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Cooling house prices and rising yields in many areas are slowly changing the landscape for residential property investors

Cooling house prices and rising yields in many areas are slowly changing the landscape for residential property investors
The property market is slowly changing course.

By Greg Ninness

There are signs the residential investment property market is slowly cooling, according to's Rental Yield Indicator.

The Indicator tracks the gross rental yields (a property's annual rental income expressed as a percentage of its purchase price) that would be achieved if an investor bought a three bedroom house at the REINZ's lower quartile selling price for such properties, in 56 locations around the country where there is a high level of rental activity, and rented it at the median rent for three bedroom houses in the same location.

That gives a standardised indication of the relative state of the rental market in different locations around the country, with rising yields suggesting rents are rising relative to property prices (improving rental income returns) while declining yields suggest prices are rising relative to rents (reducing rental income returns).

In the six months to December last year, the REINZ's lower quartile price for three bedroom houses rose in 36 of the 56 locations monitored by the Indicator compared to the six months to September, declined in 19 and was unchanged in one.

Median rents for three bedroom houses over the same period rose in 29 locations, declined in five and were unchanged in 22.

The effect of those movements meant gross rental yields rose in 19 locations, declined in 26 and were unchanged in 11.

The key to interpreting those figures lies in how they compare with the figures for the six months to September last year.

In the six months to September, lower quartile prices were stronger, rising in 41 locations, declining in 14 and remaining unchanged in one.

So in the six months to December, the number of locations where prices rose declined from 41 to 36, while the number of locations where prices declined increased from 14 to 19.

On the rent front, in the six months to September rents rose in 36 locations, declined in eight and were unchanged in in 12.

That meant the number of locations where rents rose dropped from 36 in the six months to September to 29 in the six months to December, while locations where rents declined dropped from 23 to five, and locations where rents were unchanged increased from 12 to 22.

Overall, those figures suggest a cooling market, both in terms of prices and rental growth.

The lower growth in rents is particularly significant because rents are generally more likely to rise over the summer months than in winter, so the weaker rental growth evident in the December figures adds further weight to the suggestion that rental growth is easing.

Approaching the apex of its curve?

However while the figures suggest the market is cooling, it is doing so slowly.

In the absence of major economic shocks or any substantial changes in interest rates, the residential property market is a bit like a huge oil tanker - it has so much momentum that it takes a long time to turn around.

The latest yield figures, with 26 locations posting rises, 19 posting declines and 11 posting no change, suggest the tanker may be approaching the apex of its curve.

And as it does so, it is slowing.

The Auckland market may have already started to reverse course, with lower quartile prices declining in six of the 10 suburbs monitored by the Indicator in the six months to December compared to the six months to September, while rents rose in five, declined i n two and were unchanged in three.

That meant yields rose in four of the 10 suburbs, declined in one and were unchanged in five, suggesting the Auckland market is slowly cooling.

Around the country there are still a few hot spots where yields continue to fall, suggesting prices in those areas are rising relative to rents.

These include the Waikato, Rotorua, Whanganui, Kapiti Coast, Nelson, Blenheim, Christchurch, Queenstown, Dunedin and Invercargill.

Areas where yields are rising, suggesting a softer property market, include Auckland, Hawke's Bay, Taranaki, the Wellington region except Kapiti, and Timaru.

The table below shows the yield trends in all 56 locations monitored by the Rental Yield Indicator.

Indicative gross rental yields for three bedroom houses in 56 selected areas with high rental activity during the previous six months. Based on REINZ lower quartile selling prices and median rents recorded by Tenancy Services' Bonds Centre in each area over the previous six months.
  Indicative gross rental yields for the six months ending:
Town/region Yield % Dec 2018 Yield % Sept 2018 Yield % June 2018

Yield %  March 2018

Yield %  Dec 2017 Yield % Sept 2017 Yield %
June 2017
Yield % March 2017 Yield %   Dec 2016 Yield %  Sept 2016 Yield % June 2016 Yield % March 2016 Yield %
Dec 2015
Yield %
Sept 2015
Yield %
June 2015
Yield %
March 2015
Yield %
Dec 2014
Yield % 
Sept 2014
Kamo/Tikipunga/Kensington 5.5 5.5 5.5 5.4 5.5 5.3 5.5 5.4 5.4 5.9 6.1 6.0 5.6 7.1 6.5 6.9 7.6
Rodney - Orewa/Whangaparaoa 4.1 3.9 4.0 4.0 4.0 4.0 4.0 4.0 3.8 3.9 4.1 4.1 4.1 4.3 4.5 4.5 4.6
North Shore:                                  
Beach Haven/Birkdale 3.8 3.9 3.9 3.8 3.8 4.0 3.8 3.7 3.7 3.7 3.7 3.9 3.8 3.9 4.0 4.3 4.3
Torbay 3.9 3.9 3.7 3.7 3.6 3.6 3.6 3.7 3.6 3.4 3.6 3.8 3.6 3.8 4.0 4.5 4.6
Glen Eden 4.1 4.1 3.9 3.8 3.9 3.9 3.9 4.0 3.8 3.7 3.9 4.0 4.0 4.1 4.3 4.6 4.9
Massey/Royal Heights 4.0 4.0 4.2 4.2 3.9 3.9 3.8 4.0 3.9 3.8 4.1 4.1 4.0 4.1 4.4 4.6 4.9
Henderson 4.2 4.1 4.1 4.2 4.1 4.1 4.0 3.9 3.8 3.8 3.8 4.1 4.1 4.1 4.4 4.7 4.9
Central Auckland:                                  
Avondale 3.9 4.1 4.0 3.7 3.6 3.6 3.5 3.6 3.6 3.7 3.6 3.7 3.7 3.9 4.1 4.2 4.4
Highland Park 3.3 3.3 3.6 3.7 3.6 3.8 3.6 3.5 3.5 3.4 3.3 3.3 3.6 3.6 3.8 3.8 4.1
Papakura/Drury/Karaka 5.0 4.9 4.7 4.6 4.7 4.7 4.3 4.3 4.4 4.4 4.7 4.8 4.8 4.9 5.5 5.6 5.9
Franklin - Pukekohe/Tuakau 4.6 4.5 4.6 4.7 4.7 4.8 4.8 4.6 4.4 4.3 4.5 4.9 5.0 5.0 5.3 5.5 5.6
Deanwell/Melville/Fitzroy 4.9 5.1 5.1 5.1 4.9 4.8 4.8 4.8 5.0 5.1 5.4 5.3 5.5 6.2 6.8 6.9 6.9
Fairfield/Fairview Downs 4.4 4.8 4.7 4.6 4.6 4.5 4.5 4.9 4.8 4.8 5.1 5.4 5.7 6.0 6.8 6.7 6.2
Te Kowhai/St Andrews/Queenswood 4.7 4.7 4.7 4.7 4.6 4.6 4.5 4.4 4.3 4.6 4.7 4.7 4.9 5.3 5.4 5.4 5.6
Cambridge/Leamington 4.5 4.6 4.6 4.3 4.2 4.4 4.4 4.6 4.6 4.7 4.8 5.2 5.3 5.2 5.5 5.5 5.6
Te Awamutu 4.9 5.1 5.0 4.9 5.1 5.0 5.1 5.0 5.1 5.2 5.2 5.7 6.2 6.3 6.5 6.2 6.3
Tauranga Central/Greerton 5.1 4.9 4.8 4.7 4.8 5.1 4.7 4.6 4.4 4.3 3.7 5.2 5.2 5.6 6.0 6.1 5.9
Bethlehem/Otumoetai 4.0 4.2 4.2 4.3 4.3 4.1 4.0 4.1 3.7 4.2 4.2 4.6 4.8 4.8 4.5 4.8 5.3
Mt Maunganui 4.5 4.6 4.6 4.4 4.2 4.3 4.4 4.4 4.2 4.2 4.4 4.8 4.6 4.7 5.4 5.7 5.6
Pyes Pa/Welcome Bay 4.7 4.5 4.6 4.4 4.6 4.7 4.3 4.8 4.8 4.9 4.8 5.4 5.5 5.3 5.9 5.7 5.7
Kaimai/Te Puke 5.1 5.1 4.8 4.9 5.5 5.0 4.9 5.3 5.4 5.5 5.6 5.8 5.9 6.2 6.4 6.2 6.2
Whakatane 5.9 5.8 6.1 6.3 6.0 6.1 6.0 6.1 5.8 6.5 6.6 6.4 7.1 7.3 6.7 6.3 6.7
Holdens Bay/Owhata/Ngapuna 6.3 7.0 7.8 7.8 7.4 9.3 10.5 8.0 9.7 10.7 9.4 8.7 8.3 8.7 n.a. n.a. n.a. n.a.
Kuirau/Hillcrest/Glenholm 4.9 5.5 5.4 5.8 4.9 5.6 5.5 4.9 7.3 7.5 6.4 5.9 6.3 6.6 n.a. n.a. n.a. n.a.
Ngongotaha/Pleasant Heights/Koutu 6.5 6.7 6.0 6.7 7.6 8.5 6.2 8.6 8.2 7.2 7.9 7.7 8.0 8.2 n.a. n.a. n.a. n.a.
Hastings - Flaxmere 8.3 8.4 9.2 9.6 9.8 9.9 9.3 8.9 8.6 9.4 9.3 10.9 11.5 11.0 12.1 12.2 11.7
Napier - Taradale 5.1 4.9 4.7 4.6 4.4 4.4 4.9 5.0 4.9 5.1 5.5 5.4 5.6 5.5 5.3 6.2 6.3
New Plymouth Central/Moturoa 5.1 4.6 4.8 4.6 4.7 5.4 4.9 4.7 5.3 5.1 5.4 5.8 5.4 5.5 n.a. n.a. n.a. n.a.
Waitara/Inglewood 7.4 6.6 6.5 6.4 6.1 6.0 7.2 8.1 7.0 7.7 7.7 8.8 8.9 8.0 n.a. n.a. n.a. n.a.
Whanganui 8.2 8.5 9.0 9.0 8.9 8.7 8.6 9.1 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 5.7 5.9 6.2 6.3 6.5 6.3 6.5 6.6 6.6 7.0 7.3 7.4 7.2 7.2 n.a. n.a. n.a. n.a.
Palmerston North Central 5.2 5.1 5.1 5.0 4.9 5.5 6.0 5.9 5.6 6.5 6.3 5.6 5.5 6.2 n.a. n.a. n.a. n.a.
Takaro/Cloverlea/Milson 5.7 5.8 6.1 6.0 5.9 6.2 6.2 6.1 6.3 6.7 6.8 7.2 7.1 7.3 n.a. n.a. n.a. n.a.
Kapiti Coast:                                  
Paraparaumu/Raumati 4.8 5.2 5.0 4.9 5.0 5.0 4.9 4.8 5.3 5.6 5.7 5.9 6.0 6.1 6.2 6.1 6.1
Waikanae/Otaki 4.4 4.5 4.5 5.4 5.2 4.7 4.7 5.2 5.5 5.8 5.8 5.9 6.5 6.8 6.6 6.7 5.5
Upper Hutt:                                    
Heretaunga/Silverstream 5.0 4.9 4.9 4.8 5.0 5.4 4.7 4.7 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 5.3 5.6 5.6 5.6 5.6 5.7 5.8 5.8 5.2 5.7 6.2 6.3 6.2 6.8 n.a. n.a. n.a. n.a.
Lower Hutt:                                    
Epuni/Avalon 5.1 4.5 4.7 5.0 4.5 4.8 4.9 5.1 5.6 5.1 5.5 5.8 5.2 5.1 n.a. n.a. n.a. n.a.
Taita/Naenae 5.5 5.4 5.5 5.7 5.9 5.5 5.6 5.8 6.1 6.2 6.5 6.8 6.9 7.1 n.a. n.a. n.a. n.a.
Wainuiomata 5.5 5.3 5.6 5.6 5.6 5.7 5.9 5.9 6.3 7.0 7.2 7.7 7.7 7.7 n.a. n.a. n.a. n.a.
Johnsonville/Newlands 5.1 5.0 4.9 4.9 4.6 5.0 5.0 4.9 4.8 4.8 5.2 5.5 5.4 5.6 5.8 5.6 5.5
Vogeltown/Berhampore/Newtown 4.4 4.3 5.0 4.9 4.3 4.5 4.5 4.2 4.1 4.6 4.9 5.4 5.2 5.5 5.1 5.5 5.2
Motueka 4.4 4.3 4.2 4.2 4.5 5.0 4.4 4.0 4.0 4.7 5.3 5.2 5.4 5.3 5.3 5.5 5.6
Richmond/Wakefield/Brightwater 4.3 4.3 4.5 4.5 4.6 4.8 4.6 4.7 4.6 4.8 5.3 5.3 5.3 5.5 5.6 5.6 5.8
Nelson - Stoke/Nayland/Tahunanui 4.5 4.7 4.8 4.9 4.9 4.8 5.0 5.1 5.1 5.2 5.3 5.5 5.7 5.8 5.9 5.7 5.7
Blenheim 5.3 5.4 5.7 5.6 5.5 5.7 5.6 5.8 6.3 6.5 6.5 7.0 7.0 6.4 6.5 6.5 6.6
Hornby/Islington/Hei Hei 5.8 6.0 5.9 5.7 5.8 5.6 5.6 5.6 5.7 6.1 6.1 6.0 6.0 6.2 6.2 6.3 6.5
Riccarton 5.1 5.6 5.6 5.2 5.7 5.1 4.7 5.0 5.2 5.5 5.0 5.7 5.0 4.9 5.9 5.2 4.9
Woolston/Opawa 7.1 7.2 7.4 7.8 6.7 6.2 6.0 6.2 6.5 6.6 7.4 6.3 6.4 6.6 6.8 7.3 7.2
Ashburton 6.3 6.3 5.2 5.3 5.8 6.3 7.0 8.3 8.4 6.3 6.1 6.2 7.0 6.9 7.0 6.8 6.7
Timaru 6.1 5.8 5.6 5.8 6.2 6.0 5.7 6.0 5.9 6.1 6.4 6.5 6.4 6.2 6.6 6.8 6.7
Queenstown/Frankton/Arrowtown 4.1 4.3 4.2 4.2 4.3 4.4 4.6 4.3 4.1 4.5 4.3 4.6 5.2 5.0 4.8 4.9 4.7
Kenmure/Mornington 5.5 5.7 6.2 5.9 5.4 5.8 6.3 7.5 6.5 6.3 6.7 7.9 7.1 6.6 n.a. n.a. n.a. n.a.
Mosgiel 5.3 5.5 5.8 5.6 5.4 5.4 5.4 5.5 5.7 5.7 5.7 6.4 6.4 6.1 n.a. n.a. n.a. n.a.
South Dunedin/St Kilda 6.4 6.8 7.3 7.6 7.6 8.6 8.0 7.9 7.5 8.1 7.4 7.2 8.0 8.2 n.a. n.a. n.a. n.a.
Invercargill 7.7 8.3 8.2 7.9 7.9 8.9 8.3 8.3 7.9 8.3 8.4 8.7 9.1 9.0 6.7 9.0 9.2

Source: Base data from REINZ / MBIE

*Yield is a property's annual rent expressed as a percentage of its purchase price. The indicative yield figures in this table are gross, and are calculated from the REINZ's lower quartile selling price for three bedroom houses in 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. This gives an indication of the gross rental yield that would have been achieved in each area if a three bedroom house was purchased at the lower quarter price and rented at the median rent for that area.

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I think the traditional property investor is a dying breed:
- Yields too low to make a cashflow profit
- Becoming unable to offset the cashflow losses against other income
- No capital gain
- A comprehensive Capital Gains Tax in the unlikely event of a future capital gain
- Higher compliance costs
- Upcoming more favourable tenancy terms for tenants
The question then becomes, who will provide rental accommodation to tenants in the future? Yes some tenants may become owners but there will still and always be renters, so who provides them with rental houses? I suppose the government will have to, meaning working people will pay for it through more income taxes


"who will provide rental accommodation to tenants in the future?" Private landlords will, just as they do today. But without all today's frills, the entry cost will be lower and all the maths you outline above will make economic sense - as they used to as recently as 20 years ago.

There is nothing wrong with private landlords, as such, or speculators, as long as they stand on their own economic feet - entirely. Where we got off track was to convince our people's that 'property was THE way to wealth,' and not actually working for it. And, no, owning property for capital gains purposes isn't 'working for it'.

bw, very well said.

Agreed - as the service is needed the market will adjust to provide it. House prices falling by a decent amount in the more expensive areas would soon make things attractive again, as would rising rents.

There is nothing wrong with private landlords, as such, or speculators, as long as they stand on their own economic feet - entirely. Where we got off track was to convince our people's that 'property was THE way to wealth,' and not actually working for it. And, no, owning property for capital gains purposes isn't 'working for it'.

Right, essentially being a landlord is "service provisions" (a business) as opposed to "an investment". I'm not saying that they're mutually exclusive, but as we know, any business worth its salt has grown its "value", which is usually measured by its ability to generate income. The idea that "buying a rental" is a surefire way to extracting capital gains through whatever loopy idea someone might tell you (for ex, growth in money suppy) has very little to do with the fundamental nature of letting property as a business.

Now, what I have just pointed out could be wrong, but if it is, then we're simply looking at what I look to call "neo-serfdom". However, I also see a problem with this rentier economic model because there are too many NZers as landowners trying to extract rent from a high proportion of non-land-owning, low-income-generating NZers. I'm sorry but the idea of "majority of NZers as landlord" doesn't rub, unless there is high immigration. But there's another problem: these immigrants need jobs to drive income to pay the landowners. The more immigrants, the greater the downward pressure on wages, which means that the landowners' ability to extract income from rent, etc is limited.

bw, are you not a politician by any chance, you've got lovely ideologies, but little clue on the realities of the world and you appeal to the ignorant masses (see number of thumbs up). Was it you who came up with the lovely idea of building 100'000 affordable houses?

Hi Yvil

bw can't be a politician because he understands the link between credit growth and GDP growth.... or debt based GDP growth for the layman... No chance he's a politician... The politicians have no clue - apart from John...who rode the camel away from water until its legs started to buckle a bit, so he got off.


you appeal to the ignorant masses (see number of thumbs up)

Yvil thinking he is smarter than your average bear - that's the funniest thing I've heard today.

Yvil, the votes are in. Members find there are few things more repulsive than a Landlord convinced he/she has become "indispensable"

Never understood why anyone would want the hassle and headache of being an amateur landlord... Dealing with tenants, repairs, expenses, etc. If you absolutely must own real estate (and why???) just buy a REIT. Duh?

@Yvil, how about serving the greater good of humanities? Think of it as a first class ticket to the pearly gates..

Haha or prices correct to a point that yield actually makes it a justifiable for the effort? But that will never happen aye...?


Morning all

Has anyone else noticed how Trademe's 'Property insights' tab has disappeared since the collapse began in December. All that wonderful information about previous sales history and estimates that were provided on new Listings has now evaporated into the ether. How convenient! I wonder if the real estate industry and banks have had any influence here?

Even in are not able to find history of houses which are listed and are only able to see the listing agents details and their describtion.

Information is only available in QV website as of now.

just 3 months since the ban and few weeks since the introduction of money laundering act and the situation has changed. What will happen after first qaurter of 2019 - Wait and Watch


1/14 Cormack Street, Mount Roskill. Shows listing agents, last two sales (2012 & 2016) etc.
30-2 Akehurst Avenue, New Lynn, shows a 2014 sale.

Hi Pragmatist

When were they listed? This appears to be a recent adjustment to me (looks like mid December to me) that Trademe have switched off a buyers ability to easilly get information.


Not talking about trademe, replying to the comment about

Fair enough
Be interesting to see what do. Trademe have turned off the facility for quickly getting sold price history from 'property insights' on new listings, along with their estimate of value.

Buyer beware is my view on all this, particularly now that access to information is being hidden/being made very difficult to find easily.

It's still available but you have to search for it now -

Cheers Shock.

Found it,

What's your view. Does this make it easier or more difficult for the consumer? be keen to get your opinion. By consumer I mean buyers, rather than the advertisers who pay to list. have you tried to get to it from a hand held device?

Hi Greg

Have we got any auctions to report on yet this year? I am missing the weekly update on B & T's auction data and clearance rates..


No reporting here on the annual Demographia Internal Housing Affordability Survey yet either. Why?

Agencies generally kick off their new year marketing campaigns from mid-January onwards, with most of the auctions starting from early February onwards. Numbers are starting to build and we are posting individual results on our results page as they come to hand.

Established professionaL landlords who are positively geared and always paid tax on profits are going to do very well under the Coalition of Loser government that we have till next year!
The negatively geared ones will want to bail out which leaves great opportunity for the remaining ones!
Yes there is going to be major pressure on this government to deliver what they have promised, but we all know that they won’t and they will be voted out big time next election and will go down in NZ history as the most incompetent Govt. We have ever had, bar none!


Cool story bro.


I predict the earliest they will be voted out is after 2026.

Chairman they are totally incompetent!
Nothing they have done has been productive for the country!
Our so-called Prime Minister has actually stated she hates the politics of being in government!!
Go figure????

She got over 30,000 likes on her Instagram this morning and no negative comments.. You might have to switch your social media account.

"Nothing they have done has been productive for the country!"

Should have been..Nothing they have done has been productive for the Speculators and foreign Citizens !

Only if we ignore the previous government.....

I'm confused, you're either saying you actually like the colalition or you're a professional....are these mutually exclusive positions?

Why confused?
I don’t like the government one iota as to the harm they are doing to the country!
We personally are not being affected negatively but many are!
They are gone you only need to read the negative comments being posted currently, even some I have spoken to that voted Labour are appalled at how useless they are!

Dis u D Trump?

Please list the harm they are doing the country. And define what you mean by harm....

We should totally just abolish all accommodation supplement welfare payments for a year and see who hurts the most. The tenants or the landlords.

Food is a higher priority than shelter so if the average kiwi can't afford to live without government assistance, they'll drop rental payments before they do eating food. So ultimately it will be the darklords who lose out as they will default with the banks.

You're dreaming. The only way they are gone is if the Nats suddenly find a decent coalition partner, or they bring in first past the post...can't see either of those happening in a hurry! Like Chairman Moa says above, we've likely got three terms with the present lot, which some of us don't like the sound of, but it is what it is.

Your usual rant - perhaps you should eat humble pie like another critic

The sky hasn't fallen - and I doubt it will - but I doubt that will stop you ranting.

What about these business people - they seem to have abandoned apartment plans in Christchurch -

... and they would be described as savvy business people. So even they don't get it right.

When private business people get things wrong, they, (and if it's bad enough) their shareholders, creditors and others get to carry the can. But we as taxpayers don't.

Now if Gubmint fumbles the pass, we all get to pay, and those responsible (if they can be located, needle, haystack) get to carry on putting butter on fingers.

Spot the difference?

Not really - they (politicians) can be voted out - taxpayers are just shareholders of NZ. The distinction has little to do with "business reality" and more to do with partisanship (and company's generally don't change directors wholesale at the whim of shareholders).

People currently are paying for the fumbles of the last couple of governments. In the form of highly unaffordable housing costs that are having wide negative effects.

When can we vote on RBNZ policy of the past 10 years?

If the great reset hasn't happened by the next election there is no way the Nat's are getting back in. If it happens this year then they have a chance. There are more people interested in that outcomes than speculating on debt and asset appreciation.

Headwinds include prices fading, Aussie prices train wreck, tax treatment changing, new laws favoring tenants, changes to minimum quality (insulation etc), and lots of comment that rates must move back to longs term numbers at some stage. Add in Trump doing his thing, hard Brexit increasingly likely, China having problems, corporate global profit shifting in focus, you would have to say exiting all debt is probably the best thing you can do at the moment. If you have some left put it under your mattress.

Some just take time to work that out than others.

At 4% yeild and no capital gains I’m sure they will.

Bad Robot, business people have pulled,out of building apartments because the demand for them is not there, for the prices they want for them.
Economic sense to pull out!

But they must have thought there was a market in the first place for them to even begin (or was it just wishful thinking) - point is even "savvy" business people get things "wrong".

Robot, there are always people that pay over the top for property, and the developer thought that there would be enough suckers to cough up the big mo ey!
The thing is that you can live anywhere in Christchurch and it doesn’t normally take that long to get where you want to, unless it is peak hour traffic!
You can own a far better property for far less than an apartment and that is what most ChCh people want!
It is not overpriced Auckland where people up there beleive that they can bring up a family in an apartment or the shoebox KiwiBore so-called homes in McLennan Park!
Reality is that lifestyle and opportunities are present in ChCh.

What has this latest missive got to do with the argument - sounds like you are trying to change the topic.

Yields had to rise , they could not carry on with negative gearing as they were doing

You stated that you thought that business people thought there must’ve been a market in the first place!
Yes of course they thought that, but often developers bet it wrong and go broke, so good on them for pulling the plug on it.
So Mike Hoskings is voicing his opinion for more immigrants, is anyone paying attention to him?

Its going to be interesting if landlords start heading for the exits. Them selling over a period of time is not going to help the renters when the rental stock starts dropping and rents start increasing. I wouldn't plan on the exit resulting in a huge market crash so that suddenly renters can buy either. Who is going to fill the void ?

Another adherent to the magical disappearing rental house religion I see.

@Pragmatist , you really dont understand the dynamics of this issue do you ?

Firstly , there will always be renters who will never afford to own a home because its simply too expensive

Secondly, due to immigration , we will have 5, 000, 000 New Zealand residents by November and a housing shortage to match , as each of those skilled migrants with jobs ( and often Capital ) will be looking for a home and will likely displace a tenant

And lastly , when you displace a tenant with someone like one of my adult children buying a home (and are still at home and saving ) those former tenants are now house -hunting for a place to rent , it creates a shortage at the bottom of the social ladder.

"Housing shortage to match" Show me the 30,000 people living in cars/on the streets.

Exactly Boatman, what you end up with is Kiwi kids who cannot find a high paying job living at home into their 30's. Its already happening. If this government kicks current landlords in the head too hard and they just quit, its going to get ugly for renters.

In respect of Auckland property buyers who bought for a buy and hold investment

The interest only loans that were originated in Jan 2014 are coming up to the end of their 5 year interest only period. Those property investors who utilised interest only financing terms may have difficulty refinancing into another interest only loan at their existing bank due to more onerous debt servicing criteria being applied now than when the loan was originated.

1) Some will most likely look to refinance at the non bank lenders on interest only loans terms. They will experience an increase in payments due to higher interest rates charged by non bank lenders. Also the non bank lenders have a much smaller lending capacity than the banks, so not all borrowers may be able to refinance with non bank lenders.
2) Others will be unable to refinance and will need to go onto P&I terms at their bank. The increase in payments are likely to be higher by about 30-40%. This may mean that the investment property goes from being cashflow positive to cashflow negative (or from cashflow negative to even more cashflow negative) and that the property investor will need to make contributions. That could result in some cashflow pressure on the property investor. In an environment of flat to falling property prices, and a lack of capital gains expected, this could result in the property investor choosing to sell their investment property to realise capital gains.

The interest only maturity wall is no where near the end. Recall that the fear of missing out by property investors at auctions and the high property prices being paid going well into 2016 / 2017 - these property purchases financed by interest only loans are coming to the end of their 5 year maturity period from 2021 / 2022.

Between Jan 2014 and April 2017, there were 92,744 property transactions in Auckland. There were reports that property investors purchased up to 40% in some months. Some of these purchases may have been made by property renovators / property developers (subdivide and add another dwelling(s) on a large section), and subsequently resold. Even if only 10% of these transactions were purchased by buy and hold property investors on interest only terms, then that is potentially 9,244 properties that could be potentially listed for sale.

There was an investor who owned a property investment in Auckland - they purchased the property in early 2016, using 100% finance on an interest only basis (using those 'equity release' / ' deposit recycling' financing strategies that some property mentors were recommending). They were negatively geared, and it was costing them about $100 per week as the interest cost more than absorbed all the net rentals (after operating costs such as rates, insurance). Their loan was becoming a P&I loan where the total cash that they would need to pay to maintain ownership of the property would increase from $100 per week to $350 per week. They were talking about changing their lifestyle to cut costs or they were considering selling. How many other property investors are in a similar situation? If there are many, that could result in a demand / supply imbalance in the property market.

Nice long story CN, but it's just totally untrue that investors cannot renew interest only loans. I renew several every year on Interest Only no problem whatsoever.

It's a real problem when posters on this site just don't know what they talk about and make up fake stories

Hi Yvil

Have you read any of Gareth Vaughan's posts on banks capital adequacy and ratios of capital to lending. They really are very informative, worth the time invested if you've got some leverage behind you.

I have a family member who owns a couple of properties in Waikato for many years. He was refused to renew his IO loan in December, he even tried to refinance a new IO loan with other banks without success.

Chairman, he is obviously financially stressed, or other Banks would take him/her with open arms!!!

Man, everyone in debt is financially stressed.

You keep acting like you're a big boy, but no matter how you frame it, the borrower is slave to the lender. Now more than ever before.

I am pretty sure it's so with him being self employed, even though his last 3 financial years income is very healthy and well into 6 figures.

Chairman Moa,

How have they solved that? Did they manage to refinance or are they now paying P&I? If so, what has happened to their household cashflow situation?

They are now doing P&I. As for family cash flow, they are doing fine just that IO allowed them to maximise the tax benefits.

Chairman Moa,

Thank you for your story. Obviously your family member is more conservatively leveraged if their household cashflow is able to sustain the higher debt service payments on P&I terms.


Thank you for sharing your experience. It certainly depends on your unique circumstances. I'm happy to be corrected if the facts above are incorrect for a large proportion of highly leveraged property investors of Auckland property.

Can you tell me:
1) are you a business or commercial borrower?
2) Is your current LVR 70% or above?
3) how many properties do you own in Auckland?
4) do you own your investment properties through various investment structures such as trusts and companies - if so do you have to give personal guarantees?

Also what loan products do you use that needs to be renewed every year? - that sounds like a one year loan or some credit facility.

Good analysis.Insightful info on the housing market

CN, most of what you stated is correct, but as Yvil states it is still possible to renew interest only loans, it depends on the borrowers circumstances!
Our Bank has just renewed several of our interest only loans and will do in the future, due to our financial position!
If they didn’t then there would be no problem refinancing with another first tier Bank who would welcome us with open arms!
However many borrowers will be under financial pressure when they need to be paying P&I.

Of course they will be some. But the general commentary is what was relevant - that many are going to be in dire straights if moved to interest only (and thus more pressure on the downward spiral of ppty values).

The Man 2,

Thank you for sharing your experience. It certainly does depend on a borrower's own circumstances.

I'm happy to be corrected if the facts above are incorrect for a large proportion of highly leveraged property investors of Auckland property.

Can you tell me:
1) are you a business or commercial borrower?
2) Is your current LVR 70% or above?
3) how many properties do you own in Auckland?
4) do you own your investment properties through various investment structures such as trusts and companies - if so do you have to give personal guarantees?
5) what loan products do you use to finance your property purchases? Do they need to be renewed every year or periodically?

If I'm not mistaken, I think you are an property investor primarily in the Christchurch area - as shown above, the rental yields there are higher than those in Auckland.

If any of you have heard of stories where bank borrowers are on interest only terms and are not able to refinance on interest only terms and are required to go onto P&I, please share your stories with the rest of us here. Two key questions to answer:

1) how did they solve the issue?
2) if they went onto P&I terms, how is that affecting the cashflow on the household?

Thank you to Chairman Moa for sharing his story.

It is easy to increase yields, just value the property less. And since valuers cannot do this without sales evidence, it means that this has to be triggered by property owners selling less than the immediate yesterday value.

And what would cause property investors to sell for less...... I wonder?

There is an inverse relationship between yields and capital growth, ie higher yield lower capital growth, or lower yield higher capital growth.

A stable property market has higher yield lower capital growth.

The magical higher yield higher capital growth is a top of the boom anomaly, with the higher yield signifying higher risk, and as the trend normally shows is then partnered by lower yield lower/negative capital growth bust. This type of cycle is typical where land is restrictively supplied through legislation, ie NZ, Aussie, Canada, California and UK.

If NZ had maintained its late 1980's Price to income ratio (PIR) which was approx 3x, then house prices would be at least 1/2 the price they are today but rents wouldn't be 1/2 the price, yet they would still be considerably lower than they are today. Purchaser pays less for property, but the yield is higher, a win for everyone.

One of the main productivity benefits of a stable property market, is that it does NOT make purchasers rush into property for FOMO reasons. This is especially important for young workers who need mobility for best job advancement and lifestyle reasons and should not lock themselves into a property too soon, which then ties them to a location that may not be the best for them in the medium term.

The mechanics to change the rules to allow less restrictive zoning and thus more affordable land is relatively easy to do, except you would upset all those with vested interests in keeping land prices high.

What the Govt. really needs is a external shock (ie not the Govt's. fault) to the lower prices so they can more easily change the legislation.

Although the last time we had a recession the Govt. wasted it.

It's definitely harder to get interest only but mainly because it's harder to get residential finance full stop. Yes it is available but bank servicing models are tougher. For instance cash flow might be fine on interest only but the latest bank debt servicing calculations are based on around 7.8% principle and interest.
If it doesn't service using that model you have no leverage to negotiate and if the bank says "we want you to start paying principle" you have no choice other than to sell.
If it does service all well and good but if you want 5 years interest only the debt servicing will be at 7.8% P & I over the remaining shorter term,
There's probably a whole lot of residential investors out there that have never known anything but continually rising values and keen bankers and they are about to find that their old model doesn't quite work so well when prices are flat to dropping.
Add in the ring fencing tax losses picked to come in this year along with everything else and it could be interesting.

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