
Beachhaven/Birkdale 4.3
4.6
4.9
Torbay 4.6
4.5
4.5
   
 
 
Waitakere:  
 
 
Glen Eden 4.9
5.1
5.0
Massey/Royal Heights 4.9
5.1
5.0
Henderson 4.9
5.0
5.3
   
 
 
Central Auckland:  
 
 
Avondale 4.4
4.5
n/a
Grafton (2 brm apartment) 14.2
12.2
n/a
   
 
 
Manukau:  
 
 
Highland Park 4.1
4.3
4.6
Papakura/Drury/Karaka 5.9
6.0
6.0
Franklin - Pukekohe/Tuakau 5.6
5.6
5.8
   
 
 
Hamilton:  
 
 
Deanwell/Melville/Fitzroy 6.9
6.9
6.9
Fairfield/Fairview Downs 6.2
7.0
6.9
Te Kowhai/St Andrews/Queenswood 5.6
5.8
5.5
   
 
 
Cambridge/Leamington 5.6
5.9
5.9
       
Te Awamutu 6.3
6.4
6.0
   
 
 
Tauranga:  
 
 
Tauranga Central/Greerton 5.9
5.9
n/a
Bethlehem/Otumoetai 5.3
5.4
5.2
Mt Manganui 5.6
5.2
5.2
Pyes Pa/Welcome Bay 5.7
5.8
5.7
Kaimai/Te Puke 6.2
5.7
5.6
       
Whakatane 6.7
6.9
n/a
       
Hastings - Flaxmere 11.7
11.8
12.0
   
 
 
Napier - Taradale 6.3
6.1
6.1
   
 
 
Kapiti Coast:  
 
 
Paraparaumu/Raumati 6.1
5.9
n/a
Waikanae/Otaki 5.5
5.4
6.1
   
 
 
Wellington:  
 
 
Johnsonville/Newlands 5.7
6.2
5.9
Vogeltown/Berhampore/Newtown 5.2
5.6
5.8
   
 
 
Tasman:  
 
 
Motueka 5.6
5.5
5.2
Richmond/Wakefield/Brightwater 5.8
5.9
6.0
       
Nelson - Stoke/Nayland/Tahunanui 5.7
6.0
6.0
       
Blenheim 6.6
6.5
6.1
   
 
 
Christchurch:  
 
 
Hornby/Islington/Hei Hei 6.5
6.3
6.4
Riccarton 4.9
5.1
5.7
Woolston/Opawa 7.2
8.0
7.9
       
Ashburton 6.7
7.2
6.8
   
 
 
Timaru 6.7
6.3
n/a
   
 
 
Queenstown/Frankton/Arrowtown 4.7
5.3
5.4
   
 
 
Invercargill 9.2
9.5
n/a

Source : REINZ / MBIE

* Rental 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 with high levels of rental activity, such as New Plymouth, Palmerston North and Dunedin have been excluded because the geographic areas used by the REINZ and MBIE to collate the data for suburban districts did not match.

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Did a back of the envelope the other day and approx 600K sittting in ASB Savings on call is the equivalent of the median monthly rental for a 3-bedroom house in Auckland. Pretty sure that the financial wizards will appeal to how wrong-headed the comparison is. However, I think it's an interesting comparison from a psychological perspective. 

whats the 20yr projection comparison on that sitting, compounding annually.

Sorry, coudn't resist myself :)
 
$600k invested at ASB rate of 3.45% after 17.5% tax is $327.51/week or $285.83/week after 28% tax for everyone else if you are smart enough to use a PIE vehicle. I would like to know where these cheap rentals are.

As I said, Savings On Call, which must be higher that 3.45%. Currently I have about 210K in this account which clears the "mighty" sum of approx $150 (after tax) per week. I'm not tabulating best and worst interest rates. 
But this is somewhat rather beside the point. I'm more interested in the psychological underpinnings behind the "debt-driven wealth" schema that "you're a mug" not to participate in. And that's the whole point. Most people cannot really envisage having 600K sitting in a bank account generating about $450 per week, while the lure of a rental property is a much more achievable goal, not forgetting all those wonderful captial gains. 

"The latest Rental Yield Indicator shows that yields (a property's annual rent expressed as a percentage of its purchase price) "

market price, not purchase price.   Many properties have rather staggering yields for their purchase price.  That's why property is a long game.