To provide a quick guide, sometimes analysts and commentators (me included) will run simple numbers that compare the average rent in an area to its average property value and quote that as the typical gross rental yield. And often, these calculations will tell you that parts of the West Coast, for example, yield very well and that Auckland runs on low yields. It’s fair enough as a starting point. But that’s far from the whole story.
Let’s start with those simple rental yields. As of December 2022, Buller took the top spot with a gross rental yield of 6.2%, with Kawerau at 5.4%, Ruapehu and Grey both at 5.1%, and South Taranaki at 5.0%. At the other end of the spectrum, Queenstown yields 1.8%, Thames-Coromandel 2.1%, with MacKenzie and Auckland at 2.2%.
If you consider those low-yielders, most are ‘holiday’ areas that may not have deep and broad pools of long-term rental properties (Queenstown is a different story), and only Auckland is an ‘established main rental market’. Amongst the high yielders, all are small, rural parts of the country with relatively low property values.
And this is where the caveats start to come in. For example, some investment properties in areas such as Buller and Kawerau have delivered solid and stable returns to their owners from both a mixture of rental cash flow and capital gains. But there’s undoubtedly also a greater risk that vacancy periods crop up more often in those smaller markets than Auckland, for example, and when a vacancy occurs, it could well be longer too. A high gross yield of 5-6% on paper doesn’t mean much if you’re not actually collecting any rent.
On top of that, there’s probably a tendency for ‘fixed’ costs in $ terms such as insurance and...
