Surging house prices are continuing to reduce the likely returns available to residential property investors in Auckland, even though rents have also been rising, according to the latest REINZ/interest.co.nz Indicative Rental Yield Report.
The report tracks the gross rental income yields (a property's annual rent expressed as a percentage of its purchase price) that investors would receive if they purchased a property at the lower quartile selling price and rented it out at the median rent, in 40 locations around the country where there is a high level of rental activity.
It is based on the Real Estate Institute of New Zealand's lower quartile selling price for each area and the median weekly rent figures compiled by the Ministry of Business Innovation and Employment from new bonds received from the same areas.
It shows that likely gross rental yields on three bedroom homes in most parts of Auckland are well under 5% and continuing to decline (see table below for the yields for all 40 areas).
The lowest indicative yield in the areas monitored for the six months to March, was 3.8% at Highland Park in Auckland's eastern suburbs, down from 4.1% for the six months to December and 4.6% for the six months to June.
Similar falls are evident in other parts of the city such as Massey and Glen Eden in Auckland's west, areas which have traditionally been happy hunting grounds for property investors
In both of those areas indicative yields have dropped from 5% for the six months to June last year to 4.6% for the six months to March this year.
The only parts of Auckland where the indicative yields remained above 5% in the latest report were Papakura and Pukekohe, where they were 5.6% and 5.5% respectively, but both of those were well down from their June 2014 figures of 6% and 5.8%.
The indicative yields were also down in Wellington, Christchurch and Queenstown, although in those centres the falls were not as big as they were in Auckland.
The figures suggest that property investors could struggle to find investment properties in Auckland that would be capable of providing them with a reasonable income stream.
The indicative yield figures used in the report are gross and take no account of periods of vacancy or expenses such as rates, insurance and maintenance which would reduce the yields even further.
If those costs were factored in it would be likely that investors would be receiving returns of less than 4% on three bedroom Auckland homes purchased at the lower quartile selling price, which is substantially less than they could receive by putting their money into a term deposit, even though interest rates are unusually low.
However some investors may be prepared to accept very low cash returns for a period of time when prices are rising strongly, because of the capital gains that can provide.
The downside of such a strategy is that it carries considerable risk if a property is carrying substantial debt and there is a significant rise in mortgage interest rates, and/or a fall in property values, although most financial commentators regard both possibilities as unlikely in the short term.
See the indicative yields for all 40 areas monitored by interest.co.nz and their changes since June last year, in the table below:
 Indicative gross rental yields for selected areas with high rental activity during the previous six months
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| Town/suburb | Yield %* 6 months to Mar-15 | Yield %* 6 months to Dec-14 |
Yield %* 6 months to Sep-14
|
Yield %* 6 months to Jun-14
|
| Whangarei - Kamo/Tikipunga/Kensington | 6.9 | 7.6 |
6.4
|
5.9
|
|
|
|
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| Rodney - Orewa/Whangaparaoa | 4.5 | 4.6 |
4.8
|
4.2
|
|
|
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| North Shore: |
|
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| Beachhaven/Birkdale | 4.3 | 4.3 |
4.6
|
4.9
|
| Torbay | 4.5 | 4.6 |
4.5
|
4.5
|
| Waitakere: |
|
|
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| Glen Eden | 4.6 | 4.9 |
5.1
|
5.0
|
| Massey/Royal Heights | 4.6 | 4.9 |
5.1
|
5.0
|
| Henderson | 4.7 | 4.9 |
5.0
|
5.3
|
| Central Auckland: |
|
|
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| Avondale | 4.2 | 4.4 |
4.5
|
n/a
|
| Manukau: |
|
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| Highland Park | 3.8 | 4.1 |
4.3
|
4.6
|
| Papakura/Drury/Karaka | 5.6 | 5.9 |
6.0
|
6.0
|
| Franklin - Pukekohe/Tuakau | 5.5 | 5.6 |
5.6
|
5.8
|
| Hamilton: |
|
|
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| Deanwell/Melville/Fitzroy | 6.9 | 6.9 |
6.9
|
6.9
|
| Fairfield/Fairview Downs | 6.7 | 6.2 |
7.0
|
6.9
|
| Te Kowhai/St Andrews/Queenswood | 5.4 | 5.6 |
5.8
|
5.5
|
| Cambridge/Leamington | 5.5 | 5.6 |
5.9
|
5.9
|
| Te Awamutu | 6.2 | 6.3 |
6.4
|
6.0
|
| Tauranga: |
|
|
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| Tauranga Central/Greerton | 6.1 | 5.9 |
5.9
|
n/a
|
| Bethlehem/Otumoetai | 4.8 | 5.3 |
5.4
|
5.2
|
| Mt Manganui | 5.7 | 5.6 |
5.2
|
5.2
|
| Pyes Pa/Welcome Bay | 5.7 | 5.7 |
5.8
|
5.7
|
| Kaimai/Te Puke | 6.2 | 6.2 |
5.7
|
5.6
|
| Whakatane | 6.3 | 6.7 |
6.9
|
n/a
|
| Hastings - Flaxmere | 12.2 | 11.7 |
11.8
|
12.0
|
|
|
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| Napier - Taradale | 6.2 | 6.3 |
6.1
|
6.1
|
|
|
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| Kapiti Coast: |
|
|
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| Paraparaumu/Raumati | 6.1 | 6.1 |
5.9
|
n/a
|
| Waikanae/Otaki | 6.7 | 5.5 |
5.4
|
6.1
|
| Wellington: |
|
|
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| Johnsonville/Newlands | 5.6 | 5.7 |
6.2
|
5.9
|
| Vogeltown/Berhampore/Newtown | 5.5 | 5.2 |
5.6
|
5.8
|
| Tasman: |
|
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| Motueka | 5.5 | 5.6 |
5.5
|
5.2
|
| Richmond/Wakefield/Brightwater | 5.6 | 5.8 |
5.9
|
6.0
|
| Nelson - Stoke/Nayland/Tahunanui | 5.7 | 5.7 |
6.0
|
6.0
|
| Blenheim | 6.5 | 6.6 |
6.5
|
6.1
|
|
|
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| Christchurch: |
|
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| Hornby/Islington/Hei Hei | 6.3 | 6.5 |
6.3
|
6.4
|
| Riccarton | 5.2 | 4.9 |
5.1
|
5.7
|
| Woolston/Opawa | 7.3 | 7.2 |
8.0
|
7.9
|
| Ashburton | 6.8 | 6.7 |
7.2
|
6.8
|
|
|
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| Timaru | 6.8 | 6.7 |
6.3
|
n/a
|
|
|
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| Queenstown/Frankton/Arrowtown | 4.9 | 4.7 |
5.3
|
5.4
|
|
|
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| Invercargill | 9.0 | 9.2 |
9.5
|
n/a
|
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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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