Newbie Buy and Hold, and Yield Question

[Champion78]

When I look at the statistics on rent, it seems like the rent has consistently gone up (40-50%) in the last 10+ years, in most areas of NZ. Does that mean that the yield on the rental property has increase over the years? Does that make the rental a good buy, even if there is no or negative capital growth? Why do people talk about capital growth and yield (at the time of purchase), but not yield growth? Isn't that more important?

Thanks.

[elguapo]

Wages in NZ have gone up 40-50% in the last 10 years. Rents rise at roughly the rate of wage increase, however in the last ten or so years house prices have risen 70%, hence yields are dropping.

In the long term yield growth is what matters, that diversion between capital and yield will rebalance at some point.

[Rosco]

I doubt rents have gone up 40-50%, and would be interested in how that statistic comes about.

With statistic's, often you can rearrange data to show what you want. For example is this a standard 3 bedroom house built in 1980 rent has gone up, or that a new property has been built and its rent is higher than the older house?

Also - as already answered above, yields have gone down as property values have increased more than rent.

Ross

[Champion78]

Yes, that's true, it could be just the new builds that has higher rent.

Thanks.

[flyernzl]

In Auckland, the rental return vs the value of the asset has halved in the last 20 years, in my experience.

Also I strongly suspect that both rates and insurance have gone up more than 40 - 50% in the last 10 years.

[Champion78]

In Auckland, the rental return vs the value of the asset has halved in the last 20 years, in my experience.

Also I strongly suspect that both rates and insurance have gone up more than 40 - 50% in the last 10 years.

Yes, I realized that. However, when I looked at hamilton (from landlord.co.nz), there seems to be no capital growth for 10 years, but the rental data still showing at upward trend. This does puzzle me a bit.

[Rosco]

Hamilton has been very flat for the last 5 years in terms of capital growth. But if you look over 10 years, Hamilton had a big boom in 2005-07. $226k to $360k in last 10 years!

Look at http://www.lodge.co.nz/Residential/R...perty-Overview

It has a great graph of Hamilton over last 10 years

Ross

[elguapo]

Hamilton has been very flat for the last 5 years in terms of capital growth. But if you look over 10 years, Hamilton had a big boom in 2005-07. $226k to $360k in last 10 years!

This is true of most of NZ outside Auckland and Christchurch isn't it?

[Champion78]

Hamilton has been very flat for the last 5 years in terms of capital growth. But if you look over 10 years, Hamilton had a big boom in 2005-07. $226k to $360k in last 10 years!

Look at http://www.lodge.co.nz/Residential/R...perty-Overview

It has a great graph of Hamilton over last 10 years

Ross

Ross - do you think the same can be said for capital growth - the growth is from the newer buildings having higher prices, and the old buildings actually have not increased in value?

[speights boy]

Champion
You need to treat the data with a suitable amount of caution.
If it is merely based on median sale prices, it takes no account of renovation.

IE: Buy for 300k, do 70k reno, sell for 450k a number of years later.
The data merely shows the difference between 300k and 450k.

[elguapo]

Champion
You need to treat the data with a suitable amount of caution.
If it is merely based on median sale prices, it takes no account of renovation.

This has been my main issue with a lot of these sales price indexes, they take no account of the very large amount of money spent improving houses, collectively it's many billions per year. That basic 3/1 house from 20 years ago becomes a 4/2 with expensive tiled wet rooms and latest kitchen. With a rapidly rising market people quickly forget what over-capitalise means!