Source: MIL-OSI Submissions
In the coming months, there are likely to be some ‘bargains’ on offer for property investors, although a slowdown in value growth may well mean more emphasis on a property’s rental yield. On that point, three-bedroom houses tend to have better yields than four-bedroom, while apartments tend to yield more than houses. Of course, there are other factors to consider – and the knock to the foreign student market, for example, could be a threat to the demand to rent an apartment, and hence raise the risk of a vacancy.
Heading into alert level four lockdown, momentum for both property values and rents across the country was pretty strong (see the first chart), and investors had been taking a higher share of purchases – partly due to solid property returns themselves, but also falling returns on other assets (e.g. term deposits).
Of course, the game has clearly changed massively in the past 2-3 months, and the prospects for the property market are looking much weaker for the rest of 2020 and into 2021, which in turn will dampen investors’ profits. One key issue will be rising unemployment across the economy, and the knock-on effects for tenants’ income and their ability to keep paying the rent – vacant periods of course are a huge dent to landlords’ returns.