Too Many Rentals Could Bring Problems

The statistics show that more and more people are buying properties with the intention of renting them out as pure investments.  This is backed up by figures that show that home ownership is dropping with people choosing or being forced to rent.

As long ago as 2006 the trend was clear and it’s much worse now.


The problem is that with this exuberance of investment buying, rentals are becoming detached from giving a fair return for the investment involved. Those who bought years ago have little difficulty in proving that their yields are good as compared to the price they paid at the time but are often lousy when compared to present day values . Most investors today will be lucky to earn 3% after tax and expenses on the value from their properties and are relying on capital gain to make up the difference.

The current surge in house prices in many areas can be self defeating and I would caution investors and home owners alike not to get carried away and pay silly money .There is always a day of reckoning somewhere down the line and there could be tears- as has happened many times before,

By all means invest in rentals or a new home but when doing your calculations do not assume that rents will always go up, that interest rates will always stay low and that capital growth is guaranteed. Over time that can be a sure bet, but time means many years and not always instant wealth.

Renters get more choice as investors flood the market
By Anne Gibson 13.4.13

More rental properties are available in Auckland so prices are staying relatively stable. Photo / File
Auckland renters are regaining the upper hand in the property market, thanks to more choice.

Brendon Skipper, head of property at Trade Me, said more rental properties were available in Auckland so prices were staying relatively stable, up only 3 per cent in Mt Eden on this year’s first quarter compared to last year and falling 3 per cent in Remuera and 4 per cent in Epsom.

But Christchurch rents are going through the roof, due to a shortage of residential properties.

Auckland now has 4,800 rental properties available, a further 2,200 within the city area, 871 in Manukau, 818 on the North Shore, 457 in the Waitakere area and 238 in Rodney.

“With things picking up economically, you’ve a shortage of properties in Auckland but from what I understand, more investors are buying and there are more rentals coming online,” Mr Skipper said.

This week, the Real Estate Institute said 8,128 houses had sold last month, up 23 per cent on February and up 11 per cent on the same month last year, the largest number of sales in a single month since May 2007.

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