Rental growth failed to keep up with rising prices
Yields on residential property plummeted over the six months to the end of March 2021 as rental growth failed to keep up with rising prices, according to the latest Interest.co.nz Rental Yield Indicator.
The Rental Yield Indicator tracked the Real Estate Institute of New Zealand’s (REINZ) lower quartile selling price for three-bedroom homes in 56 locations across New Zealand that have a high level of rental activity. Interest.co.nz then matched the selling price with median rents for three-bedroom homes in the same locations to produce an indicative gross rental yield for each area.
The latest rental yield data found that prices at the bottom end of the housing market have been soaring faster than rents, resulting in lower rental yields and reducing the earning potential of properties – making them less attractive for property investors.
Based on selling prices and rents over the six months from October 2020 to March 2021, indicative yields dramatically dropped in 51 of the 56 locations monitored compared to those from the six months ended December 2020.
By contrast, yields had increased in Silverstream in Upper Hutt and Te Awamutu. Meanwhile, yields were unchanged in Te Puke, Timaru, and St Kilda in Dunedin.
The number of locations with indicative rental yields of 5% or more reduced from 23 over the six months to the end of December 2020, to 14 in the six months to the end of March 2021. Meanwhile, the number of locations with yields under 4% increased from six to 13 over the same period.
Interest.co.nz pointed to substantial rises in lower quartile prices (compared to growth in rents) as the main drivers of current trends in the property market. It found that 42 of the 56 locations monitored had double-digit percentage increases in their lower quartile selling prices in the six months to March 2021, compared to the six months to December 2020. Of those that recorded double-digit percentage increases, 16 had price increases of 20% or more.
Timaru recorded the lowest price increase over that period at 1.3%, while the Wellington suburb of Newtown recorded the highest at 38.4%. However, none of the areas monitored reported a price decline.
The report also found that only 16 of the 56 locations monitored posted a 4% or more rental growth in the six months to March 2021 compared to the six months to December 2020. Meanwhile, 31 had 2% or less rental growth. The data included eight locations where the median rent declined and seven where it remained unchanged.
