A report by Knight Frank says speculators chasing capital gains are outbidding owner-occupiers for homes in Auckland

A report by Knight Frank says speculators chasing capital gains are outbidding owner-occupiers for homes in Auckland

Investors are beating owner-occupiers in the battle for Auckland homes, according to a new report on the Auckland residential property market by real estate company Knight Frank.

The report says Knight Frank tracked the selling prices and investment returns achieved by two types of Auckland properties that are mainly the preserve of investors, stand alone homes which are leased to Housing New Zealand, and blocks of home units or "sausage block flats," as they are sometimes called, mostly built in the 1960s and 1970s, in which the whole block was sold as a single lot.

Knight Frank analysed the prices such properties were sold for, the rental incomes they generated and the expenses their owners would incur for rates, insurance, repairs and maintenance and property management fees, to work out the net returns investors would be likely to achieve on them.

This showed that the homes leased to Housing New Zealand were providing net returns of 3.1% to 3.9% for their investor-owners, which the report points out is less than investors could earn from risk free bank deposits.

"This indicates that some level of capital gain is prevalent for investors within this asset class," the report said.

The blocks of home units achieved slightly higher yields, but these varied significantly depending on location, with blocks in central Auckland (within the old boundaries of the former Auckland City Council) achieving net yields of 3.8%, while those in Manukau achieved net yields of 4.9%.

Knight Frank then compared the potential yields on similar properties which would appeal to owner-occupiers as much as investors - either because they did not have a a lease in place to Housing NZ or because they were stand alone homes rather than entire blocks of flats.

It found that the yields on these properties (if they had been purchased by investors) would have ranged from 2.5% to 3.5%.

"The near parity in yields, together with clear differences between other more traditional risk-free rates, suggests that investors are potentially winning the race in terms of purchase prices achieved," the report said.

"It appears that owner-occupiers are not prepared to outlay similar levels to secure a home, or are having to compete fiercely with investors who are perhaps less concerned on rental return, in lieu of expected capital gain."

The report saw few signs of any cooling in Auckland house prices and warned that this could create a two-tiered social structure in the region.

"The Auckland property market shows little sign of slowing down and predictions of further cuts in the OCR only aid in adding fuel to the fire," the report said.

"As much as the government is trying to cool the property market, it appears this is proving challenging and and is caught in a storm of economic factors all driving values up.

"First home buyers are having to compete with investors that have high equity ratios from existing property portfolios and access to low interest rates.

"This results in a very real potential of creating a two-tier society of home owners and non-home owners," the report concluded.

You can read the full report by clicking on the following link:PDF iconKnight Frank Residential Property Market Report.pdf

Our free Property email newsletter brings you all the stories about residential and commercial property and the forces that move these huge markets. Sign up here.

To subscribe to our Property newsletter, enter your email address here. It's free.



We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.


Comment Filter

Highlight new comments in the last hr(s).

So the real problem in Auckland is not Chinese.
It is investors which include cashed up new immigrants plus foreign investors/speculators and local investors in total who between them can boost values and shut out FHBs .
The politicians need to address that total group through regulation and the tax system to rebalance the demand. Forget supply because most of the rentals and empty housing if released to the market, can satisfy the waiting FHBs.
Answer that one.

In case you haven't noticed the politicians aren't going to do anything. New Zealand has the most corrupt and malicious government I've ever seen.

The good news is that once eventually sentiment turns and the supply of greater fools runs out it's long long way down.

New Zealand has the most corrupt and malicious government I've ever seen.

Oh so you're blind then? Jeees, come on, talk about drawing a loooooooong bow.

How far back do you have to go to find anything worse than this lot? Clark? Shipley? Bolger? Lange? Muldoon maybe?

My vision is perfect. Yours?

That is absolute rubbish, provide a list of less corrupt Govn please?

It isnt good news its a long way down, not unless you are into S&M.

Xeinaga - suspect you need to go overseas and track down those unbiased overseas survey firms that put NZ consistently in the top few of the least corrupt and malicious Govts in the world (NZ No. 2 currently) - clearly they're all misguided and would welcome your input. I'm sure there's a job for you somewhere over there

2011 we were no 1 now we have dropped to number 3

It's just how our citizens perceive the level of corruption, not the actual level (which is far, far worse than NZers perceive, for sure).

Shocking sharetrader, we should all be ashamed

with our high immigration of people from down the bottom of the list I would expect us to keep sliding down abet slowly.
at the moment our corruption is very grey and almost unseen, ex MPs ending up on certain boards so they can exert pressure in parliament on ex colleagues or party faithful being appointed to government boards.
they only scary ones are the stories starting to pop up about low level government employees excepting cash

That must have been before we realized we have a government that feeds government data to bloggers to smear and ruin people, or before we realized the lengths they will go to to remove people from the media who do nothing more than question how the government is being run, or in other words what the media are supposed to be doing.
I'd be very surprised if we are still in the top 10 the way the current cowboys are going.

Corruption in Govn is all Govn and not the presently elected bunch of Pollies some of whom clearly lack much in the way of morals or value democracy..

No we have not dropped. If however we review the actual numbers, in 2012 we scored 90 and were joint top. In 2013 we scored 91 and were joint top, in 2014 we scored 91 while Denmark gained a single point to 92. Hardly a significant change overall, in fact we seem to be in the top 2 or 3 for the last 5 years if not more.

You mean like the survey of the professional service firm Deloitte, which has found "A new survey carried out by professional services firm Deloitte canvassed 269 public and private organisations across New Zealand and Australia.

It revealed almost a quarter had experienced domestic corruption in the last five years, with more than half the incidents occurring in the last twelve months...Deloitte associate director, forensic Ian Tuke said the actual numbers would almost certainly be higher than reported.

"What we're talking about here is detected and known incidents," he said.

"If you're not actually opening your eyes and looking for the risks, you're not likely to find them."

The survey seem to point to private business "goings on" and not Govn. Having worked in industry in the UK for 20 years and now here for 20 frankly there seems to always be some small level of "corruption" in private enterprise one of the reasons I like to keep clear of the sales aspect of a business undertaking. That way I dont feel the urge to wash my hands every hour or so.

The corruption perceptions report? Don't be fooled into thinking New Zealand is immune. Dirty politics, Oravida, Sky City, TPPA, government influence over the media, questionable political donations.

The place isn't as squeaky clean as we wish it was.

To clarify, that statement was in the context of New Zealand governments during my lifetime.

I stand by that statement. These guys do not govern in the interests of all New Zealanders. Far from it.

You could be right Basel. But what if the foreign buyers were not allowed to buy at all. Lowered demand then takes took heat out of the market that so speculative activity doesn't pay off - the speculators get out of the market. Could work, What do you think ?

Yet more statistics that show that Auckland house prices are a speculative price bubble primed for popping. Who or what is going to be the prick?

"the prick", so many replies are possible to that one, LOL.

For me its not what but how big, I mean just look at how dairy's problem is unfolding right now. 1 year of low payout, OK, throw in the El Nino causing a drought so quantity is also down as well as price and it could be an ugly 18months. Is the price likely to recover significantly inside of 2 years? I cant see how with both the lack of demand and what looks like even more production coming on line globally with ppl desperate to sell. So farmers have a bad 2? years minimum, what does that do to rural NZ? I cannot think but its going to be tough and deflationary. Meanwhile our OCR is high, our NZD is tanking which will put yet more pressure on retail who seem to be suffering already.

and yet we have a rock star economy? wtf is being smoked in the Beehive?

Hard to keep the ponzi going much longer without FHB fodder at the bottom of the pyramid.

Auckland property already is "two-tiered" so anything that disrupts investors will have a major impact to the market overall.

While I agree on the FHB being knobbled effect I think there is some indication that there is serious top end buying going on in Auckland and I assume it isnt debt driven unlike the FHB segment.

I think Auckland is done. Listings in Auckland have started to rise daily over the last 1-2 weeks. Wellington tightens at a rapid rate, Waikato tightening to a lesser extent. Christchurch listings also continue to rise. If you have a look at the number of rental properties listed versus population Wellington is tighter than Auckland, and Christchurch appears to have a massive oversupply.