Residential property investment in Gisborne delivers returns 300 percent above bank deposit rates
The unassuming provincial city of Gisborne is vying for the title of New Zealand’s hottest residential property investment destination – with a three bedroom ‘renter’ in the city selling this month to an out-of-town investor for a return of almost 15 percent.
Real estate agency Bayleys this month sold the ex-State house in the city for $71,000 to an investor from Nelson. The three-bedroom/one-bathroom property on a 673 square metre section rents out for $200 a week, and has been occupied by the same tenant continuously for the past 10 years.
Bayleys Gisborne manager Karen Raureti said: “On those figures, the property generates an annual return of 14.6 percent – that’s more than three times the current 12-month deposit rates with the big banks, where you’re lucky to get 4.5 percent interest.”
“This latest sale is far from an anomaly though. We’ve seen a lot of 10 percent-plus rental yields coming through for residential investment stock selling over the past year,” she added.
“Our Nelson buyer noted that a 14.6 percent return was certainly far better than anything they could find in their own city – and is certainly way ahead of anything in the Wellington and Auckland markets where other Gisborne investors have been assessing values.”
Rental yields are found by taking the weekly rental return of a property, multiplying that by the 52 weeks in a year, dividing that total by the purchase price of the property, and multiplying that by 100 to give a percentage.
Earlier this year, ANZ bank produced a research report spotlighting what it had identified as New Zealand’s ‘hottest’ residential investment locations and suburbs.
Top of the ANZ’s location list – with a rental return of 8.3 percent was the Dunedin suburb of Forbury, closely followed by South Dunedin with a yield of 8.2 percent. At the bottom of the investment scale is the Auckland coastal suburb of Castor Bay delivering a miserly 2.7 percent return from rents, closely followed by the adjacent suburb of Devonport where investors could expect rental returns of 2.8 percent.
Ms Raureti said there was a big pool of ‘Gisborne ‘locals’ who had been investing in residential real estate in the city for almost a generation, and who were receiving double-digit returns far better than those identified in the ANZ report.
“Among that pool is a considerable percentage of Gisborne ex-pats who now live elsewhere in New Zealand, but still retain an affiliation with the region through family connections. For those ex-pats in the bigger centres, they simply can’t find the returns where they are living compared to what they can source in Gizzie, so they buy somewhere they know,” she said.
“While the capital gains seen in Gisborne may not be as spectacular as those recorded in the bigger cities such as Auckland and Christchurch, our rental returns certainly exceed anything they are producing – so it’s ‘one up’ for us little guys down here,” she added.
Ms Raureti said residential property investors had a markedly different psyche to owner-occupiers who bought homes to live in.
“A property investor calculates a property’s worth with a calculator. It’s a very cold and clinical process which looks at the ‘rentability’ of home – how much they can get per week in rent, and who will rent it.
“At the other end of the spectrum, owner-occupiers fall in love with their dream home and make their value assessment with the heart. By having those two vastly-different dynamics at play when a house goes up for sale, you can effectively capture the potential buyer market on behalf of your vendor,” Ms Raureti said.