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Weighing up investment performance by property type and location

The CoreLogic Buyer Classification figures show that multiple property owners (regardless of whether they’re using a mortgage or not) have accounted for more than 40% of property purchases so far in 2023 in the old Auckland City Council area and in Manukau, which is higher than the other parts of the super-city. (By comparison, the figure is less than 30% in both Franklin and Rodney). So how do some key property investment performance metrics look in these popular areas, based on our new Market Trends dataset?

For three-bedroom houses in Manukau, we estimate that the median value is currently $925,000, which has dropped by 14% over the past year – albeit still 23% above where it was five years ago. For a two-bedroom apartment in Auckland City, the current median value is about $741,000, down by roughly 7% over the past year but still 17% higher than five years ago.

Regarding the rents for these respective locations and property types, a two-bedroom City apartment currently has an asking rent of about $620 per week and a gross rental yield of 4.4%. A three-bedroom house in Manukau asks $670 per week for a gross rental yield of roughly 3.8%. These figures all square with the ‘conventional wisdom’, which says that apartments don’t deliver as much long-term capital gain as houses but have a higher rental yield.

Of course, a higher yield can come with other considerations too. For example, an investor wanting to consider the likelihood of a resale further down the track may want to look at potential days to sell – which has recently been 38 for a City two-bed apartment, higher than a three-bed house in Manukau at 31, and that’s despite less of the City two-bed apartment stock (1.5%) having actually been on the market over the past year (2% for Manukau three-bed houses).

Meanwhile, given the favourable treatment for new-builds within current policy settings – e.g., shorter Brightline period, continued interest deductibility, exemption from the LVR rules – many investors are looking at new properties pretty closely. But recent data illustrates that there’s ‘no free lunch’ – the median sale price for an existing two-bedroom City apartment has been $652,000, versus a much higher $865,000 for a new-build. There’s also a new-build premium for three-bed Manukau houses, with a recent median sale price of $1.05m, versus around $960,000 for an existing property.

All up, the new monthly Market Trends dataset confirms other evidence that apartments can outperform houses in terms of rental yields but might also lag when it comes to capital gains (or at least they have been a little softer over the past five years) – as well as potentially carrying more ‘liquidity risk’ if it takes longer to sell an apartment when the times comes.

But it also illustrates that at least in the past 1-2 years, new-builds have been selling at a premium to existing properties for both two-bed apartments in the City and three-bedroom houses in Manukau. Yes, new builds have preferential treatment from a tax/lending perspective, but the investor would need to be paying more to buy them in the first place. In turn, part of that may reflect the rising construction costs, so developers have had to raise selling prices.

Over the coming months, I’ll be using Market Trends extensively to get new insights into the market, both from a general perspective and some key investment performance measures.

Kelvin Davidson

Kelvin Davidson is the Chief Economist of CoreLogic New Zealand.

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