Rental yields better bet than capital gains: ASB

Tuesday 26 May 2009

Properties offering good rental yields will be a safer option than capital gains, according to the latest ASB housing confidence report.

By The Landlord

Properties offering good rental yields will be a safer option than capital gains, according to the latest ASB housing confidence report.

Future house prices will probably be "constrained", said chief economist Nick Tuffley in the report, and investors need to be aware that "unrealised capital gains can vanish quite rapidly". Prices were still high in relation to incomes and rents, despite being dragged down by lower mortgage rates.

"Although prices have fallen over the past 18 months, they remain high relative to both incomes and rents," Tuffley said. They're now "merely expensive instead of being really expensive."

A net 45% of respondents expect house prices to fall in the next 12 months, according to the ASB Housing Confidence Survey, while 46% believe now is a good time to buy. A net 30% predict interest rates will fall in the coming year.

"Although the survey still implies a weak outlook for house prices, positive sentiment towards home purchasing has steadily strengthened over the past nine months," he said.

House sales picked up in April as optimism the depth of the country's first recession in a decade wouldn't be as deep as first feared erased some of the prevailing gloom, Tuffley said.

He warns the strength in recent sales coincided with a sharp spike in mortgage approvals, which may have contributed to the large turnover. Since the approvals published by the central bank have subsided, there may be a cooling to the recent heat in the market, he said.

Full report here

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