Property boom hitting landlords

Overheated market means lower returns, writes Chris Hutching.

Rising rents may be causing pain for tenants in Wellington and Auckland but soaring house prices are also hitting investors who buy into the current market.

Auckland’s average rent increase since 2012 was about 20 per cent - house price inflation was 34 per cent.

House price rises in Wellington, Christchurch and Dunedin were less spectacular while still outstripping rental growth.

Research by property specialist Crockers calculates that rental returns for investors - yearly rental income divided by house price have weakened since 2015.

For example, if an investor bought in Auckland at the median price of $815,000 and rented it out for all 52 weeks of the year at $526 per week, the investor would receive a return before expenses of 3.4 per cent on their investment.

In 2012, the Auckland return would have been 4.5 per cent before expenses. In Wellington the average yield to an investor eased from 4.9 per cent to 4.6 per cent since 2012. Dunedin yields remain highest, dipping from 5.6 per cent to 5.1 per cent, while Christchurch rental yields were down from 4.9 per cent to 4.6 per cent.

Crockers researcher Kim Sinclair said rents have risen strongly since 2012 but not as strongly as house prices.

Auckland rental prices increased by 21 per cent ($80) for two-bedroom and 18 per cent ($91) for three-bedroom dwellings since 2012, and a quarter of that growth happened in 2016 alone. Wellington and Dunedin also experienced moderate levels of growth in rental prices over the same period.

Christchurch rental prices for two and three-bedroom dwellings increased since 2012 by 19 per cent ($55) for twobedroom dwellings, and 15 per cent ($54) for threebedroom houses.

Since 2015, rents in Christchurch eased 3 per cent for twobedroom dwellings and 4 per cent for three-bedroom dwellings as more post-earthquake dwellings were completed.

Meanwhile, a survey of Crockers clients found that investor interest in central Auckland apartments has risen to its highest point since tracking began in April 2012.

Rental returns for investors have weakened.