Rental Market Correcting

By Simon Hartley, Otago Daily Times 20/07/04

Rental returns for professional property investors across the country are beginning to show a slight decline some aspects of the property market reflect an oversupply.

The New Zealand Property Investors Federation convened in Christchurch during the weekend for the bi-monthly meeting of its nine-person executive.

The Dunedin-based national president of the federation, Craig Paddon, said a downturn of up to 5% in rental income was reported from areas throughout the country, including Nelson, undefined undefined where some rentals were down 15% to 20% on some homes.

The building and supply of “executive-style” homes to rent to business people had begun to outstrip demand and some of those homes would now have to be rented more cheaply, Mr Paddon said.

Predictions the official cash rate would increase were not causing too much concern, but if interest rates hit 10% or more, there would be casualties as recent investors found themselves too heavily in debt.

“The experienced investor would sit it out. They will be positioning themselves for a downturn and be ready to pick up the pieces,” he said.

Yesterday, the Real Estate Institute of New Zealand reported Otago’s median house price in June, compared with June the previous year, had increased from $124,000 to $187,000 – a rise of more than 50%.

Mr Paddon believed Otago had reached a “false peak”, and prices would increase again during the next 12 to 18 months before beginning to plateau.

He attributed the predicted strength to strong commodity prices, a high level of investment in southern apartments and increased Government spending.

Otago’s strength could also be attributed in part to fewer homes being on the market, which was sustaining prices.

However, Mr Paddon said there had been less interest shown in southern investments by North Island people recently and, while he was still getting inquiries from Australia, the numbers were dwindling.

The federation represents more than 600 landlords in Otago and 4000 members nationally.