Landlords hesitant to lift rents enough to cover costs

Rent increases over the next year won’t be enough to cover Auckland landlords’ increasing outgoings, Barfoot and Thompson says.

Monday, September 29th 2014, 12:00AM

by The Landlord

It said most of the city’s landlords planned to increase rents in the next 12 months.

“While two-thirds of landlords are intending to increase their rents, by far the majority see that rent rise being 5% or less,” said the agency’s director, Kiri Barfoot.

“With the current average rent for a three-bedroom home being $472, that represents a maximum increase of $24 a week.”

Barfoot and Thompson’s bi-annual landlord survey revealed 82% of its landlords expected to pay even higher mortgage interest rates in the coming 12 months.

“It means that the majority of landlords are prepared to accept lower returns. Based on an average sales price for a three-bedroom home of $677,000 and an average rent of $472, landlords are currently receiving a return of 3.63%. If landlords follow through with their stated intentions, the rate of return in the coming 12 months will be even lower.”

Barfoot said there was justification for landlords increasing their rents significantly, but few planned to.

“They are already facing higher outgoings in the form of increases from council rates, mortgage borrowing costs and insurance, and anticipate even further increases in mortgage rates within the next 12 months. Given the increased costs they have to meet, there is justification for rents to increase beyond 5%, but less than 20% of landlords intend doing this.”

She said in many cases restricting rent increases was a way for landlords to acknowledge good tenants.

“Being a landlord is a medium to long-term investment decision, and landlords put a great deal of value in the long-term retention of good tenants.”

In the survey, two-thirds of existing landlords indicated they were not intending to increase their portfolio’s size in the next 12 months, while an additional 6% had plans to decrease their holdings.

“Among existing landlords, in a market where property prices are increasing, and costs are rising, there is not a great appetite to buy more property.”

But 85% of respondents expected the value of their portfolio to increase in the coming 12 months.

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