Coast the toast of the regions

The West Coast region takes the top spot as highest performer for residential investors.

Tuesday, October 11th 2022, 8:45AM

It has the highest rental yield and second highest capital gains across New Zealand, data from REINZ’s latest Capital Gains and Rental Yields Report shows.

Investors reaped a rental yield of 5.3% from West Coast properties for the six months ending June 2022. Although it was an annual drop of 0.1%, it was the highest yield recorded in the 16 regions.

Rental yield is the measure of rental income against its purchase price. The report calculated yield by looking at annualised median rent compared to a region’s house median price.

Capital gains were up 19.4% over the same period – the second highest capital gains across the country. The median price for residential property rose from $289,000 in in the first half of last year to $345,000 in the first half of this year.

The region also had the greatest annual rise in rental price, up 16.7% from the first half of last year. Combined, these factors result in a positive change in rental yield.

Although the West Coast is small in residential property terms, it has always ranked highly for investment performance, but dipped behind Manawatu/Whangarei in the second half of last year. It has now regained top spot. Manawatu/Whangarei has now dropped out of the top five.

REINZ property management head Jo Rae says the West Coast tends to buck the trend when compared to other regions across New Zealand.

She says fundamentals — such as forecast population growth and property supply over time — in the market keep property prices below the New Zealand median.

“However, like other regions there was a marked increase in the West Coast median price compared to first half of last year, which contributes to the annual drop in rental yield.” The median residential property price in the region was $345,000 in the six months to June this year. The region hit a record median in May of $395,000.

Rae says a number of large-scale mining projects in the region are expected to bring employment opportunities to the area — which will likely provide a population boost and drive demand in the rental and real estate markets.

Taranaki ranked second, in terms of providing strong returns for investors. The region had the third highest capital gains — up 17.3% as the median property price rose from $537,000 in the first half of last year to $630,000 in the first half of this year.

The region ranked fifth in terms of rental yield at 3.8%, a moderate drop of 0.3% compared to the same period last year.

While Taranaki showed strong returns for investors there is variance across areas in the region. South Taranaki has a yield of 5%, Stratford and New Plymouth returned yields of 3.9% and 3.7% respectively — lowering the overall yield in the area. At the same time, Stratford had the highest capital gains at 27.7%, while South Taranaki and New Plymouth had capital gains of 17.1% and 14.4% respectively.

Southland was the third highest performer, with second highest rental yield at 4.4% and the seventh highest capital gains — up 12.2% from $401,000 to $450,000.

At the other end of the scale, Auckland was the poorest performing region for residential investors. The region had the third lowest capital gains — up 6.4% from $1,100,000 to $1,170,000 — and the lowest annual yield of all regions at 2.7%.

Wellington follows closely as the second poorest performer with the lowest capital gains — up 5.1% from $875,000 to $920,000 — and an annual yield of 3.4%. “It has a similar story to Taranaki, particularly in terms of capital gains. For example, while South

Wairarapa had capital gains at 26.7% and Masterton sat at 12.5%, areas such as Wellington city, at -1.3%, pulled the overall capital gains in the region down.

Rae says looking at the regions and the variance across their areas, it is vital to undertake proper due diligence before buying an investment property.

“Anecdotally, we know investors have stepped back from the market since changes to tax legislation were introduced, which has been compounded by the reintroduction of loan-to-value-ratios (LVRs), tighter lending criteria, and continued interest rate increases — with the likelihood of more over the coming months. While there has been no mass exodus, there remains a notable absence in the buyer pool, although investors could return to the market enticed by moderating prices and the opportunity to diversify their portfolios.”

Regional breakdown of capital gains

The regions with the greatest increase in capital gains for the six months ending June last year compared to the six months ending June this year were:

Canterbury with a 22.1% increase from $565,000 to $690,000 West Coast with a 19.4% increase from $289,000 to $345,000
Taranaki with a 17.3% increase from $537,000 to $630,000
Northland with a 16.5% increase from $665,000 to $775,000
Waikato with a 16.5% increase from $720,000 to $839,000

Marlborough had the second lowest annual capital gains increase at 6.3% in the six months to June this year, compared to 32.3% in the first half of last year. The region saw house prices increase from $655,000 to $696,000. At the same time, the region had a rental yield of 3.6% in the first half of this year.

In Auckland, capital gains were 6.4% as at June this year — compared to 21.5% at the same time last year. Auckland had the lowest annual rental growth, increasing 3.4% over the 12 months to June this year.

“The market came off its peak in November last year, and through the first six months of 2022 we saw market sentiment quickly shift,” says Rae.

“At the same time, there was an increase of stock on the market. Properties were spending longer on the market, in part due to the sales process lengthening, and more choice reducing buyer urgency in the market. While house prices continued to increase, the pace of growth slowed.

“This inevitably impacts capital gains. However, property is a long-term investment. While the pace of capital gains growth has slowed, this will correct in the longer term,” she says.

Regional breakdown of rental yields

The regions returning the greatest yields to investors for the six months ending June 2022 compared to the six months ending June 2021 were:

West Coast with a yield of 5.3%, down from 5.4%
Southland with a yield of 4.4%, down from 4.5%
Gisborne with a yield of 3.9%, up from 3.7%
Manawatu/Whanganui with a yield of 3.9%, up from 3.7% 5. Taranaki with a yield of 3.8%, down from 4.1%

Rae says while rental prices increased in the first half compared to the same period last year, median price growth continued to outpace growth in rent prices to moderate rental yield.

Tags: housing market