27 March 2014

The Westpac Property Investor Report:
Property Investors: head south for yield, head north for capital gain

The South Island is delivering some of the country’s best gross yields in three bedroom rentals while Auckland dominates when it comes to achieving capital gain, according to the new Westpac Property Investor Report.

 The report identifies the best suburbs for gross yield and capital gain in seven centres across the country - Auckland, Christchurch, Hamilton, Wellington, Dunedin, Tauranga, and Palmerston North - looking at two bedroom apartments and three bedroom houses. Investors can use it to help identify potential suburbs to invest in based on the amount they have to invest and the sort of results they are hoping to achieve.

The Westpac Property Investor Report comes at a time when investors are again becoming active and are replacing first home buyers impacted by LVR restrictions.

Westpac General Manager Retail Bank, Ian Blair, hopes the report proves useful for investors across the country and said it underlines the need for them to know what they want to achieve.

“Investing for gross yield and capital gain require two different strategies and it is vital investors understand that from the outset,” Mr Blair said. “Capital gain can be a shorter term prospect while yield is more commonly a long term play. Deciding on that then flows into the type of property and location to target.”

As a general rule, cashflow works better on a high yield property because of regular rental income.  Investors looking for capital gain accept lower cashflow in the expectation of an increase in the value of the property mostly based on location and desirability.

Three bedroom houses produced the top yields of between 6.8% - 8.3% with seven of the top 10 suburbs coming from Dunedin, with Wellington and Tauranga also featuring. By contrast the top 10 suburbs for yields in apartments ranged from 6.4% -7.5% and five of the top 10 suburbs were in Auckland, with Christchurch, Wellington and Hamilton also featuring.

Auckland completely dominates capital gain for both apartments and houses. The top bracket in houses ranged from 14.4% to just under 19%. Not surprisingly given the rebuild, Christchurch was the next best region for capital gain (highest at 14%) with the rest of the country reaping far lower returns – Hamilton (highest 4.8%), Dunedin (4.3%) and Wellington (4.9%).

“With the lower cost of housing outside of Auckland and Christchurch the opportunity for long term gain is dependent on the decisions investors make around location and their personal financial circumstances,” Mr Blair said.

Accurately accounting for insurance, rates, maintenance and periods of vacancy are all important considerations in the decision making process.

Fact Box:

Top 10 suburbs for three bedroom houses by gross yield

Suburb                     Median Weekly Rent            Est Valuation (2013)             Gross Yield

Forbury (Dunedin)                $300                                 $189,000                              8.3%

South Dunedin                      $266                                 $170,000                              8.2%

Cannons Creek (Wgt)          $290                                 $193,000                              7.8%

Corstorphine (Dunedin)      $301                                  $202,000                              7.8%

Saint Kilda (Dunedin)           $301                                  $210,000                             7.4%

Carlton Hill (Dunedin)          $274                                   $193,000                             7.4%

Wainuiomata (Wgtn)             $301                                   $222,000                             7.1%

NorthEastValley (Dun)          $292                                   $218,000                             7.0%

Brockville (Dunedin)              $262                                   $198,000                             6.9%

Parkvale (Tauranga)              $303                                   $232,000                             6.8%

*Top suburbs for three bedroom houses by capital gain

Suburb                        Median Weekly Rent         Est Valuation (2013)             Capital Gains

Glen Innes (Akld)                  $440                                  $661,000                             18.9%

New Windsor (Akld)             $450                                   $658,000                             17.2%

Hornby House (ChCh)         $392                                  $369,000                             14.0%

HeiHei   House (ChCh)        $391                                  $378,000                            13.5%

Berhampore (Wgtn)              $518                                   $512,000                              4.9%

Claudelands (Hamilton)      $324                                   $398,000                              4.8%

Brockville (Dunedin)             $262                                    $198,000                             4.3%

Ngaio (Wgtn)                          $438                                    $503,000                             3.6%

Brookfield (Tauranga)          $334                                     $320,000                             3.3%

Kelvin Grove(Palm Nth)        $295                                    $276,000                             2.7%

Top 10 suburbs for two bedroom apartments by gross yield

Suburb                     Median Weekly Rent               Est Valuation (2013)            Gross Yield

Melville (Hamilton)               $330                                    $230,000                              7.5%

Manurewa (Akld)                   $390                                    $282,000                              7.2%

Auckland Central (Akld)       $449                                    $341,000                              6.9%

Otahuhu (Auckland)             $297                                    $228,000                              6.8%

Newlands (Wellington)        $295                                    $237,000                              6.5%

TeAro (Wellington)               $469                                     $376,000                              6.5%

Eden Terrace (Akld)            $443                                      $361,000                              6.4%

Addington (ChCh)                $289                                     $236,000                              6.4%

Grafton (Auckland)               $430                                     $351,000                              6.4%

Phillipstown (ChCh)            $281                                     $230,000                              6.4%

*Top suburbs for two bedroom apartments by capital gain

Suburb                        Median Weekly Rent            Est Valuation (2013)            Capital Gains

Mount Wellington (Ak)         $343                                  $373,000                                16.2%

New Lynn (Auckland)          $318                                  $358,000                                15.4%

New Brighton (ChCh)         $325                                   $269,000                               10.5%

Saint Albans (ChCh)           $299                                  $321,000                                10.4%

Saint Andrews(Hamilton)   $265                                  $296,000                                  4.5%

Upper Hutt (Wgtn)                $231                                   $206,000                                 2.8%

Roslyn(Palm Nth)                $193                                   $190,000                                 2.3%

Saint Kilda (Dunedin) )       $232                                   $208,000                                 1.4%

Mount Maunganui                $327                                   $319,000                                 1.2%

MountVictoria   (Wgtn)         $421                                   $379,000                                 0.9%

*Auckland dominates the Top 10 so the top 2 were chosen and the best of the other centres added to highlight the contrast with the rest of the country


How factors were calculated

Median Weekly Rent: Median weekly rents are based on data released by the Ministry of Business, Innovation and Employment (“MBIE”) on tenancy bonds lodged with MBIE from  January to December 2013.

Estimated Valuation: is the average estimated market valuation for all rental stock in that suburb as at 31 December 2013. Calculated using Data Insight Limited’s “Automated Valuation Model”, which uses Real Estate Institute of New Zealand (REINZ) sourced sales data over a 12 month period (January to December 2013) to estimate the likely market valuation of rental properties in the relevant suburb based on recent comparable sales in that suburb and considering characteristics including age of building, land area, floor area and number of bedrooms and bathrooms. 

Gross Yield: calculated by multiplying the Median Weekly Rent of a suburb by 52 (weeks in a year), divided by the relevant suburb’s Estimated Valuation. 

Capital Gain: measures the change in Estimated Valuation between December 2010 and December 2013 for all rental stock in a suburb, divisible by the December 2010 valuation and annualised to calculate a percentage, which is then averaged across all properties in that suburb.

Results have been considered and separated by property type and number of bedrooms, with the most common bedroom size for each suburb shown in the table above. Where data volumes were insufficient for a reliable separate output, the bedroom sizes were aggregated together.

The material in the Westpac Property Investor Report (the “Report”) is provided for general information purposes only and should not be relied upon. All opinions, statements and analyses expressed in the Report are based on information current at the time of writing from sources that Westpac believes to be authentic and reliable. Westpac issues no invitation to anyone to rely on this material and intends by this statement to exclude liability for any such opinion, statement and analyses. We recommend you seek independent legal, financial and/or tax advice.