Southland Highest Performing Region For Residential Investors, Says REINZ

The Southland region has remained the strongest performing region overall for residential property investors with the second highest capital gains in the country and second highest yield, according to the latest edition of the Capital Gains and Rental Yields Report from the Real Estate Institute of New Zealand (REINZ).

Capital gains in Southland increased by 19.3% for the three months ending June when compared to the same time last year with median prices going from $285,000 to $340,000. Additionally, yields increased 4.9% year-on-year making it the standout region for residential property investors in New Zealand.

The Gisborne region has been in the top three regions for five of the last six quarters and this quarter was second equal placing in terms of providing strong returns for investors. Gisborne had the fourth highest capital gains in the country (up 16.2% from $370,000 to $430,000) and the third highest yield for New Zealand at 4.6%.

Also, second equal in terms of ranking of strong returns for investors was the West Coast region, with the sixth highest capital gains in the country (up 12.8% from $195,000 to $220,000) and the highest yield for New Zealand at 6.7%.

At the other end of the scale, the Capital Gains and Rental Yields Report found that Auckland had the third to lowest capital gains across the country (up 7.6% year-on-year) and the lowest annual yield of all regions (3.2%), making it the worst performing region for residential property investors.

Bindi Norwell, Chief Executive at REINZ says: “For Southland to continue to provide such positive gains for investors on both a capital gains and yield perspective means that the region is really ticking all the boxes from a strategic investment perspective. No doubt, the area will continue to remain on investors’ radar going forward, particularly now that the 40% deposit requirement has been removed with the temporary withdrawal of LVRs and now that some of the major banks are offering investors the same lending terms as owner-occupiers.”

Regional breakdown of Capital Gains

The regions with the biggest increase in capital gains for the 3 months ending June 2020 compared to the 3 months ending June 2019 were:

1. Hawke’s Bay with a 19.7% increase from $470,000 to $562,500
2. Southland with a 19.3% increase from $285,000 to $340,000
3. Manawatu/Wanganui with a 17.3% increase from $358,000 to $420,000
4. Gisborne with a 16.2% increase from $370,000 to $430,000
5. Otago with a 14.1% increase from $463,000 to $528,500.

At the other end of the scale, Auckland and Canterbury again fell towards the bottom of the capital gains ranking in 14th and 16th place respectively, but saw the Bay of Plenty join this group in place of Nelson showing how these markets have been more stable over the March through June period.

“Despite COVID-19 bringing a significant portion of real estate activity to a halt in April, all regions across the country saw a solid uplift in capital gains for investors as a result of strong median prices increases. Again, the report showed all but three regions (Auckland, Bay of Plenty and Canterbury) with double-digit increases from a capital gains perspective showing how strong the market was despite the global pandemic making its presence felt in Aotearoa,” points out Norwell.

“There have been a number of factors that have been driving the lift in capital gains over the past few months in these regions including the temporary removal of LVRs, the uplift in demand and the low interest rate environment making it one of the most affordable times in the last 20 years for investors to borrow money,” continues Norwell.

Yields

The regions returning the biggest to yields to investors for the 3 months ending June 2020 were:

1. West Coast with a yield of 6.7%, down from 7.5% last year
2. Southland with a yield of 4.9%, down from 5.5% last year
3. Gisborne with a yield of 4.6%, down from 4.9% last year
4. Taranaki with a yield of 4.6%, down from 4.9% last year
5. Canterbury with a yield of 4.5%, the same as last year.

“With the introduction of a six month rental freeze in March as a result of COVID-19, it’s not surprising that yields fell for most parts of the country from a percentage perspective. However, none of the falls were particularly dramatic suggesting that initial fears that yields would be significantly impacted by rising unemployment as a result of COVID-19 have been unfounded,” says Norwell.

“The only region in New Zealand that saw a slight increase in yields was Tasman, which saw a slight increase from 3.4% in June last year compared to 3.5% for the 3 months ending June this year. This is most likely because it’s the region that has seen the largest increase in rental prices over the last 12 months,” concludes Norwell.

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