Yield Indicator report show prices rising more quickly than rents in most places but prices and rents both falling in Christchurch

By Greg Ninness

Residential property investors in most parts of the country are facing further falls in their rental yields, as property prices in most places continue to outpace rising rents, although Christchurch is a different story, according to the latest REINZ/interest.co.nz Rental Yield Indicator.

The Indicator provides the theoretical gross rental yield investors would achieve if they purchased a three bedroom house at the REINZ's lower quartile selling price in 56 areas around the country where there is a high level of rental activity, and then rented it out at the median rent for three bedroom houses in each of those areas.

The price and rent figures are for six month periods, so the yields are a rolling six month average, updated quarterly.

The chart below shows the yields that would be achieved in all 56 areas and how they have changed each quarter between September 2014 and December 2015.

In September 2014 the yields ranged from 11.8% in the Hastings suburb of Flaxmere to 4.3% at Highland Park in eastern Auckland.

In December 2015 the yields ranged from 11.5% in Flaxmere which is the only place monitored that has a yield in double digits, to 3.6% at Highland Park and also at Torbay on Auckland's North Shore.

The chart shows that yields have been continuing to fall in most parts of the country, but that the rate at which they have fallen had slowed towards the end of last year.

One of the biggest movements between September and December last year occurred in the Whangarei suburbs of Kamo/Tikipunga/Kensington, where the yield dropped from 7.1% in September to 5.6% in December.

That was caused by the lower quartile selling price of three bedroom houses in the area rising from $242,375 in six months to September to $270,000 in the six months to December, up 11.4%.

But over the same period the median rent charged for three bedroom houses in the area dropped from $330 a week to $290, a decline of 12.1%.

The rise in prices may be a result of increased investor activity in the area, as investors seek higher yields in areas outside Auckland..

But the increased supply of rental properties that creates could also be starting to push down rents.

In Auckland, Hamilton and Tauranga, rising lower quartile prices were the main influencer of falling yields, with rents also rising but generally only modestly by comparison with prices.

On the North Shore, both of the suburbs monitored by the Indicator had yields under 4%, and in Waitakere they hovered around 4% and may well slip under that benchmark in the March quarter.

Pukekohe/Tuakau posted a 5% yield and if that slips at all in the next quarter it will mean everywhere in Auckland will have yields below 5%.

Other main centres show similar trends with the yields in Wellington ranging from 5.2% in the Central Wellington suburbs of Vogeltown/Berhampore/Newton and in the Hutt Valley suburbs of Epuni/Avalon, while yields got up to 7.7% in Wainuiomata and 6.9% in Taita/Naenae.

The figures for Christchurch suggest there is increasing volatility in that market, which is likely being driven by the rising stock of housing coming on to the market.

Both the lower quartile selling prices and the rents dropped in all three of the areas monitored by the Yield Indicator between September and December.

In Hornby/Islington/Hei Hei the lower quartile selling price declined from $377,000 in the six months to September to $375,000 in the six months to December, while the median rent dropped from $450 a week to $430, and the combined effect of those changes saw the yield decline from 6.2% to 6%.

In Riccarton the lower quartile price dropped from $490,500 to $470,375 and the median rent from $460 to $450, while in Woolston/Opawa the lower quartile price dropped from $330,000 to $325,000 and the median rent from $417 to $400.

Those figures should ring alarm bells with Christchurch investors who are carrying reasonable amounts of debt because they could find themselves squeezed between declining capital values and falling rental income, while those investors looking to add to their portfolios may prefer to sit on the sidelines for the time being to see where things end up.

September 2014 - December 2015 For selected areas with high levels of rental activity Yields are for three bedroom houses
Town/region	Yield %* Dec-15	Yield %*  Sep-15	Yield %* Jun-15	Yield %* Mar-15	Yield %* Dec-14	Yield %* Sep-14
Whangarei - Kamo/Tikipunga/Kensington	5.6	7.1	6.5	6.9	7.6	6.4
Rodney - Orewa/Whangaparaoa	4.1	4.3	4.5	4.5	4.6	4.8
North Shore:
Beachhaven/Birkdale	3.8	3.9	4.0	4.3	4.3	4.6
Torbay	3.6	3.8	4.0	4.5	4.6	4.5
Waitakere:
Glen Eden	4.0	4.1	4.3	4.6	4.9	5.1
Massey/Royal Heights	4.0	4.1	4.4	4.6	4.9	5.1
Henderson	4.1	4.1	4.4	4.7	4.9	5.0
Central Auckland:
Avondale	3.7	3.9	4.1	4.2	4.4	4.5
Manukau:
Highland Park	3.6	3.6	3.8	3.8	4.1	4.3
Papakura/Drury/Karaka	4.8	4.9	5.5	5.6	5.9	6.0
Franklin - Pukekohe/Tuakau	5.0	5.0	5.3	5.5	5.6	5.6
Hamilton:
Deanwell/Melville/Fitzroy	5.5	6.2	6.8	6.9	6.9	6.9
Fairfield/Fairview Downs	5.7	6.0	6.8	6.7	6.2	7.0
Te Kowhai/St Andrews/Queenswood	4.9	5.3	5.4	5.4	5.6	5.8
Cambridge/Leamington	5.3	5.2	5.5	5.5	5.6	5.9
Te Awamutu	6.2	6.3	6.5	6.2	6.3	6.4
Bay of Plenty:
Tauranga Central/Greerton	5.2	5.6	6.0	6.1	5.9	5.9
Bethlehem/Otumoetai	4.8	4.8	4.5	4.8	5.3	5.4
Mt Maunganui	4.6	4.7	5.4	5.7	5.6	5.2
Pyes Pa/Welcome Bay	5.5	5.3	5.9	5.7	5.7	5.8
Kaimai/Te Puke	5.9	6.2	6.4	6.2	6.2	5.7
Whakatane	7.1	7.3	6.7	6.3	6.7	6.9
Rotorua
Holdens Bay/Owhata/Ngapuna	8.3	8.7	N/A	N/A	N/A	N/A
Kuirau/Hillcrest/Glenholme	6.3	6.6	N/A	N/A	N/A	N/A
Ngongotaha/Pleasant Heights/Koutu	8.0	8.2	N/A	N/A	N/A	N/A
Hastings - Flaxmere	11.5	11.0	12.1	12.2	11.7	11.8
Napier - Taradale	5.6	5.5	5.3	6.2	6.3	6.1
Taranaki
New Plymouth/Moturoa	5.4	5.5	N/A	N/A	N/A	N/A
Waitara/Inglewood	8.5	8.0	N/A	N/A	N/A	N/A
Whanganui	10.0	14.9	N/A	N/A	N/A	N/A
Palmerston North
Kelvin Grove/Roslyn	7.2	7.2	N/A	N/A	N/A	N/A
Palmerston North Central	5.5	6.2	N/A	N/A	N/A	N/A
Takaro/Cloverlea/Milson	7.1	7.3	N/A	N/A	N/A	N/A
Kapiti Coast:
Paraparaumu/Raumati	6.0	6.1	6.2	6.1	6.1	5.9
Waikanae/Otaki	6.5	6.8	6.6	6.7	5.5	5.4
Upper Hutt
Heretaunga/Silverstream	5.8	6.1	N/A	N/A	N/A	N/A
Totara Park/Maoribank/Te Marua	6.2	6.8	N/A	N/A	N/A	N/A
Lower Hutt
Epuni/Avalon	5.2	5.1	N/A	N/A	N/A	N/A
Taita/Naenae	6.9	7.1	N/A	N/A	N/A	N/A
Wainuiomata	7.7	7.7	N/A	N/A	N/A	N/A
Wellington:
Johnsonville/Newlands	5.4	5.6	5.8	5.6	5.5	6.2
Vogeltown/Berhampore/Newtown	5.2	5.5	5.1	5.5	5.2	5.6
Tasman:
Motueka	5.4	5.3	5.3	5.5	5.6	5.5
Richmond/Wakefield/Brightwater	5.3	5.5	5.6	5.6	5.8	5.9
Nelson - Stoke/Nayland/Tahunanui	5.7	5.8	5.9	5.7	5.7	6.0
Blenheim	7.0	6.4	6.5	6.5	6.6	6.5
Christchurch:
Hornby/Islington/Hei Hei	6.0	6.2	6.2	6.3	6.5	6.3
Riccarton	5.0	4.9	5.9	5.2	4.9	5.1
Woolston/Opawa	6.4	6.6	6.8	7.3	7.2	8.0
Ashburton	7.0	6.9	7.0	6.8	6.7	7.2
Timaru	6.4	6.2	6.6	6.8	6.7	6.3
Queenstown/Frankton/Arrowtown	5.2	5.0	4.8	4.9	4.7	5.3
Dunedin
Kenmure/Mornington	7.1	6.6	N/A	N/A	N/A	N/A
Mosgiel	6.4	6.1	N/A	N/A	N/A	N/A
South Dunedin/St Kilda	8.0	8.2	N/A	N/A	N/A	N/A
Invercargill	9.1	9.0	6.7	9.0	9.2	9.5
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 (before allowing for vacancy and for costs such as rates, insurance, maintenance, mortgage interest and tax). The yields are calculated quarterly, from the REINZ's lower quartile selling price for three bedroom houses sold in each area during the previous six months, and the median rent for newly tenanted three bedroom houses in the same areas/period, which are calculated from new tenancy bonds received by the Ministry of Business Innovation and Employment.

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