Hello,
Welcome to the tenth edition of the West Auckland monthly Residential Landlords Newsletter.
I am a landlord myself and have been for over 30 years. I have just brought another rental investment last December in West Auckland and another this month in Milwater, Siverdale. I currently own rental properties in South Auckland, the North Shore and West Auckland. Being a high preforming Real Estate Agent (top 1% in New Zealand) for over 25 years and always working in West Auckland I know the real estate market and the rental market very well.
In this and ongoing newsletters I hope to provide ongoing up to date information relevant to landlords who own rental properties in West Auckland.
Regular features will include:
- Current sale prices
- Current mortgage rates
- Current rents
- A monthly suburb spotlight review
- A relevant feature article each month
I hope you will find it useful. I am available for free advice and opinion on any residential real estate matter.
|
Sale Prices |
|||
| Suburb |
Median selling price April 2015 |
No sold | Days to sell |
| Titirangi | $ 785,000 |
28 |
34 |
| West Harbour | $ 716,000 |
19 |
27 |
| Glendene | $ 657,750 |
18 |
24 |
| Henderson | $ 625,000 |
54 |
29 |
| Massey | $ 600,000 |
49 |
27 |
| Ranui | $ 565,000 |
25 |
31 |
| Sunnyvale | $ 510,000 |
14 |
25 |
| Swanson | $ 590,000 |
6 |
31 |
| Te Atatu Peninsula | $ 733,500 |
16 |
27 |
| Te Atatu South | $ 660,000 |
23 |
23 |
| Glen Eden | $ 578,000 |
37 |
30 |
| New Lynn | $ 636,000 |
26 |
29 |
| Whenuapai | $ 901,500 |
4 |
25 |
| Kelson | $ 551,000 |
8 |
31 |
| Waiatarua | $ 789,000 |
3 |
14 |
| Royal Heights | $ 702,000 |
5 |
47 |
Source REINZ
|
Current Mortgage Rates 28/05/2015 |
|||||
| Float | 1 yr fixed | 2 yr fixed | 3 yr fixed | 5 yr fixed | |
| ANZ |
6.74% |
5.59% |
5.59% |
5.59% |
5.79% |
| ASB |
6.75% |
5.99% |
5.99% |
5.99% |
5.99% |
| BNZ |
6.74% |
5.35% |
5.39% |
5.49% |
5.75% |
| Westpac |
6.59% |
5.59% |
5.59% |
5.59% |
5.79% |
| Kiwi Bank |
6.65% |
5.39% |
6.09% |
6.29% |
6.49% |
| Best of other lenders |
5.80% |
5.10% |
5.29% |
5.29% |
5.29% |
Source – J Goodrum – Internet search
|
Current Rents |
|||||
|
1st Oct 14 – 31st Mar 15 |
|||||
| Glen Eden |
Average Rent |
Bonds Paid |
Royal Heights/Massey | Average Rent | Bonds Paid |
| 2 brm apartment |
$ 286.00 |
5 |
2 brm flat | $ 345.00 |
7 |
| 1 brm flat |
$ 255.00 |
10 |
3 brm flat | $ 380.00 |
5 |
| 2 brm flat |
$ 350.00 |
8 |
2 brm house | $ 350.00 |
20 |
| 2 brm house |
$ 367.00 |
22 |
3 brm house | $ 432.00 |
108 |
| 3 brm house |
$ 430.00 |
103 |
4 brm house | $ 525.00 |
28 |
| 4 brm house |
$ 490.00 |
20 |
5+ brm house | $ 610.00 |
15 |
| 5+ brm house |
$ 550.00 |
5 |
Te Atatu South |
|
|
| Glenene |
|
|
1 brm flat | $ 260.00 |
5 |
| 1 brm flat |
$ 297.00 |
6 |
2 brm flat | $ 370.00 |
16 |
| 2 brm flat |
$ 357.00 |
16 |
2 brm house | $ 400.00 |
13 |
| 2 brm house |
$ 370.00 |
15 |
3 brm house | $ 450.00 |
47 |
| 3 brm house |
$ 430.00 |
60 |
4 brm house | $ 550.00 |
8 |
| 4 brm house |
$ 500.00 |
12 |
Te Atatu Peninsula |
|
|
| Henderson |
|
|
2 brm apartment |
$ 460.00 |
7 |
| 1 brm flat |
$ 285.00 |
14 |
2 brm flat |
$ 385.00 |
6 |
| 2 brm flat |
$ 350.00 |
35 |
2 brm house | $ 380.00 |
17 |
| 3 brm flat |
$ 395.00 |
7 |
3 brm house | $ 460.00 |
65 |
| 2 brm house |
$ 375.00 |
66 |
4 brm house | $ 590.00 |
21 |
| 3 brm house |
$ 440.00 |
206 |
5+ brm house | $ 737.00 |
6 |
| 4 brm house |
$ 522.00 |
76 |
Titirangi |
|
|
| 5+ brm house |
$ 617.00 |
20 |
1 brm flat | $ 260.00 |
16 |
| 1 room |
$ 180.00 |
5 |
2 brm flat | $ 340.00 |
5 |
| Kelston |
|
|
1 brm house | $ 320.00 |
9 |
| 1 brm apartment |
$ 290.00 |
25 |
2 brm house | $ 395.00 |
25 |
| 2 brm apartment |
$ 320.00 |
7 |
3 brm house | $ 470.00 |
85 |
| 1 brm flat |
$ 240.00 |
13 |
4 brm house | $ 600.00 |
24 |
| 2 brm flat |
$ 335.00 |
16 |
West Harbour |
|
|
| 2 brm house |
$ 365.00 |
20 |
1 brm flat | $ 292.00 |
8 |
| 3 brm house |
$ 430.00 |
62 |
2 brm house | $ 390.00 |
15 |
| 4 brm house |
$ 477.00 |
8 |
3 brm house | $ 460.00 |
76 |
| 5+ brm house |
$ 600.00 |
5 |
4 brm house | $ 595.00 |
36 |
| 1 room |
$ 170.00 |
5 |
5+ brm house | $ 680.00 |
15 |
| New Lynn |
|
|
Western Beaches/Rural |
|
|
| 1 brm apartment |
$ 290.00 |
22 |
1 brm flat | $ 275.00 |
5 |
| 2 brm apartment |
$ 390.00 |
14 |
1 brm house | $ 265.00 |
9 |
| 1 brm flat |
$ 285.00 |
15 |
2 brm house | $ 370.00 |
35 |
| 2 brm flat |
$ 360.00 |
46 |
3 brm house | $ 450.00 |
52 |
| 3 brm flat |
$ 420.00 |
8 |
4 brm house | $ 550.00 |
25 |
| 2 brm house |
$ 400.00 |
37 |
5+ brm house | $ 650.00 |
7 |
| 3 brm house |
$ 450.00 |
85 |
1 room |
$ 230.00 |
5 |
| 4 brm house |
$ 530.00 |
20 |
|||
| 1 room |
$ 207.00 |
8 |
|||
| Ranui | |||||
| 2 brm flat |
$ 245.00 |
5 |
|||
| 2 brm house | $ 372.00 |
10 |
|||
| 3 brm house | $ 400.00 |
64 |
|||
| 4 brm house | $ 497.00 |
12 |
|||
Source NZ Government building & housing
|
|
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|
Henderson |
||||||
| Date | Median selling price | 5 year gain % | ||||
| Apr 1995 | $ 135,000.00 | |||||
| Apr 2000 | $ 240,000.00 |
77.8 |
||||
| Apr 2005 | $ 322,000.00 |
34.2 |
||||
| Apr 2010 | $ 318,000.00 |
- 1.2 |
||||
| Apr 2015 | $ 625,000.00 |
96.5 |
||||
| Over 20 years |
363.0% |
|||||
|
||||||
|
Te Atatu Peninsula |
||||||
| Date | Median selling price | 5 year gain % | ||||
| Apr 1995 | $ 161,000.00 | |||||
| Apr 2000 | $ 207,500.00 |
28.9 |
||||
| Apr 2005 | $ 303,500.00 |
46.3 |
||||
| Apr 2010 | $ 431,500.00 |
42.2 |
||||
| Apr 2015 | $ 733,500.00 |
70.0 |
||||
| Over 20 years |
355.6% |
|||||
Source NZ dept of statistics
October Reserve Bank Regulations And
Government Changes To Rental Property Investors Rules
Because the reserve bank is extremely worried about rapidly rising Auckland house prices they will from the 1st of October impose on lending banks tougher lending restrictions. This has been signalled for some time.
During the first quarter of this year according to the reserve bank (RBNZ) around 40% of all sales in Auckland were to investors. The RBNZ considers investment buyers a higher risk than first home buyers.
That means if there was a sudden or large economic shock like the GFC (global financial crisis) these investors are at the greatest risk of defaulting which would cause serious damage to the NZ financial system and the economy.
To reduce that risk the RBNZ on the 1st of October will impose on lending banks a 30% L.V.R, meaning any rental investors (defined as anyone buying a residences not to live in themselves) will need 30% deposit. Currently they need a 20% deposit.
What they also are making the banks do is carry more cash reserves than they currently do to cover lending to investors. This will be the major factor not the 30% deposit. It is estimated that because of the tied up cash reserves lending to investors will be more expensive for banks by up to 25% – 30%.
For the investor borrower they will need at least 30% deposit and will pay 25% – 30% higher mortgage payments on any borrowing for the 1st or October onwards. These measures are sure to slow down the number of investors buying property as rentals. This in turn is expected to reduce the demand (number of buyers wanting to buy) and so in turn slowing down the price increases.
The RBNZ estimates it will reduce the price rises by 2 – 4%. On top of this the taxation test for rental investment properties is to be changed as announced in this month’s budget. Currently if an investor buys a property with the intention of renting it out then any gain in the property value is not taxable.
If for example after 12 months the investor’s circumstances change – eg he loses his job or separates from his wife / partner and cannot afford to keep his rental, so sells it and makes a profit on the sale he would not have to pay tax on that profit (capital gain).
This is because he did not intend to sell it when he purchased. What people intend is hard to prove / disprove. The law is being changed so that no matter what the intention if an investor buys a rental property, sells within 2 years and makes a profit (capital gain) that will be taxable.
So what does all this mean?
It means the real issue of shortages of houses in Auckland is not being addressed with sufficient vigour. My interpretation of these measures:
- Overseas buyers will not be effected they either have cash or access to cheap loans overseas.
- Rents will rise rapidly because of the reduced number of rental investor purchasers.
- The long established rental investor with several properties will have 30% equity to buy other rentals.
- The would be Mum and Dad wanting to buy one rental as a long term investment to sell near retirement age will be discouraged by the 30% deposit and higher mortgage rates – perhaps no retirement property investment nest egg for them.
- The reserve bank will now think it can reduce the OCR – possibly late this year and again early next year.
- The overall effect of these measures in my opinion apart from pushing up rents and locking out buyers wanting a rental investment for retirement savings will be minimal with respect to house prices.
Let’s look at what an investment under the new rules looks like. Say I am an investor who has a 30% deposit sourced from equity in other owned property and can handle a negative cash flow. So I buy a rental property for $750,000.
| Income | Outgoings | |
| Rent $600.00 / week | Mortgage 6.7%* | |
| Less estimated 2 weeks vacancy = $30,000.00 p.a. | of $750,000.00 | $ 50,250.00 |
| Rates | $ 2,000.00 | |
| Insurance | $ 1,200.00 | |
| Maintenance | $ 2,000.00 | |
| * 5.15% current mortgage rate + 30% increase = 6.7% | $ 55,450.00 | |
| ignoring one off legal fees to purchase | ||
| Annual shortfall = $55,250.00 – $30,000.00 = $25,450.00 p.a.** | ||
** For my $25,450 annual shortfall I have ignored the fact that this can be offset against other earnings and if tax is payable at 33% there is another income of $ 25,450 x 33% = $8,398.50.
Last year property prices in West Auckland rose by close to 15%. If that repeated in the next 12 months –
Our $750,000 purchase increases in value by-
$750,000 x 15% = $112,500
A good return for our $25,450 p.a. income shortfall with a net gain of $112,500 – $25,450 = $87,050.
Now suppose the RBNZ actions (taking their highest predicted outcome of 4% fall in price rises)
Now the increase is 15% – 4% = 11%
$750,000 x 11.0% = $82,500
A net gain of $82,500 – $25,450 = $57,050
Provided I don’t sell within 2 years of purchasing this is a tax free profit. The figures are likely to be better than this because the ORC will probably be reduced late this year and again next year so our 6.7% mortgage rate would reduce.
Auckland capital gains – price rises would have to fall below 3.0% per annum before the investment turned negative. As Tui would say – YEH RIGHT!!!
Until next time,
Best wishes,
John Goodrum
Licensee Agent REAA 2008
021945140
09 838 8895