Housing investors would be better off putting their money in commercial property stocks, which provide higher yield than the slowing residential market, a broker says.
Investing in residential property is "a terrible waste of money", with yields far less attractive than the share market, according to Hamilton Hindin Green investment adviser Jeremy Sullivan.
"Fundamentally, things are looking pretty stretched, and to be honest residential property has had a great run over the last decade," Mr Sullivan said.
"Prices in Christchurch have been largely flat for the last three years, sales volumes are falling and the engine room, Auckland, is running out of puff.
"The recent loan-to-value ratio restrictions put on by the Reserve Bank have seen landlords either being told to deleverage or that they cannot continue to build their property portfolio."
In Christchurch, where the median rent is $388 per week and pre-tax yield is 4.52%, a taxpayer in the 33% bracket would see net yield just above 3%, Mr Sullivan said. That did not include an average 1.35% each year for rates, insurance and maintenance, or the cost of a property manager. In contrast, listed commercial property investors such as Goodman Property Trust and Argosy Property returned yields between 6% and 8% each year.
Mr Sullivan said with net migration easing and building consents having overtaken population growth, "even someone with rudimentary knowledge of economics can guess what is going to happen next" to residential property. Investing in listed commercial property provided more liquidity and diversity, and the stocks were modestly leveraged, meaning investors took less risk, he said.
Data from state-owned valuer Quotable Value this month showed property values increased 9.7% in May, the slowest pace in two years, or 7.4% when adjusted for inflation. In Auckland, where surging values have made housing unaffordable for many, regional house values rose 9.3% to an average $1.04 million, the slowest annual rate since November 2014.
Yesterday, the Reserve Bank said limiting mortgage lending at a debt-to-income ratio of five times would make an appropriate addition to the macro-prudential toolkit it could call on to prevent a housing market crash. The bank estimated that of the 78,200 mortgage-funded purchases in a year, 11,100 high DTI transactions would be blocked by a restriction, of which 8800 would be investors.
