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Quarterly Auckland rental update: Rental yields back on the upswing

  • Auckland's average rental yield rises for the first time in three years
  • Rental yields climb in roughly half the city’s suburbs, with an average return of 3.04%
  • Across Auckland, average rent for Q2 2017 was 4.9% more than the same time last year

Rental yields back on the upswing

Returns for Auckland rental property owners look to be on the up, with gross rental yields for three-bedroom homes in over half the city’s suburbs rising in the first half of 2017, compared with the same period last year. This follows a steady decline in rental yields observed since 2014.

“On the whole, this is good news for rental property owners. A change in direction of rental yields is exactly what you would expect to happen at some point in response to moderate, but consistent increases in rent, and slowing of house sales prices,” says Barfoot & Thompson Director Kiri Barfoot.

Gross rental yield is typically calculated by dividing annual rent received by sales price. A hypothetical home purchased for $100,000 and renting for $3,000 per year thus has a 3% yield.

Barfoot data shows that the average rent for a three-bedroom home in Auckland was $537 a week as at July 1, or $27,924 a year, while the average sale price* was $917,415, giving a gross yield of 3.04%.

“While that’s only slightly up on 2016 for the same period, which had a gross yield of 3.00%, it does arrest the fall in yield seen since 2015, when the city-wide average was 3.25%, and 2014, when it was 3.7 percent,“ says Ms Barfoot.

“The upward trend in rental yield was most obvious in the Central Suburbs – which include most of the old Auckland City suburbs west of the Southern Motorway – as well as on the North Shore.”

In the Central Suburbs, 13 of the 19 suburbs surveyed saw increases in yields compared with 2016. Top performers were Ponsonby, which rose from 2.27% to 3.19%; Grey Lynn, which went from 2.58 to 3.05%; and Onehunga, where gross yield went from 3.03% to 3.15%. But those continuing to trend downwards included Westmere, which fell from 2.87% to 1.80%, and Mt Eden from 2.66% to 2.22%.

On the North Shore, yields lifted in 12 of 15 suburbs included in the survey, compared with 2016. Rothesay Bay had the biggest lift, from 2.94% to 3.79%, while Albany climbed from 3.11% to 3.38%.

In Auckland Central gross yield was 4.28% – up from 3.94% the year before – and one of the best in the super city.

“It was more of a mixed bag in Auckland’s south and west, where around half the suburbs rose, but yields for most still remained better than the city-wide average,” says Ms Barfoot.

Nine of the 16 suburbs in West Auckland saw yields climb or stay the same, and all but two were above the city average. Royal Heights was the top earner, on 3.88% (up from 3.61%), while Te Atatu Peninsula had the biggest proportionate rise, from 2.78% to 3.06%. Seven suburbs, though, continued the downward trend seen since 2014; with Swanson falling farthest, from 4.23% to 2.74%.

In South Auckland, yields improved in just five of the 14 suburbs surveyed, but yields remained better than average in all but one. Yields picked up in Manurewa (from 3.84% to 4.12%) and in Mangere (from 3.23% to 3.89%). The two top earners, though, were suburbs which have kept trending downwards since 2014, namely Otara and Clendon Park, which had gross yields of 4.38% and 4.38%, respectively.

Just three of the 13 Eastern Suburbs recorded increases in gross yield, the best being Ellerslie, which climbed from 3.03% to 3.08% and was the only one with a yield over the average, while in Rodney, only one of the six suburbs surveyed saw a rise in yield; Red Beach (from 3.32% to 3.41%).

Auckland rents continue steady upward trend

Across Auckland, average rent increased by 4.9% in the April to June quarter (Q2) of 2017, compared with the same quarter the year before. Average weekly rent across all property types and locations was $531, up from $506.

Average rent rose more than average in Rodney (6.9%), the Central Suburbs (6.4%), South Auckland (5.8%), and the Eastern Suburbs (5.6%), but less in West Auckland (2.4%), Central Auckland (3.1%), Pakuranga/Howick (3.1%), North Shore (4.1%), and Franklin/Rural Manukau (4.3%).

For new tenancies, average rents rose more than the total city average in just Franklin/Rural Manukau (9%), and Rodney (8%). In South and West Auckland, rents for new tenancies rose just 3% and 1%, respectively.

“The city-wide average of 4.9% this quarter is slightly down on the 5.2% increase recorded the year before, between the same quarters in 2015 to 2016.

“Rent isn’t as closely tied to property sales prices as people might expect. It is more closely aligned to people’s income and the landlord’s overheads for the property. Rent increases remain fairly consistent at or around 5%,” concludes Ms Barfoot.

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