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View Full Version : Rental Yields- Where Are They Going??



shambles
05-05-2009, 03:59 PM
Can anyone help provide info on where rental returns are expected to head?

Short-Mid-Long term.... What should landlords expect?

Is inflation going to hike up rents?

Is deflation going to bring them down?

What stats do we research to identify the trend?
Interest Rates? Unemployment? Migration? House Prices? Supply? etc etc.
Is there somewhere that provides this info already correlated to give us an expectation?

fungus pudding
05-05-2009, 04:58 PM
Can anyone help provide info on where rental returns are expected to head?

Short-Mid-Long term.... What should landlords expect?

Is inflation going to hike up rents?

Is deflation going to bring them down?

What stats do we research to identify the trend?
Interest Rates? Unemployment? Migration? House Prices? Supply? etc etc.
Is there somewhere that provides this info already correlated to give us an expectation?


They are heading down and that's likely to continue.

duncan macgregor
05-05-2009, 06:29 PM
Can anyone help provide info on where rental returns are expected to head?

Short-Mid-Long term.... What should landlords expect?

Is inflation going to hike up rents?

Is deflation going to bring them down?

What stats do we research to identify the trend?
Interest Rates? Unemployment? Migration? House Prices? Supply? etc etc.
Is there somewhere that provides this info already correlated to give us an expectation?
1, Landlords should expect a return on the total cost of the property to be slightly higher than inflation.
2, Inflation will hike rents but allow for a short time lag.
3, Deflation is something that we have never experienced we only get a supply and demand drop in the market.
3, Over the last fifty years the price of property has more than doubled every ten years with any small drop in prices followed by a bigger rise in prices.
4, The first home buyers that tried to time the market always lived to regret their stupidity by missing the bus.
5,Most properties can be refinanced every three years to retreive your initial deposit back to buy a second property with the tenants paying all the running costs.
6 After getting your initial deposit back you can accumulate properties at no financial cost to your self.
7,You only sell at peak market times but buy anytime if the numbers stack up.
Hope that helps i know lots of rich people who started off with menial jobs but had the brains to follow those guide lines. Macdunk

AMR
07-01-2010, 09:46 AM
Was wondering what everyone thought of the situation now.

Here on the North Shore in my neighbourhood house prices have rebounded with a vengeance. Rents for three bedroom houses remain in the $390 - $450 range for Westlake zone houses. Still only 5% yield for the average place. Rents seem to have moved up a bit since last year, there wasn't anything going for $450 in the suburb.

Apartments are suffering from a seasonal dip as usual, so it is hard to compare.

upside_umop
07-01-2010, 03:41 PM
Was wondering what everyone thought of the situation now.

Here on the North Shore in my neighbourhood house prices have rebounded with a vengeance. Rents for three bedroom houses remain in the $390 - $450 range for Westlake zone houses. Still only 5% yield for the average place. Rents seem to have moved up a bit since last year, there wasn't anything going for $450 in the suburb.

Apartments are suffering from a seasonal dip as usual, so it is hard to compare.

Its interesting you bring this back up.

I was thinking about a better way to measure house prices...I mean, we have a feeling that house prices fell but the REINZ's figures, because they are median value orientated, say that houses are now at all time highs. I simply dont buy it.

Even in Queenstown, where house prices have fallen the most in NZ the figures arent showing the full impact. I've heard horror stories of same apartment sales are down as much as 66%! You know, the ones that were bought off plans and then sold when they couldnt afford...

I remember posting a chart of the segmented stratified data of some areas in Christchurch a while back...does anyone else follow this data? It seems to give a little more clear evidence.

I was thinking a useful valuation tool might be an area by area rental yield tool. When yields rise, house prices must have fallen relative. I say area by area, as we could get a similar disparity like median prices giving off wrong information if we use a 'whole' population.

AMR
07-01-2010, 06:10 PM
Belg,

I was looking at MDUs a while back but delayed it to buy an apartment. One of the referees who was building through Versatile told me later he ended up renting it out for $400, in Sunnynook. My feeling is that Westlake zone/Rangi zone will always remain desirable as long as the schools continue to be well managed. Not sure about Takapuna, I personally would not buy in that suburb.

PS, who are you building your MHUs through?

minimoke
08-01-2010, 08:25 AM
I was thinking about a better way to measure house prices...I mean, we have a feeling that house prices fell but the REINZ's figures, because they are median value orientated, say that houses are now at all time highs. I simply dont buy it.

Even in Queenstown, where house prices have fallen the most in NZ the figures arent showing the full impact. I've heard horror stories of same apartment sales are down as much as 66%! You know, the ones that were bought off plans and then sold when they couldnt afford...


The trouble with REINZ Q/V data is that it covers the whole sector and isn't broken down into Rental / Owner Occupied properties. So if we want to look at rental yields we kind of have to read tea leaves in the available data.

Queenstown, as your example, would probably be hopeless using REINZ / QV data as the monthly returns are all over the place. If you take the REINZ data it had a Nov 09 median sale of $560,000 (the highest in 16 months) but the average was $663,000 (still down from the Aug 09 high). This market is full of anomalies - like the highest average was over $1m in Aug '07 after an average of $569k the month earlier. There is just no trend in Queenstown with monthly sales bouncing all over the place with movements up to 20% between months.

Perhaps we are at a point in the market where sellers sale price is close to buyers ability to pay (though I'm still inclined to think sellers are still a bit high) we can use Trademe listings to get a better sense of sale price (from the Sales listings) compared to rental income from the rental listings.

But back to Shamless original question. I think yields are likely to drop.
I'm just not seeing the movement in rents I would have expected given the movement in property values.

I didn't buy into the "property values will drop 30%" mantra and retain the view that they won't drop (bar the occasional short term blip). Prices will only go UP. We know our population is increasing around 1% a year which increases pressure on the demand side of the equation. We know building materials will increase in price 10% in the next month or so - this puts pressure on the sale price side. We know we have a governement intent on doing deals with Maori and Greens doing stuff like improving insulation and heating - both of which increase values. So Property prices have to go UP.

We also know that sooner or later (probably sooner) interest rates have to rise. Insurance companies are set to increase premiums. Councils (despite Rodney Hides rhetoric) will continue to increase rates unabated. This all means that cash outgoings are only going to INCREASE.

The increase in population will increase demand for rentals as people find owning / occupying gets out of their grasp. You'de expect this to increase rents - but I haven't seen this occur at the same rate as cost increases.

I think there is a need for landlords to adjust their thinking. In the past they have been happy to watch their properties increase in value and take the capital gain without IRD stepping on the sale. Its for this reason they have been prepared to accept pathetically low yields. They need to shift their thinking to being proud of paying tax as this indicates they are making a profit, rather than crowing about the tax rebates they get because they are running their business at a loss. Some landlords have it right but it won't be until we see a major shift in thinking that we will see a significant upward shift in yields.

So in the meantime (short / medium term) I think we'll see people buying rentals, content with a low yield but continuing to do well of the non taxed capital gain. Long term yields will be better as NZ'ers finally shift their mind set that they must own thier own home and become more content with the idea of being a lifetime renter.

minimoke
08-01-2010, 10:27 AM
Can anyone help provide info on where rental returns are expected to head?

As a further illustration Shambles - is the trend your friend?

I've attached a chart that shows a few things. First is the Median and Average sale prices over the last decade of one suburb in Christchurch I monitor. This shows a nice strong increase in values over time.

Next is interest costs. This assumes a 50% mortgage at the going 2 year fixed rate at the time. Interest tends to be the biggest cash outgoing. You'll see this is tracking pretty much the same as values.

The last is the median weekly rent. This you'll see this has trended upward - but not nearly as strongly as values. Rental income is also considerably less than Interest costs and the gap is increasing hugely with no sign of a trend reversal.

I've multiplied the rent and interest by 1000 just to get the lines on the same scale as the sale values - divide by 1000 to get the actual figures.

minimoke
08-01-2010, 11:02 AM
Even in Queenstown, where house prices have fallen the most in NZ the figures arent showing the full impact. I've heard horror stories of same apartment sales are down as much as 66%! You know, the ones that were bought off plans and then sold when they couldnt afford...

Slow day today - heres queenstown,

Steve
09-01-2010, 12:08 PM
Just asking the obvious, but what are MHU's & MDU's? :confused:

AMR
10-01-2010, 09:46 PM
Minor Dwelling Units - Small houses that investors build on their backyards.

Steve
11-01-2010, 06:55 PM
Minor Dwelling Units - Small houses that investors build on their backyards.

Such as 'granny flats' and such like?