The West Coast has claimed the top spot as the top-performing region for property investors, says the Real Estate Institute.
It had the highest rental yield in the country at 5.3% during the first half of this year, according to the institute’s latest capital gains and rental yield report.
Rental yield is the measure of the rental income a property generates versus its purchase price. The report calculated performance by comparing the annualized median rent to the median price for a region.
During the same period, the region had the second highest capital gains nationally, rising 19.4% year over year at a median price of $345,000.
West Coast property has long held a high spot in investment return betting, but in the second half of last year dropped to second place after Manawatu/Whanganui.
But Manawatu/Whanganui was no longer in the top five and Taranaki was in second place. It had the third-highest capital gains in the country, with a median price increase of 17.3% to $630,000, and the fifth-highest rental yield at 3.8%.
Southland was the third-best performer, with the second-highest rental yield of 4.4% and the seventh-highest capital gain (up 12.2% at $450,000).
Canterbury, which had the highest capital gains after a 22.1% increase, brought its median price to $690,000, and Northland, with the fourth-highest capital gains (up 16.5% to $775,000) , rounded out the top five.
Auckland was the worst performer, with the third lowest capital gain (up 6.1% at $1.17 million) and the lowest return of 2.7%. Wellington followed with the lowest gains (up 5.1% to $920,000) and a return of 3.4%.
Real Estate Institute director of property management Joanne Rae said that while rental prices had risen in the first part of the year, price increases had outpaced them and that moderated rental yields.
While the West Coast had the highest rental yield, it still fell from 5.4% in the same period last year, he said.
“Fundamentals, such as forecast population growth and property supply over time, in the market keep property prices below the national median.
“But like other regions, there was a marked increase in the West Coast median price and that contributes to the annual decline in rental yields.”
Rae said there were also variations in returns across many regions, as returns and earnings differed in different districts.
In Taranaki, for example, South Taranaki had a 5.0% yield, while Stratford and New Plymouth District had 3.9% and 3.7% yields respectively, lowering the overall yield in the area.
In Wellington, Wairarapa South had capital gains of 26.7% and Masterton had gains of 12.5%, while Wellington City was negative at negative 1.3%, and that reduced capital gains general of the region, he said.
“Looking at the regions and the variation between their areas, it is vital to carry out the proper due diligence before purchasing an investment property.”
Investors have withdrawn from the market over the past year, due to new tax policies, a tighter credit environment and rising interest rates.
While there was no mass exodus of investors, there was a noticeable absence in the buyer pool, Rae said.
“As the market continues its current trajectory, with the mid price moving at a more moderate pace and more stocks available, we may see investors return to the market attracted by the opportunity to diversify their portfolio.”
The price slump had limited the potential for capital gains for the foreseeable future, and CoreLogic’s chief property economist Kelvin Davidson has said investors would change focus on purchasing high-yield properties.
“But the highest returns tend to be found in areas with the cheapest home prices, and there is always an element of risk involved that is worth considering.”