West Coast Takes Out Top Spot As Highest Performing Region For Residential Investors, Says REINZ

The West Coast region has taken out the top spot as the highest performing region for residential investors with the highest yield in New Zealand and the fourth highest capital gains, according to the latest edition of the Capital Gains and Rental Yields Report for Q1 2021 from the Real Estate Institute of New Zealand (REINZ).

This was the first time since Q3 2020 that the West Coast has made the topped the list as the best region for investors.

Yields in the West Coast region were 5.4% the only region with a yield in excess of 5%. Additionally, Capital gains in the West Coast increased 26.3% for the three months ending March 2021 when compared to the same time last year with median prices going from $229,000 to $289,250 thereby making it the standout region for residential property investors in New Zealand.

In second equal place in terms of providing strong returns for investors were the Gisborne and Manawatu/Wanganui regions.

Gisborne had the highest capital gains in the country at 39.5% (from $430,000 to $600,000) and the eighth highest rental yield at 3.6%. Manawatu/Wanganui was the region that topped the list last quarter, but this time saw the third highest capital gains in the country (up 29.4% from $425,000 to $550,000) and the sixth highest yield in the country at 3.8%.

At the other end of the scale, the REINZ Capital Gains and Rental Yields Report found that Tasman had the fifth to lowest capital gains (up 18.8% from $665,000 to $790,000) and the second to lowest annual yield of all regions (3.1%), making it the worst performing region for residential property investors.

Wendy Alexander, Acting Chief Executive at REINZ says: “As house prices have continued to rise at such a strong pace across the country, naturally we’ve seen residential property yields continue to ease or flatline in all regions. However, with some of the strongest capital gains we’ve seen in a long time it’s not surprising that investing in residential property still remains a popular asset choice for investors – especially ‘mom and pop’ investors who are looking to fund their retirement.

“The trend of a number of the smaller regions providing better overall returns has again continued,” continues Alexander.

“However, it will be interesting to see how the re-introduction of the LVRs and the 23 March changes affect the sector in the months ahead and whether investors look to either exit or more widely diversify their portfolios,” points out Alexander.

Regional breakdown of capital gains

The regions with the biggest increase in capital gains for the 3 months ending March 2021 compared to the 3 months ending March 2020 were:

1. Gisborne with a 39.5% increase from $430,000 to $600,000
2. Hawke’s Bay with a 29.9% increase from $539,000 to $700,323
3. Manawatu/Wanganui with a 29.4% increase from $425,000 to $550,000
4. West Coast with a 26.3% increase from $229,000 to $289,250
5. Wellington with a 25.7% increase from $692,000 to $870,000.

The lowest capital gains in the country were in Canterbury and Southland with gains of 16.8% and 13.0% respectively.

“Every region in the country experienced double-digit increases in capital gains in Q1 with 9 out of 16 regions seeing uplifts in excess of 20% - the first time since Q1 2005 that we’ve seen such strong results,” says Alexander.

“Looking forward we would expect capital gains to remain strong in Q2, but as we move into Q3 and the coldest months of the year we would anticipate the usual easing of price growth. How much price growth slows will be anyone’s guess though, as the shortage of supply is likely to continue to place pressure on house prices for a while yet,” she continues.

Yields

The regions returning the biggest yields to investors for the 3 months ending March 2021 compared to the 3 months ending March 2020 were:

1. West Coast with a yield of 5.4%, down from 6.4%
2. Southland with a yield of 4.4%, the same as March 2020
3. Canterbury with a yield of 4.0%, down from 4.4%
4. Taranaki with a yield of 4.0%, down from 4.6%
5. Marlborough with a yield of 3.8%, down from 4.1%.

“Rental yields have fallen in all regions across the country - except Southland, which saw yields remain flat when compared to the same time last year,” says Alexander.

“With the rate of house price growth forecast to slow as we approach the end of the year it will be interesting to see if we start to see an uplift in yields as 2021 comes to a close,” she continues.

“As expected, we’re still seeing quite a discrepancy in yields across the country with the West Coast and Auckland once again taking up first and last positions respectively.

“Grey District saw the highest yields on the West Coast at 5.7% followed by Buller at 5.6% and Westland District at 4.9%. In the Auckland region, Papakura District had the highest yields at 3.6% and Auckland City had the lowest yields at 2.2%,” concludes Alexander.

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