Residential rental yields are rising in more places than they are falling as prices drop in many places and capital gains become a less significant feature of the housing market

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By Greg Ninness

The market for residential investment properties appears to be at a turning point, with gross rental yields rising in slightly more areas than they are falling in, according to interest.co.nz’s Rental Yield Indicator.

The Indicator tracks the REINZ’s lower quartile selling price for three bedroom houses in 56 locations around the country where there is a high level of rental activity, along with the median rent for newly tenanted three bedroom houses in those same areas, to get an indicative gross rental yield for three bedroom houses in each area.

That would be the gross rental return an investor would achieve if they purchased a three bedroom house at the lower quartile selling price in one of the 56 locations tracked, and rented it out at the median rent for three bedroom houses in the same area, (before allowing for costs such as mortgage interest, rates, repairs, maintenance and insurance).

That allows an apples with apples comparison of the relative attractiveness of investing in rental properties in different parts of the country, and how that changes over time.

When rental yields are rising, it means rents are increasing at a greater rate than property prices, and when yields are falling the reverse is true.

The latest Indicator figures, based on property sales and new tenancies that occurred in the six months to the end of March, show yields rose in 25 of the locations monitored around the country, fell in 21 and were unchanged in 10.

That suggests that overall, the market is reasonably well balanced between areas where rents are increasing faster than property prices, and those where property prices are increasing faster than rents.

However there has been a significant shift from the last Indicator, which was based on rents and property sales in the six months to the end of December last year.

In that Indicator, yields rose in 17 locations, declined in 28 and were unchanged in 11.

That suggests capital gains are becoming a less important feature of the market and investors would be wise to focus on potential rental growth when considering the purchase of residential investment properties.

The trend was particularly noticeable in the Auckland region, where yields rose in five of the locations monitored, declined in two and were unchanged in three.

The main drivers were movements in lower quartile prices, and although these, declined in four locations (Massey/Royal Heights, Henderson, Avondale and Highland Park), rose in four locations (Torbay, Glen Eden, Papakura and Pukekohe), and were unchanged in Beach Haven/Birkdale, the price falls tended to be reasonably substantial while the price rises tended to be modest.

Overall rental growth was also relatively modest, with rents rising in four locations, staying the same in four locations and declining in one.

Overall that tended to push up yields, although they remain extremely modest, ranging from 3.7% in Torbay, Avondale and Highland Park to 4.7% in Pukekohe, suggesting that without the prospect of significant capital gains, investors could have difficulty finding a property that will provide them with a decent return in Auckland.

Around the rest of the country, yields were mainly under 5% in Hamilton, Tauranga, Wellington City and Nelson/Tasman, meaning investors may………….

Continue reading this article at the original source from Interest.co.nz

 

 

 

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2018-05-17T17:14:10+00:00