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Auckland Property Market Research September 2017

ISSUE 138

Best Buying: A Review of the Main Centres

Auckland has seen the strongest regional growth in average sales price over the last three years (40%), while Wellington and Dunedin grew 27% and 26%, respectively. Over the same period, the increase in Christchurch sales prices was modest at 13%. Growth for Christchurch (relative to Wellington and Dunedin) appears to be softening over the past 3 years which may relate to the increased supply of housing as part of the Christchurch rebuild.

When we go back 5 years, we see a similar picture with Auckland experiencing strong growth in sales prices (74%). Meanwhile, Wellington, Christchurch and Dunedin grew at relatively similar rates (32%, 36% and 35%, respectively). Looking back 10 years Auckland housing prices have nearly doubled (96% growth). Christchurch had the second strongest growth at 45%, while Wellington and Dunedin both grew 39%.

From an investment point of view it is also valuable to look at the rental return. Across Auckland, Wellington and Christchurch the annual rental return was stable at about 5% during 2007-2012 which reflected the relatively stable house prices during this period. During 2012-2017 rental returns declined across the main centres but more so in Auckland, reflecting how the increases in house prices were not matched by similar increases in rents.

Dunedin continues to offer the best rental returns in New Zealand, which may be due to its relatively large student population as a proportion of its total population, providing a steady stream of tenants. Meanwhile Auckland offers the lowest rental return by a considerable margin, a result of property prices rising much faster than rental prices.

 Risks & Opportunities

Investors no longer consider capital gains as the biggest opportunity as the Auckland housing market shows signs of ‘cooling off’. Return On Investment is now considered the greatest opportunity. Meanwhile investors are concerned with the implementation of investor unfriendly laws, increasing interest rates and falling property prices.
In this month’s Crockers Property Investment Index (CPII) survey in association with IPSOS, we asked property investors to share with us their thoughts on what the biggest risks and opportunities facing New Zealand property investors are over the next 6 months. Note: Risks and opportunities identified were generally consistent regardless of property portfolio size.

Risks
The prospects of higher interest rates, implementation of investor unfriendly laws and falling property prices were the most common concerns among property investors (37%, 37% and 35%, respectively). Concern towards interest rates and property prices has remained relatively stable since October 2015, while implementation of investor unfriendly laws was added this year.

Compared to 2016, concern with methamphetamine contamination has softened (25%, down 11 points). Similarly, ‘property damage caused by tenants’ is less of a concern (19%, down 13 points). ‘Poor rental return on investment’ has continued to fall for the second consecutive year (24%, down 8 points), suggesting that investor confidence is relatively strong. For relatively few property investors, the prospect of untenanted properties (15%), recession (11%) and the need to devote personal time to managing investment property (9%) are big risks.

Opportunities
Although 37% feel there may be a risk of interest rates increasing over the next 6 months, 29% see the prospect of receiving a good rental return on investment as the biggest opportunity over the same period.

However, investors who consider the prospect of capital gains as an opportunity has softened considerably since 2016 (23%, down 26 points). Similarly, ‘house prices continue to rise’ has softened to 23% (down 26 points). This suggests that property investors are expecting the housing market to ‘cool-off’ after considerable increases in Auckland housing prices over the past five years.

Crockers Property Investment Index

This month the Auckland Rental Property Investment Index  has increased, converging to equal the Performance Index. This increase reflects an increase of investors planning to ‘increase’ the size of their property portfolios, coupled with a corresponding decrease in those planning to divest.

The Auckland Rental Property Performance Index has continued to trend upward this month. The is a result of more investors feeling that their investments will perform ‘better’ over the next year, coupled with a decrease in those expecting little change.


Auckland Sales and Rental Update

Auckland Median Prices and Sales Numbers
The median sales price has softened in July from $845,000 to $825,000 and is now on-par with the same time last year. This confirms that the market is ‘cooling off’, especially as there is usually growth in median sales price during the month of July (+12% in 2016 and +20% in 2015).

Meanwhile, sales volume has fallen from 1,879 to 1,791 - a 29% decrease since the same point last year. While this cooling-off may reduce capital gains from new or impending property investments, it should theoretically help maintain or improve rental ROI. However as seen in the following section, Auckland rents have also fallen slightly, reinforcing the need to have good quality tenants and a well-managed property maintenance plan to justify higher than average rents.

Auckland Rental Prices
Over the past month average Auckland rents for a 2-bedroom residential property have remained relatively stable at $479, while 2-bedroom rents across New Zealand have increased from $380 to $400. This has resulted in the Auckland 2-bedroom premium softening from 27% to 20%.

Average rents for 3-bedroom properties in Auckland softened this month from $630 to $616, while rents across New Zealand increased slightly from $450 to $460, resulting in the 3-bedroom premium to decrease from 40% to 34%. These two changes may well reflect the reported migration of many Aucklanders to provincial New Zealand.

 

 

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