Hayden Fahey
BILD 261 Economy
300295081
Project one
Investor property up.
In Gregg Ninnes Stuff article, Inside Guide to Investor
Property, information regarding the opportunity of perspective property
investors and property value to rental values were discussed. Housing shortages
in central areas are creating a surge in rental prices, with Christchurch and
Auckland most affected, Auckland median rents raising 10% from last year. Other
centres such as Hamilton and Wellington may prove to be better for residential
property investors (Ninness, 2013) .
Residential property rents in New Zealand’s largest
centres have seen an increase since last year, Auckland suburbs have seen a
median rent increase of 10% since October last year. Christchurch has had an
increase of upto17% in poplar suburbs such as
Cashmere and Riccarton, (Real Estate Institute of New
Zealand, 2014) .
The higher rents offer higher returns to investment
property owners with existing properties. For investors expanding portfolios in
large centres will find it difficult to achieve profitability because property
prices have generally risen faster than rents (Ninness, 2013) .
Other market areas such as Hamilton are proving to be
more reliable areas for prospective investors. Hamilton has experienced rents
rising faster than property prices in most residential property areas. The
median selling price of properties sold in Hamilton in October was up five per
cent on October last year. Prospective investors are presented with higher
profit yields on their investments (Real Estate Institute of New Zealand, 2014) .
Wellington has experienced a stable residential property
market recently. With relatively low growth in rental values and little or no
rise in property values the market has remained very stable. Median rents
through the wider area of Wellington rising less than 5% while the median
property value increased by 0.5% over the same period (Real Estate Institute of New Zealand, 2014) .
NZ's top places for property gains
Dunedin has proven to be the highest yield location for
long term New Zealand property investors. Student accommodation needs and the Christchurch
rebuild programme have been present in the city for some time, driving up the
yields. Dunedin had seven out of ten of the highest yielding suburbs in the
country.
Dunedin has a large student population that requires
accommodation within the city. The students need to be accommodated in relative
close proximity to the campus; students also are most likely to rent due to the
lower cost of renting for a few years rather than purchase a property. The
large housing demand by students offers a reliable tenancy base for property
owners. Three bedroom houses in the suburb of Hei Hei were returning gains of up to 14 per cent capital
gain yield (Harris, 2014) .
The Christchurch rebuild programme has
also been driving up rental yields recently. Christchurch currently has a
shortage of properties both for sale and rent. This property shortage in
Christchurch has created a surge in Dunedin’s rental market as demand has
increased while the rebuild takes place. The yield growth since the earthquakes
in Dunedin has been quite evident according to a report by Westpac (Harris, 2014) .
Rental property investors in Dunedin are
experiencing high profit margins. High profit margins can be expected from
rental investments because property prices are relatively cheap in relation to
the rental income received. Dunedin's suburb of Forbury had a yield of 8.3% on
the capital (Real Estate Institute of New Zealand, 2014) .
The successful rental yields are
attributed to economic model of supply and demand. There is a high demand for
residential rental properties in Dunedin currently created by a continuous
demand for student accommodation and a recent demand for Christchurch
rebuilders. The two competing renters have driven up rental demand. Dunedin
has always had a steady rental base from students that can be relied upon for
steady profit, now rental demand from Christchurch rebuilders has driven up the
property yields creating higher profits for the rental property owners. The
rental boom from Christchurch can be expected to diminish as renters return to
their city after properties have finished construction or more properties
become available to the market (Harris, 2014) .
Buying a house in the current property
with debts has become very expensive. This is a direct result from the Reserve
Bank initiating restrictions on low equity mortgages in October last year. The Reserve
Bank restricted the mortgage market, making mortgages with a deposit of less
than 20% difficult to get. This impacts first home buyers who are mostly unable
to purchase property. The LVR has affected mainly the lower value properties in
the market (ONE news, 2014) . The Reserve Bank
initiated this restriction in an effort to control the market for the country’s
long term benefit. This is macroeconomics as it adjusts the market behaviour
directly (Reserve Bank of New Zealand,
2013) .
Therefore with LVR restrictions first home buyers will be deterred from purchasing
a new house without proper funding. Prospective first home buyers will look to rental
properties instead of purchasing as LVR restrictions do not affect the rental property
market.
Welly Real Estate should invest in residential property
for rental opportunities. Due to LVR restrictions throughout New Zealand Prospective first home buyers will look to rental
properties instead of purchasing as LVR restrictions do not affect the rental property
market. This creates a large opportunity that Welly Real Estate could invest
in.
There is evidently opportunity for profitability in the
investment of residential properties for rent. Wellingtons stable property
market serves as a relatively safe option for property investment, increasing
rent values and stable property values offer great opportunity for a profitable
investment. Hamilton also provides an ideal area for property investment, with
rents rising faster than property values.
Dunedin’s high rental yields on properties capital,
gained from other investors on low cost makes Dunedin an ideal location to
invest in similar properties. With Dunedin’s high demand for rental properties
from students studying in Dunedin a reliable long term profit will be
attainable for rental properties. Multiple properties will bring higher profit
margins to the company. Christchurch rebuilders have increased profitability to
investors by increasing rental demand. The demand increase may not be stable
when Christchurch rebuilds and more properties are available within
Christchurch. Christchurch has boosted
the property yields on an already profitable rental market. Welly Real Estate
could invest in low cost rental properties in Dunedin with little risk. These
properties have proven profitable in the long term and should remain so with
the large student population continuously expanding.
Rental properties in these locations should provide
improving rental yields. With residential properties throughout the country
becoming increasingly expensive for purchase and limited properties available,
rental properties are becoming more popular. Property management is an
economically viable option in the current property market for Welly Real Estate.
Harris, C. (2014, March 27). NZ's Top Places for
Property Gains. Retrieved April 20, 2014, from Stuff:
http://www.stuff.co.nz/business/money/9870980/NZs-top-places-for-property-gains
Ninness, G. (2013, December 21). Stuff. Retrieved
April 2014, from
http://www.stuff.co.nz/business/money/9539298/Insider-guide-to-investing-in-rental-property
ONE news. (2014, April 24). LVR taking a chunk of
low price sales out of housing market. Retrieved May 1, 2014, from ONE
news: http://tvnz.co.nz/business-news/lvr-taking-chunk-low-price-sales-housing-market-5939958
Rel Estate Institute of New Zealand. (2014, March). REINZ
Regional Data March 2014 . Retrieved May 4, 2014, from REINZ:
https://www.reinz.co.nz/shadomx/apps/fms/fmsdownload.cfm?file_uuid=D18ABB95-71FC-469B-88BB-E60D8182AD1B&siteName=reinz
Reserve Bank of New Zealand. (2013). Loan-to-value
ratio restrictions. Retrieved April 26, 2014, from Reserve Bank of New
Zealand:
http://www.rbnz.govt.nz/financial_stability/macro-prudential_policy/5393159.html
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