Property Prices Rise Faster Than Rent Prices In Second Half Of 2021, Says REINZ

Gisborne was the strongest performer for residential investors, with the highest annual increase in rental price and the only region to see an increase in rental yield year on year, according to the latest edition of the Capital Gains and Rental Yields Report for H2 2021 from the Real Estate Institute of New Zealand (REINZ).

The rental yield in Gisborne increased from 3.7% for the six months ending December 2020 to 3.9% for the six months ending December 2021, while capital gains were up 17.8% over the same period. The region had the greatest rental price increase, up 24.7% from H2 2020, and the third lowest increase in the median property price going from $545,000 in H2 2020 to $642,000 in H2 2021, which combined to result in a positive change in rental yield.

Taranaki saw a relatively moderate increase in the median dwelling price, which resulted in a small drop in year on year yield — down from 4.2% to 4.0% in H2 2021. The region had the second highest annual increase in rental price growth, up 18.4% compared to H2 2020.

Manawatu/Whanganui demonstrated annual growth in capital gains of 30.5%. The region had the top annual increase in median dwelling price — up from $475,000 in H2 2020 to $620,000 in H2 2021 — and the third highest annual increase in rental price — up 15.8%. Well-performing all round, Manawatu/Whanganui also had the fifth greatest increase in rental yields, sitting comfortably at 3.7%, though down from 4.1% in H2 2020.

In the second half of 2021, rental yields in the West Coast region were 5.2% — the only region with a yield over 5%. However, the region also saw the greatest annual decrease in yield, down 0.9% when compared to H2 2020. This correlates with a significant increase in the median price, as median prices rose from $250,000 for the six months ending December 2020 to $318,000 for the six months ending December 2021. Capital gains in the West Coast increased 27.2% in H2 2021 when compared to the same time the year prior.

Meanwhile, Auckland had the lowest rental yield of all the regions at 2.5%, down from 3.0% one year ago. The annual rental price change in Auckland was the second lowest of all the regions at 5.4%, this combined with median dwelling price increases, which were one of the highest year on year, caused the yield to decrease.

Jo Rae, Head of Property Management at REINZ, says: “As house prices rose at pace across New Zealand in the second half of 2021, we continued to see more moderate residential property yields. However, all regions showed double-digit growth in capital gains year on year, making property a worthy long-term investment.

“Manawatu/Whanganui proved to be an all-round performer, with the greatest increase in capital gains — up 30.5% year on year, the third highest rental price change at 15.8%, and a steady rental yield of 3.7%. Interestingly, the region saw roughly two thirds of its rental growth in the second half of 2021.

“Changes to tax rules introduced in March 2021, combined with increasing interest rates, the reintroduction of LVRs and stricter lending criteria, have started to dampen investor appetite. Reports from across the country suggest there are fewer investors on the market, however, we have yet to see any significant exodus of investors from the market.

“As growth in property prices starts to ease, as indicated in recent months, and incentives such as the medium density housing bill seek to deliver more homes, investors may be enticed back into the market by moderating prices or to diversify their portfolio,” she adds.

Regional breakdown of capital gains

The regions with the greatest increase in capital gains for the six months ending December 2021 compared to the six months ending December 2020 were:

1. Manawatu/Whanganui with a 30.5% increase from $475,000 to $620,000
2. Canterbury with a 27.8% increase from $510,000 to $652,000
3. Hawke’s Bay with a 27.7% increase from $611,000 to $780,000
4. West Coast with a 27.2% increase from $250,000 to $318,000
5. Auckland with a 26.3% increase from $974,000 to $1,230,000.

Over the same period, the region with the lowest capital gains across New Zealand was Otago with a capital gain increase of 16.0%.

Nelson had the second lowest capital gains increase year on year, increasing 16.4% compared to H2 2020, which saw the rental yield decrease 0.4% to 3.1% in H2 2021. Nelson also had the lowest annual rental growth, increasing only 2.3% and was the only region to see a decline in median rent in the six months ending December 2021.

“All regions experienced a double-digit increase in capital gains in the second half of 2021, with 12 of the 16 regions seeing growth of over 20%.

“As the number of listings on the market increases and market sentiment begins to shift, we are noticing an easing in annual price growth that may impact capital gains. However, we anticipate capital gains will remain strong, though perhaps at a slower growth rate,” she continues.

Regional breakdown of rental yields

The regions returning the greatest yields to investors for the six months ending December 2021 compared to the six months ending December 2020 were:

1. West Coast with a yield of 5.2%, down from 6.4%
2. Southland with a yield of 4.3% down from 4.5%
3. Taranaki with a yield of 4.0%, down from 4.2%
4. Gisborne with a yield of 3.9% up from 3.7%
5. Manawatu/Whanganui with a yield of 3.7%, down from 4.1%.

“Although rental prices increased year on year, growth in median prices outpaced growth in rent prices in the 16 regions to temper return on investment. With the exception of Gisborne, all regions recorded a lesser yield in H2 2021 compared to H2 2020.

“West Coast took the top spot in terms of rental yield in the second half of 2021, with rental yield of 5.2%. However, it also had the greatest decrease down 0.9% compared to H2 2020. Similar to other regions, the decrease in rental yield will in part be down to the significant increase in median prices.

“While investors are paying more for property in the region, there is a cap on rent prices as affordability is balanced with return on investment in an area that does not have the higher incomes of other regions. Anecdotally, there remains strong outside interest for purchasing investment property particularly in areas such as Greymouth and Hokitika. The challenge then becomes availability of stock and listings,” Rae concludes.

© Scoop Media