Increasing enthusiasm for investing in residential rental properties could prove to be ill-founded.
The latest ASB Bank Quarterly Housing Report, released this week, says the outlook for the rental market remains subdued. While rent levels have been easing, there's now data to suggest that the downward pressure has slackened off.
"However, even over the longer term, the prospects for both rent increases and capital gain are significantly less than they were in a high inflation (and in Auckland, high population growth) environment," the report states.
"Consequently, the emphasis on capital gain will continue to reduce, while careful property selection will become more important."
Yet ASB Bank's latest investor confidence survey (which covered the June quarter), found that confidence in residential rental property as an investment has overtaken confidence in managed investments.
In the survey's 12-month history, managed investments have either led or equalled the stakes in response to the question "what type of investment gives the best return?" However, the latest survey showed residential rental property ahead for the first time at 20 per cent, compared with managed investments at 19 per cent.
The bank's table below gives a broad idea of regional differences in investor returns, showing the ratio of median rentals to house prices in selected cities along with average, annual house price gains (inflation-adjusted) during the last nine years.
| | Median weekly rental | Median house price | Ratio: rental to house price | Annual house price growth | | -------------------- | ------------------------ | ---------------------- | -------------------------------- | ----------------------------- | | North Auckland | $250 | $274,000 | 0.9 | 3.1 | | Central Auckland | $250 | $289,000 | 0.9 | 5.6 | | Hamilton | $180 | $176,000 | 1.0 | 2.9 | | Porirua City | $170 | $175,000 | 1.0 | 0.4 | | Wellington City | $240 | $240,000 | 1.0 | 2.5 | | Dunedin | $145 | $99,000 | 1.5 | 0.3 | | Invercargill | $110 | $68,000 | 1.6 | -1.0 |
Table prepared by ASB Bank, using weekly rental data from Tenancy Services as at June quarter 1999, median house price data from Quotable Value as at June quarter 1999 and house price growth from Quotable Value House Price Index ( average, real annual gain for period 1990-1999).
