With house prices still down more than 20 from the peak, and two Ōtāhuhu and Māngere East townhouses on the market with a $1 reserve, you might be wondering whether it's a good time to buy an investment property in Auckland.
Westpac data shows 48 per cent of new investor lending is happening in Auckland, well ahead of 12 per cent in Canterbury and 8 per cent in Wellington.
Cotality chief property economist Kelvin Davidson. SUPPLIED
Kelvin Davidson, chief property economist at Cotality, said he could understand why the city might be starting to appeal to investors again.
Prices are lower, which means rental yields are usually higher; there is a good range of stock available; and, when migration picks up again, it is likely to put more pressure on Auckland house prices.
Clients were choosing to invest in Auckland because house prices there had fallen faster than the country overall.
Ed McKnight. Supplied / Ed McKnight
"New Zealand property prices are down 17.1 per cent since the peak of the market, whereas Auckland property prices are currently 24.9 per cent down from the peak.
"This means that developers are hurting. In one example, my team were able to negotiate another $80,000 off the price of a townhouse for an investor we were working with. There are deals to be had."
He said his analysis showed Auckland properties were 9.8 per cent undervalued.
McKnight said it was important to take care with some townhouse developments because some had been built in an unusual way.
"I was going through open homes over the weekend, looking at townhouses that were a few years old. One had a bathroom plonked at the back of the garage ... not connected to any other rooms. Then the backyard grass was completely ruined for that unit and its neighbours. This is because some developers plant grass but give no space for a shed. So some townhouses can be a good investment. But not all are."
But property coach Steve Goodey said it was still hard to find good cash flow in Auckland. "Nothing up there is yielding that well. A lot of people have still got their heads in 2021 money that's not there any more."
Kelly Eckhold, chief economist at Westpac, said he would not be jumping in, given the rent trends in house prices had not been strong and rental yields were still modest.
Westpac chief economist Kelly Eckhold. Supplied / LinkedIn
"Especially in the context of uncertainty about the tax treatment of investor housing related to the election outcome."
He said investor demand had changed significantly since the pandemic.
"Previously, many property investors were willing to accept lower rental yields because of the historic trend of steady, and often large, capital gains, which were often tax-free. This contributed to house prices consistently rising faster than rents over the past two decades, with particularly large increases in Auckland.
"Conditions are now very different. Price growth has been muted in recent years, with average prices in Auckland and Wellington either falling or remaining broadly flat for much of the past two years. Looking ahead, only modest house price growth is expected. Against that backdrop, those purchasing residential property as an investment have scaled back their expectations for capital gains and are placing much greater emphasis on achieving an acceptable rental yield over the longer term."
But he said the rental market had changed, as well.
"With more properties available and population growth slowing, nationwide rental inflation has fallen to its lowest level in more than two decades. Weakness has been particularly pronounced in Auckland and Wellington, where rents have declined outright. Importantly, wage growth is muted, which is reducing the willingness of renters to pay higher rents. The resulting pressure on yields is weighing on how much investors are willing to pay.
"Significant increases in compliance and operating costs in recent years have added to the pressure on yields, including higher local council rates."
-RNZ