Investment property prices were up and rental yields were down as the Capital Gains Tax debate raged

admin April 9, 2019
Capital Gains Tax - Investment property prices were up and rental yields were down

The possibility of Capital Gains Tax being introduced on rental properties did not appear to affect house prices at the investment end of the market in the six months to March, according to interest.co.nz’s Rental Yield Indicator.

The Indicator tracks the REINZ’s lower quartile selling prices for three bedroom houses over a six month period in 56 locations around the country where there is a high level of rental activity, and matches them with the median rents for three bedroom houses in the same areas.

Those figures are then used to calculate an indicative gross rental yield figure in each of those areas, with a rising yield suggesting rents are rising more strongly than prices, and a falling yield suggesting prices are rising more strongly than rents.

The figures are updated every three months. Over the six months to the end of March the REINZ’s lower quartile selling price for three bedroom houses was higher than it was in the six months to December last year in 40 of the 56 locations monitored, was lower in 15 and unchanged in one.

That reverses the previous trend where the number of locations where prices were rising had been declining, and suggests that if the possibility of CGT was having a chilling effect on investment property sales, it didn’t flow through to prices.

Even in Auckland, where the residential property market has shown the clearest signs of weakness over late summer, lower quartile prices for three bedroom houses rose in five of the 10 locations monitored (Beachhaven/Birkdale, Torbay, Glen Eden, Henderson and Avondale), and declined in five (Orewa/Whangaparaoa, Massey/Royal Heights, Highland Park, Papakura and Pukekohe).

Rising prices may bring a smile to the face of investors who already own rental properties and are banking on a capital gain, but it has done little to improve the relative attractiveness of buying additional rental properties because rents haven’t risen at the same pace and overall, rental yields have declined.

For the six months to March the indicative yields were down in 29 of the 56 areas monitored compared to the six months to December, while they were up in 18 and unchanged in nine.

In the six months to December, yields were down (compared to the six months to September) in 26 locations, up in 19 and unchanged in 11.

So there has been a shift in the market over the six months to March, where lower quartile prices for three bedroom houses in popular rental locations have firmed at a faster pace than rents, forcing down rental yields in the majority of those locations.

Around the country there continues to be a substantial variation in indicative yields, and therefore in the relative attractiveness of buying rental properties in different locations, with the lowest indicative yields being in Auckland 3.4% to 5.1%, the Tauranga area 3.7% to 5.0%, Waikato 4.4% to 4.9%, Kapiti 4.5%, Wellington City 4.6% to 4.9%, Tasman 4.3% to 4.4%, Nelson 4.6% and Queenstown 4.0%.

The areas with the highest indicative yields were Invercargill 7.2%, Flaxmere in Hastings 8.2% Wanganui 8.1% and Waitara/Inglewood 7.6%.

To view the table and tracks the indicative yields in all 56 locations monitored by the Indicator please visit the referral source article