The Manawatu/Wanganui region has come out as the highest performing area for residential investors, the Real Estate Institute of New Zealand (REINZ) says.
The region had the second-highest capital gains in New Zealand and the fourth-highest yield. It is the first time since quarter one last year that Manawatu/Wanganui has made the top three list as the best region for investors.
The latest edition of REINZ's Capital Gains and Rental Yields Report for quarter four of 2020 found that capital gains in Manawatu/Wanganui increased 25.3 percent for the three months ending December compared to the same time last year, with median prices going from $400,000 to $501,000. Additionally, yields in the region were 4 percent, which REINZ says makes it a "standout region" for residential property investors in New Zealand.
The West Coast came second in terms of providing strong returns for investors. It saw the highest yield in the country at 5.8 percent, making it the only region to exceed the 5 percent mark. The region also had the sixth-highest capital gains in the country, up 20.2 percent from $209,000 to $251,200.
Taranaki had the third-highest yield (4.1 percent) and the fifth-highest capital gains in New Zealand, up 21 percent from $405,000 to $490,000.
At the other end of the scale, REINZ's report found that Nelson had the lowest capital gains (up 10.8 percent from $600,000 to $665,000) and the third to lowest annual yield of all regions (3.4 percent), making it the lowest-performing region for residential property investors.
Wendy Alexander, REINZ's acting Chief Executive, says as house prices have continued to rise, they've seen yields continue to fall, showing that some of the strong yields they've seen previously are no longer available to investors.
"The regions with the best returns for investors continue to be some of the smaller and more 'affordable' regions which again points to the importance of due diligence before buying an investment property," she says.
"Although there is the obvious convenience of a rental property in your region, sometimes there are advantages to looking 'outside the box' and considering where your best investment opportunities lie and factoring in the cost of using a property manager to offset the physical distance."
Regional breakdown of capital gains
The regions with the biggest increase in capital gains for the three months ending December 2020 compared to the three months ending December 2019 were:
- Gisborne with a 36.6 percent increase from $410,000 to $560,000
- Manawatu/Wanganui with a 25.3 percent increase from $400,000 to $501,000
- Marlborough with a 23.6 percent increase from $466,000 to $576,000
- Hawke's Bay with a 21.7 percent increase from $530,000 to $645,000
- Taranaki with a 21 percent increase from $405,000 to $490,000.
The lowest capital gains in the country were in Canterbury and Nelson with gains of 12.9 percent and 10.8 percent respectively.
"Every region in the country experienced double-digit increases in capital gains in Q4 with six out of 16 regions seeing uplifts in excess of 20 percent - a remarkable result given initial forecasts for a post-COVID housing environment," Alexander says.
"The factors supporting this growth have been well documented, but include the removal of the LVRs, low interest rates from the major trading banks, a shift of spend from overseas travel to residential property and the fear of missing out as prices look set to continue rising in the next six to 12 months."
The regions returning the biggest yields to investors for the three months ending December 2020 compared to the three months ending December 2019 were:
- West Coast with a yield of 5.8 percent, down from 6.7 percent
- Southland with a yield of 4.5 percent, down from 4.8 percent
- Taranaki with a yield of 4.1 percent, down from 4.6 percent
- Manawatu/Wanganui with a yield of 4 percent, down from 4.6 percent
- Canterbury with a yield of 4 percent, down from 4.4 percent.
"We've seen rental yields fall across the board, with not a single region seeing an annual uplift in yields, a trend we've seen for some time now," Alexander says.
"Additionally, not a single region had a yield in excess of 6 percent and for the first time we've seen Auckland yields fall below the 3 percent threshold for the first time showing just how tough it is if you're an investor relying on strong yields from their investment portfolio."