Rents are rising – but are they keeping up with Auckland prices?
Asking rents are rising nationwide, but is the rate of the increase enough to generate good returns for Auckland landlords?
Wednesday, April 22nd 2015, 2:55PM
by Miriam Bell
The latest data from Trade Me Property’s Rental Price Index shows that asking rents around New Zealand are on the rise – with the median asking rent in March 2015 up by 7.7% from March 2014.
This means that the national median asking rent went up to a record high of $420 per week, as compared to $390 per week a year ago.
Head of Trade Me Property Nigel Jeffries says there were increases in asking rents in 11 out of the 15 regions, with Canterbury recording the biggest year-on-year increase of 14.1%.
While Canterbury, with an average asking price of $485 per week, is now the most expensive region to rent a property in, Auckland is a close second with an average asking rent of $480 per week.
He says there is continued pressure on asking rents in Auckland, which recorded a year-on-year increase of 6.7%, and where weekly rents have broken through new records in 22 of the past 24 months.
“The rental market is seeing the economic reality of limited supply and fierce demand.”
However, Jeffries adds that the asking rent increase was not even close to the super-hot pace of house prices.
Auckland’s investors have been getting low yield and high capital appreciation, which has rocketed overall returns, particularly for leveraged properties, he says.
“The probability of the high returns continuing is lower than it was 12 months ago, so we’d argue that the risk is higher than it has been.
“Auckland is also not a homogeneous market so, while we expect some suburbs to deliver solid overall returns, others which are already overheated may deliver relatively low returns.”
Auckland Property Investors Association (APIA) president Andrew Bruce says that, when a market reaches the stage of the cycle the Auckland market has, it is tougher to get returns on your investment.
As a result, investors often start looking to other parts of the country – like Northland or Waikato or Rotorua – where it is possible to still get decent returns, he continues.
“Investors are looking for good returns on their investment. They tend to be returns driven and don’t want to carry negative gearing for too long. This is as opposed to speculators who are looking to flick properties once they have accumulated some value.”
Bruce recommends that investors looking for returns should buy out of town.
“Although it is always possible to find deals… Depending on how hard you are prepared to look, you can find something that nobody else has seen potential in. For example, the scope to add an extra bedroom.”
Alternatively, Auckland investors seeking better returns could look to the apartment sector.
City Sales Ltd sales director Mike Richards says that, while prices in the apartment sector have lifted slightly in recent times – on the back of limited supply – rents have generally kept pace.
This means that for non-prestige apartments, particularly in the CBD or city fringes, investors can expect to see a decent return.
However, Richards says investors won’t see the capital gains that are there in the house sector of the market.
Further, supply is set to increase over the next 18 months with 5000 apartments due to come on to the market in the CBD and city fringe.
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