Property investors refocus on cash flow

With prospects for capital gains now much weaker than at any time in the last five years, landlords are expected to be much more focused on the income stream generated by their investments.

Tuesday, April 1st 2008, 12:00AM

by The Landlord

Infometrics says that in some areas where house prices are relatively low, like Southland, property investors are still looking for houses with reasonable cash flow potential.

Infometrics’ index of rental inflation shows that rental growth was near a four-year high of 6.9% pa in February 2008, pushing yields up to their highest level since September 2006.

It says that over the next two to three years, static supply of rental accommodation will be accompanied by ongoing strength in tenant demand, as prospective first-homebuyers have generally been priced out of the market by a substantial margin.

Landlords are likely to be able to increase rents faster than both house price and consumer price inflation, and probably faster than income growth as well.

It is expected that cashed-up property investors will look to rejoin the market, benefiting from lower house prices and higher rental returns.

In the meantime, however, more expensive regions have definitely been affected by a lack of investor demand, given high interest rates and low rental yields currently prevailing.

Figures from Barfoot & Thompson indicate that the number of properties available for sale is now a massive 60% higher than a year ago. After a 19% drop in sales volumes between the June and September quarters of 2007, nationwide house sales activity has now stabilised at an annualised rate of around 80,000 sales.

The biggest drop in turnover has occurred in Auckland, while the Waikato/Bay of Plenty market is also going through a significant downturn.

Crockers latest market research report says it is likely that people whose property has been on and off the market over the course of some months will eventually sell at a lower price than they might have initially hoped for.

In some cases, vendors will have no choice but to sell, as they are unable to meet increased mortgage payments.

Over 2008/09, Infometrics is forecasting four quarterly price falls totalling 3.4%.

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