Yields starting to rise on residential investment properties in Auckland as rents rise and capital gains start to dry up

Photo: ptmoney.com

Auckland's residential rental property market may be at a turning point with indicative rental yields rising in half of the Auckland suburbs monitored by Interest.co.nz's Rental Yield Indicator.

The indicator monitors the theoretical gross rental yields that investors would receive in 56 locations throughout the country where there is a high level of rental activity, based on the REINZ's lower quartile selling prices and the median rents for newly let three bedroom houses recorded by Tenancy Services over the preceding six months.

Of the 10 Auckland suburbs monitored, the yields rose in five of them in the December quarter as median rents rose while lower quartile selling prices started flattening out.

Of the remaining five suburbs, the yields were unchanged in three and declined in two.

Although the change in indicative yields between the September and December quarters was small, it was significant because up until September the indicative yields in Auckland had been declining as the continuing rise in lower quartile prices outpaced the growth in rents, pushing yields down.

 The latest figures suggest the rental market in Auckland may be starting to return to fundamentals, where rental growth becomes more important to investors than capital gains.

However even with the latest improvement in yields, they remain at astonishingly low levels, with indicative yields in the Auckland areas monitored ranging from 3.5% at Highland Park in Manukau to 4.4% in Papakura and Franklin.

Outside of Auckland capital gain continues to be the name of the game, with yields continuing to fall in most areas as lower quartile prices rise faster than rents, pushing yields down further.

Some of the biggest falls occurred in the Lower North Island from Palmerston North to Wellington, suggesting continuing strong demand from investors for rental properties in those areas which is likely still pushing up lower quartile prices faster than rents.

Indicative yields are also continuing to fall in the Christchurch suburbs that are monitored.

Around the country the highest indicative yield (based on property sales and new lettings in the six months to December) was a tie between the Holdens Bay/Owhata/Ngapuna areas of Rotorua, and Whanganui, with both achieving 9.7%,  while the lowest was Highland Park in Auckland on 3.5%.

Indicative rental yields provide a standardised comparison of the relative gross returns that could be achieved by buying typical rental properties in different parts of the country, before allowing for costs such as mortgage interest, rates, insurance and maintenance, which will vary from property to property and according to each investor's circumstances.

The table below shows the indicative yields for all 61 areas monitored by the Rental Yield Indicator from the September quarter of 2014 to the December quarter of 2016. 

Indicative gross rental yields for three bedroom houses in 56 selected areas with high rental activity. Based on REINZ lower quartile selling prices and MBIE median rents in each area over the previous six months.
Town/region Yield % Dec-16 Yield % Sep-16 Yield % Jun-16 Yield % Mar 16 Yield %
Dec-15
Yield %
Sep-15
Yield %
Jun-15
Yield %
Mar-15
Yield %
Dec-14
Yield %
Sep-14
Whangarei:                    
Kamo/Tikipunga/Kensington 5.4 5.9 6.1 6.0 5.6 7.1 6.5 6.9 7.6
6.4
                   
 
Rodney - Orewa/Whangaparaoa 3.8 3.9 4.1 4.1 4.1 4.3 4.5 4.5 4.6
4.8
                   
 
North Shore:                  
 
Beachhaven/Birkdale 3.7 3.7 3.7 3.9 3.8 3.9 4.0 4.3 4.3
4.6
Torbay 3.6 3.4 3.6 3.8 3.6 3.8 4.0 4.5 4.6
4.5
                   
 
Waitakere:                  
 
Glen Eden 3.8 3.7 3.9 4.0 4.0 4.1 4.3 4.6 4.9
5.1
Massey/Royal Heights 3.9 3.8 4.1 4.1 4.0 4.1 4.4 4.6 4.9
5.1
Henderson 3.8 3.8 3.8 4.1 4.1 4.1 4.4 4.7 4.9
5.0
                   
 
Central Auckland:                  
 
Avondale 3.6 3.7 3.6 3.7 3.7 3.9 4.1 4.2 4.4
4.5
                   
 
Manukau:                  
 
Highland Park 3.5 3.4 3.3 3.3 3.6 3.6 3.8 3.8 4.1
4.3
Papakura/Drury/Karaka 4.4 4.4 4.7 4.8 4.8 4.9 5.5 5.6 5.9
6.0
Franklin - Pukekohe/Tuakau 4.4 4.3 4.5 4.9 5.0 5.0 5.3 5.5 5.6
5.6
                   
 
Hamilton:                  
 
Deanwell/Melville/Fitzroy 5.0 5.1 5.4 5.3 5.5 6.2 6.8 6.9 6.9
6.9
Fairfield/Fairview Downs 4.8 4.8 5.1 5.4 5.7 6.0 6.8 6.7 6.2
7.0
Te Kowhai/St Andrews/Queenswood 4.3 4.6 4.7 4.7 4.9 5.3 5.4 5.4 5.6
5.8
                   
 
Cambridge/Leamington 4.6 4.7 4.8 5.2 5.3 5.2 5.5 5.5 5.6
5.9
                     
Te Awamutu 5.1 5.2 5.2 5.7 6.2 6.3 6.5 6.2 6.3
6.4
                   
 
Tauranga:                  
 
Tauranga Central/Greerton 4.4 4.3 3.7 5.2 5.2 5.6 6.0 6.1 5.9
5.9
Bethlehem/Otumoetai 3.7 4.2 4.2 4.6 4.8 4.8 4.5 4.8 5.3
5.4
Mt Maunganui 4.2 4.2 4.4 4.8 4.6 4.7 5.4 5.7 5.6
5.2
Pyes Pa/Welcome Bay 4.8 4.9 4.8 5.4 5.5 5.3 5.9 5.7 5.7
5.8
Kaimai/Te Puke 5.4 5.5 5.6 5.8 5.9 6.2 6.4 6.2 6.2
5.7
                     
Whakatane 5.8 6.5 6.6 6.4 7.1 7.3 6.7 6.3 6.7
6.9
                     
Rotorua:                    
Holdens Bay/Owhata/Ngapuna 9.7 10.7 9.4 8.7 8.3 8.7 n.a. n.a. n.a. n.a.
Kuirau/Hillcrest/Glenholm 7.3 7.5 6.4 5.9 6.3 6.6 n.a. n.a. n.a. n.a.
Ngongataha/Pleasant Heights/Koutu 8.2 7.2 7.9 7.7 8.0 8.2 n.a. n.a. n.a. n.a.
                     
Hastings: Flaxmere 8.6 9.4 9.3 10.9 11.5 11.0 12.1 12.2 11.7
11.8
                   
 
Napier: Taradale 4.9 5.1 5.5 5.4 5.6 5.5 5.3 6.2 6.3
6.1
                     
Taranaki:                    
New Plymouth Central/Moturoa 5.3 5.1 5.4 5.8 5.4 5.5 n.a. n.a. n.a. n.a.
Waitara/Inglewood 7.0 7.7 7.7 8.8 8.9 8.0 n.a. n.a. n.a. n.a.
                     
Whanganui 9.7 9.7 10.3 9.6 10.0 14.9 n.a. n.a. n.a. n.a.
                     
Palmerston North:                    
Kelvin Grove/Roslyn 6.6 7.0 7.3 7.4 7.2 7.2 n.a. n.a. n.a. n.a.
Palmerston North Central 5.6 6.5 6.3 5.6 5.5 6.2 n.a. n.a. n.a. n.a.
Takaro/Cloverlea/Milson 6.3 6.7 6.8 7.2 7.1 7.3 n.a. n.a. n.a. n.a.
                   
 
Kapiti Coast:                  
 
Paraparaumu/Raumati 5.3 5.6 5.7 5.9 6.0 6.1 6.2 6.1 6.1
5.9
Waikanae/Otaki 5.5 5.8 5.8 5.9 6.5 6.8 6.6 6.7 5.5
5.4
                   
 
Upper Hutt:                    
Heretaunga/Silverstream 4.6 5.3 5.6 5.8 5.8 6.1 n.a. n.a. n.a. n.a.
Totara Park/Maoribank/Te Marua 5.2 5.7 6.2 6.3 6.2 6.8 n.a. n.a. n.a. n.a.
                     
Lower Hutt:                    
Epuni/Avalon 5.6 5.1 5.5 5.8 5.2 5.1 n.a. n.a. n.a. n.a.
Taita/Naenae 6.1 6.2 6.5 6.8 6.9 7.1 n.a. n.a. n.a. n.a.
Wainuiomata 6.3 7.0 7.2 7.7 7.7 7.7 n.a. n.a. n.a. n.a.
                     
Wellington:                  
 
Johnsonville/Newlands 4.8 4.8 5.2 5.5 5.4 5.6 5.8 5.6 5.5
6.2
Vogeltown/Berhampore/Newtown 4.1 4.6 4.9 5.4 5.2 5.5 5.1 5.5 5.2
5.6
                   
 
Tasman:                  
 
Motueka 4.0 4.7 5.3 5.2 5.4 5.3 5.3 5.5 5.6
5.5
Richmond/Wakefield/Brightwater 4.6 4.8 5.3 5.3 5.3 5.5 5.6 5.6 5.8
5.9
                     
Nelson: Stoke/Nayland/Tahunanui 5.1 5.2 5.3 5.5 5.7 5.8 5.9 5.7 5.7
6.0
                     
Blenheim 6.3 6.5 6.5 7.0 7.0 6.4 6.5 6.5 6.6
6.5
                   
 
Christchurch:                  
 
Hornby/Islington/Hei Hei 5.7 6.1 6.1 6.0 6.0 6.2 6.2 6.3 6.5
6.3
Riccarton 5.2 5.5 5.0 5.7 5.0 4.9 5.9 5.2 4.9
5.1
Woolston/Opawa 6.5 6.6 7.4 6.3 6.4 6.6 6.8 7.3 7.2
8.0
                     
Ashburton 8.4 6.3 6.1 6.2 7.0 6.9 7.0 6.8 6.7
7.2
                   
 
Timaru 5.9 6.1 6.4 6.5 6.4 6.2 6.6 6.8 6.7
6.3
                   
 
Queenstown/Frankton/Arrowtown 4.1 4.5 4.3 4.6 5.2 5.0 4.8 4.9 4.7
5.3
                   
 
Dunedin:                    
Kenmure/Mornington 6.5 6.3 6.7 7.9 7.1 6.6 n.a. n.a. n.a. n.a.
Mosgiel 5.7 5.7 5.7 6.4 6.4 6.1 n.a. n.a. n.a. n.a.
South Dunedin/St Kilda 7.5 8.1 7.4 7.2 8.0 8.2 n.a. n.a. n.a. n.a.
                     
Invercargill 7.9 8.3 8.4 8.7 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, and are calculated from the REINZ's lower quartile selling price for each area during the previous 6 months, and the median rent for three bedroom houses calculated from new tenancy bonds received by the Ministry of Business Innovation and Employment for the same areas/period.

 

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38 Comments

I have family members in the "Otara of the North Shore" (Beachhaven / Birkdale postcode). Highly underrated area, but I wonder how the low-income tenants in the area can afford to live there, even in the many rundown houses that sell for eye watering prices.

Yes I very much agree with you JC; Look at those tiny yields, just goes to show how the massive rise in property prices has make Landlords very dependent on capital gain, sadly that can't continue. There's too much of a disconnect between house prices, rents and wages. Even for Auckland.

If this continues, industry will be squeezed out completely and there will be one hell of a crash. You can only push people so far on rents until the move back home with their Parents or abroad to Oz or else where in the world.

I tend to think of it more from a price-to-value POV, but that's just me. I don't think like the typical home owner or property investor in Auckland.

From what I heard, a lot of first home buyers are buying in the affordable parts. The coastal houses are all in the millions, so that is probably skewing those figures. I think the ‘O’ badge for the area is well gone.

So it's now the "Howick of the North Shore" (in terms of prices 6-8 years ago or something). Those coastal properties have probably been among the best buys in Auckland.

I agree with you, the views and sunsetting on the water is stunning, undervalued for a long time. I wish I had bought one 5-10 year ago. I have good friend who managed to buy a water front place there a fews years ago. I'd hate to think how much it's worth now.

So how much is the view of the water worth?

As much as someone is willing to pay:)

they cant they have all been pushed out except in the hnz areas

Really? Where have they gone?

I would advise not putting up your rent if you have good tenants if you want to keep them. The property market is very unstable at the moment until there's a price correction. I've heard so many recent cases of Landlords increasing rent that has caused their tenants to leave or start to default on payments.

Price correction ?

Yes you know when you push tenants too hard on rent and they either; leave, start defaulting on rent payments and then turn your home in to a P lab.

I can see why P is almost impossible to eradicate. The ROI is exceptionally good, particularly for paying overheads like rent.

I have raised one of my 2-bed rentals from $450 to $550 /week in the last 2 years. We have had the same tenants for many years and they've still signed up for another 2 years recently despite the raise.

so you increased their rent by 22% when inflation is 1% how do you justify that?
I'm afraid stories like that will lead to future governments bringing in measures to curb landlords and favour tenants.

Something that needs done anyway.

It's market rent.......end of the day it's a business. Do you ask your airline the same thing when you need to fly out? How do you justify the price when there is demand?

No, but if airlines charge stupidly high prices for flights, then no one will purchase them and they will lose customers and revenue.

Eh, doesn't take a lot of P to fund that extra wee bit of rent.

Good luck to you when your tenants start making P so as to cover the rent.

The operative words are "gross yield"
Gross rent doesn't mean diddely-squat.
It's "NET" yields that matter. and nothing else is relevant. .
With higher interest rates, higher rates, higher levies, higher repair bills and higher insurance premiums, not to mention the vacancy factor and trash tenants the NET yields still hover around 1-2%. based on a property's current value.
The highest gross yield areas tend to have have the lowest capital gain.

That's net yield before interest....meaning a true yield of well below zero for any investor with finance.

Ahhh...OK. How do you estimate the net yield as a blanket 1-2%? Secondly, it is widely considered that yield is an indicator of value. Doesn't the fact that high yield is associated with lower capital gain suggest that yield is a benign metric to estimate value?

Very interesting perspective, got me thinking. I would have said high yield is also associated with higher risk and people are more likely to spend more money for a lower risk. However yields aren't even close to compensating for risk levels in high or low value rentals at the moment (low interest rate environment i guess). So are high value homes really lower risk per dollar, when risk of a housing down turn is considered?

BigDaddy,

Precisely.Gross yield is irrelevant. I see rates and Insurance rising well above inflation and this year,they will account for some 25% of gross rent. Of course,with the property being in Mt. Maunganui,I will on paper have made a substantial and tax-free gain,but to me,that is not relevant.

So rental yields in Auckland suburbs shown above have increased ~0.1% during the past quarter whereas interest costs have increased ~0.25 to ~0.5%+. So much for rents being increased to absorb interest rate increases.

It's still a bubble floating along looking for a pin....

...for a pin.

Between now and April 2018 about 200,000 new apartments are going to be opening across the Sydney-Melbourne-Brisbane markets.

Isn’t this article just a round about way of saying Auckland house prices are dropping slightly without actually saying Auckland house prices are dropping slightly because it scares too many people to say Auckland house prices are dropping slightly?

Home ownership rates are 53-55 percent in Auckland and declining, 'investors' are rampant, yet the survey uses the lower quartile selling price . Why?

Because investors typically tend to buy at the lower price end of the market ie, around the lower quartile price.

'Around the lower quartile price' suggests any deviation from this value would distort the yields. When 'investors' are buying upwards of 45 percent of all sales and home ownership rates are falling there is nothing typical ,nor is there mathematical reasoning that investors tend only to buy at the lower price end. Using this logic first home buyers must buy at the median price or above, yet affordability measures consistently use the lower quartile to assess their plight.

Which, if I am reading you right, makes housing even more unaffordable for fhb's. Boy, do things need changing in the housing world.

I am really looking forward to reading Labour's housing policy for the forthcoming election , if they come up with a practical , workable, affordable and sensible housing policy , I will be voting for them .

You see we have two of our children and their partners in their 20's and they will never own a home in Auckland at this rate , even with our help .

I was 21 when I bought my first property , they will be lucky to buy in their 40's at this rate

Labour are talking about bringing in the people to build the houses that the country needs.
That means the tax payer pays for the houses and we need even more houses because we bought in another bunch of people.
Meanwhile our export earnings have dropped and the country needs 100 billion dollars spent on infrastructure to support the already enlarged population.
The population growth ponzi scheme is making some of us rich while robbing the younger generation and working class wage earners of their rightful inheritance of being able to work hard and own a home in their own country.
I'm glad I'm in on the ponzi and glad that when I vote this year I will vote with my conscience, not with my greed.

Well said Northland Hippy - me too..will be the first time I haven't voted Blue in a long time.

As a teenager I used to love the 80's movie "Wall St" - you know....Gordon Gecko "greed is good" - well I sure regret that attitude now.

I can no longer abide to see an entire generation of NZ Born citizens screwed by the greedy, whose only genius was they were born at the right time.

For me its akin to war time profiteering - making money out of a necessity of life (shelter) which is morally reprehensible to me.

I've ended longtime friendships due to it - I can no stand the barely containable glee from those making hay from doing nothing but use massively increased UNEARNED equity and leverage to make huge money and the arrogance then to call those who can no longer afford to buy a house "losers"....it's disgusting.

I got free Uni, Health Care and bought my first nice house in AKL for a little over 2 x income.

My 3 young kids and many many others don't have a chance of these benefits and even though I'm doing ok will struggle to help them that much now. I fear they will all move to AUS eventually...

As they say - "when good men do nothing...

Cant help but think we've lost our way as a nation.

Yes mvgsmf we certainly have lost our way as a nation.
Our children and grandchildren won't feel any loyalty to our country and in truth probably don't owe it any.
Our immigrants are even less likely to feel loyalty to their new country. They move here looking for opportunity, not loyalty.
I recently had a conversation at a family BBQ with an immigrant who was accompanied by his parents who spoke no english. He was a bright young man studying at Auckland university. He stated that once he was qualified he would head overseas to earn good money and that his parents were all good as they now had residency. His matter of frankness was a bit chilling.
I thought wow! What a bargain, we get to look after his oldies and he gets out of Dodge.
I admit, I don't know their big picture, maybe they have been an asset to our economy and community.
But yeah, back to your point. The population growth is feeding the inflated house prices by creating the housing shortage. We need a government that stops the population growth and stops the overseas investment in our land and housing, It will throw our economy into recession and force a correction in house prices as the new builds catch up to demand. Who else will vote for this?

Maybe not everyone knows that when capitalisation (yield rates) rise , the prices come down