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
|
||||||
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:
1. Overseas
buyers will not be effected they either have cash or access to cheap loans
overseas.
2. Rents
will rise rapidly because of the reduced number of rental investor purchasers.
3. The
long established rental investor with several properties will have 30% equity
to buy other rentals.
4. 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.
5. The
reserve bank will now think it can reduce the OCR – possibly late this year and
again early next year.
6. 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
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