House Prices

West Coast best bet for investors

Residential property investors have been given a steer on where to invest – and it’s not Auckland.

Tuesday, June 29th 2021

In fact, it’s far further south. The West Coast of the South Island to be precise.

It has taken top spot as the highest performing region for residential investors with the highest yield in New Zealand and the fourth highest capital gains, the latest Real Estate Institutue of New Zealand (REINZ) data shows.

The latest edition of the Capital Gains and Rental Yields Report reveals, since the third quarter last year, the West Coast has topped the list as the best region for investors.

Yields in the West Coast region are 5.4%, the only region with a yield in excess of 5%.

Additionally, capital gains in the West Coast increased 26.3% for the three months ending March this year when compared to the same time last year. With median prices going from $229,000 to $289,250 – making it the standout region for residential property investors.

In second equal place in terms of providing strong returns for investors were Gisborne and Manawatū/Whanganui.

Gisborne had the highest capital gains in the country at 39.5% (from $430,000 to $600,000) and the eighth highest rental yield at 3.6%.

Manawatū/Whanganui topped the list last quarter, but this time it had the third highest capital gains in the country (up 29.4% from $425,000 to $550,000) and the sixth highest yield in the country at 3.8%.

At the other end of the scale, Tasman had the fifth lowest capital gains (up 18.8% from $665,000 to $790,000) and the second lowest annual yield of all regions (3.1%), making it the worst performing region for investors.

Growth expected to ease

REINZ acting chief executive Wendy Alexander says as house prices continue to rise at a strong pace across the country, residential property yields continue to ease or flatline in all regions.

“However, with some of the strongest capital gains seen in a long time it’s not surprising investing in residential property still remains a popular asset choice for investors – especially ‘mom and pop’ investors who are looking to fund their retirement.

“The trend of a number of smaller regions providing better overall returns has again continued,” says Alexander.

“It will be interesting to see how the reintroduction of the LVRs and the Government’s planned changes affect the sector and whether investors look to either exit or more widely diversify their portfolios,” she says.

Regional breakdown of capital gains

The regions with the biggest increase in capital gains for the three months ending March 2021 compared to the three months ending March 2020 were:

1. Gisborne with a 39.5% increase from $430,000 to $600,000

2. Hawke’s Bay with a 29.9% increase from $539,000 to $700,323

3. Manawatū/Whanganui with a 29.4% increase from $425,000 to $550,000

4. West Coast with a 26.3% increase from $229,000 to $289,250

5. Wellington with a 25.7% increase from $692,000 to $870,000.

The lowest capital gains in the country were in Canterbury and Southland with figures of 16.8% and 13.0% respectively.

“Every region in the country experienced double-digit increases in capital gains in the first quarter of this year with nine from 16 regions having uplifts in excess of 20% – the first time since the first quarter of 2005 there have been such strong results,” says Alexander.

She expects capital gains to remain strong in the second quarter, but anticipates an easing of price growth during the winter months in the third quarter. 

“How much price growth slows will be anyone’s guess though, as the shortage of supply is likely to continue to place pressure on house prices for a while yet.”

Yields

The regions returning the biggest yields to investors for the three months ending March 2021 compared to the three months ending March last year were:

1. West Coast with a yield of 5.4%, down from 6.4%

2. Southland with a yield of 4.4%, the same as March 2020

3. Canterbury with a yield of 4.0%, down from 4.4%

4. Taranaki with a yield of 4.0%, down from 4.6%

5. Marlborough with a yield of 3.8%, down from 4.1%.

Alexander says rental yields have fallen in all regions across the country – except Southland, where yields remain flat when compared to the same time last year.

“With the rate of house price growth forecast to slow towards the end of the year it will be interesting to see if there is an uplift in yields as this year comes to a close.

“As expected, there is still quite a discrepancy in yields across the country with the West Coast and Auckland once again taking up first and last positions respectively,” says Alexander.

Grey District had the highest yields on the West Coast at 5.7% followed by Buller at 5.6% and Westland District at 4.9%.

In the Auckland region, Papakura District had the highest yields at 3.6% and Auckland City had the lowest yields at 2.2%.

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