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Yields sink to record low

Rental yields have fallen to a record low nationwide and there’s unlikely to be a turnaround anytime soon, according to a new analysis.

Wednesday, August 17th 2016, 4:00PM

by Miriam Bell

Economic forecaster Infometrics’s latest rental market update shows that rental inflation nationwide edged up from 4.0% to 4.6% per annum during the June quarter.

However, the update goes on to note that this rate of growth is much less than national house price inflation per annum (at 14%).

For this reason, average rental yields have fallen to a new record low of 3.68%.

The national increase in rental inflation was driven by the Waikato region, which saw rental growth of 7.4% per annum.

Yet that regional growth was not enough to prevent rental yields in Hamilton falling to an all-time low.

This is because Hamilton’s hot housing market is currently seeing price growth of 32% per annum – which leaves the city’s 7.0% rental growth in the shade.

In Auckland, slow rental growth at a time of ever-increasing prices means that rental yields in the former North Shore, Auckland, and Manukau City areas have also dipped to new record lows.

Infometrics chief forecaster Gareth Kiernan said there is no evidence that trend is likely to change anytime soon.

“Rents are simply not moving in in relation to house price inflation. They just don’t correlate, they are out of whack.”

Landlords who tried to charge in correlation with house price increases and up the rent significantly would probably not do very well, he said.

“That’s because house prices are now so dislocated from incomes… That will keep rental yields down for the time being.”

There has been some speculation that the Reserve Bank’s new investor-targeted LVRs might lead to rent increases.

The argument for this is that preventing investors from purchasing property could constrain rental supply and the resulting increase in demand would result in rent rises.

But Kiernan said they had seen no evidence of that in Auckland to date.

“The Auckland-specific LVR changes late last year do not appear to have further constrained the supply of rental accommodation or pushed up rents in the region. 

“So we would not expect any particular impact from the new round of LVRs.”

The impending LVR restrictions are likely to have a significant effect on house sales activity though, he said.

“While any moderation in house price inflation will reduce the downward pressure on rental yields, given the rapid house price growth in some parts of the country, this shift is unlikely to be sufficiently large to drive a near-term recovery in yields.

“A flattening out of house prices over time would be the most likely factor to lead to rental yields going back up again.”

« Property managers must keep rent separateRegions lead rental growth »

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Lender Flt 1yr 2yr 3yr
AIA 5.35 4.49 5.25 5.55
ANZ 5.54 5.15 5.85 6.15
ANZ Blueprint to Build 2.78 - - -
ANZ Special - 4.55 5.25 5.55
ASB Bank 5.35 4.49 5.25 5.55
Avanti Finance 5.45 - - -
Basecorp Finance 6.45 - - -
Bluestone 5.29 7.49 7.59 -
BNZ - Classic - 4.55 5.25 5.45
BNZ - Mortgage One 5.55 - - -
BNZ - Rapid Repay 5.55 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Std, FlyBuys 5.55 5.35 5.94 5.99
BNZ - TotalMoney 5.55 - - -
CFML Loans ▲6.45 - - -
China Construction Bank 5.50 5.40 6.14 6.40
China Construction Bank Special - 4.45 5.19 5.45
Credit Union Auckland 5.95 - - -
First Credit Union Special 5.85 4.70 5.20 -
Heartland Bank - Online 4.00 3.85 4.70 4.84
Heretaunga Building Society 5.95 4.80 5.50 -
HSBC Premier 5.49 4.39 5.15 5.39
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 5.25 ▲4.29 ▲5.09 ▲5.35
Kainga Ora 5.43 4.57 5.58 5.85
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 5.00 5.55 6.19 6.39
Kiwibank - Offset 5.00 - - -
Kiwibank Special 5.00 4.55 5.19 5.39
Liberty 4.84 - - -
Nelson Building Society 5.95 4.95 5.85 -
Pepper Essential 3.44 - - -
Resimac 4.59 5.60 6.16 6.29
Lender Flt 1yr 2yr 3yr
SBS Bank 5.29 4.69 5.35 5.49
SBS Bank Special - 4.19 4.85 4.99
Select Home Loans 4.09 4.29 4.86 5.09
The Co-operative Bank - First Home Special - ▲4.19 - -
The Co-operative Bank - Owner Occ 5.45 ▲4.29 5.19 5.45
The Co-operative Bank - Standard 5.45 ▲4.79 5.69 5.95
TSB Bank 5.59 ▼5.14 ▼5.79 6.15
TSB Special 4.79 ▼4.34 ▼4.99 5.35
Unity 5.65 4.80 5.50 -
Wairarapa Building Society 5.24 4.55 5.20 -
Westpac 5.54 5.09 5.79 6.09
Lender Flt 1yr 2yr 3yr
Westpac - Offset 5.54 - - -
Westpac Special - 4.49 5.19 5.49
Median 5.45 4.55 5.25 5.52

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