Martin Hawes: Property to keep falling

Like many commentators, I think property values will continue to fall. I base this on doing some basic numbers. Those numbers are about yield - the amount of cash you can take from an investment before any capital gain or loss.

When contemplating an investment, any wise investor will first look at the yield on offer. This is so for all investment types - property, shares and bonds - although the language varies for each.

The assessment of yield is always done before any borrowings are contemplated - each investment must be compared with others and to keep the comparison alike, borrowings are excluded. Decisions about financing (whether to gear or not) can be made later.

So let's have a look at yield for residential property. As an example, I take the median house price ($329,000) and the median rental for a three-bedroom house ($320 a week). These medians are last December's figures and may not correlate perfectly but they give a reasonable illustration.

The weekly rental equates to $16,640 a year. We need to make some deductions: two weeks' allowance for vacancy ($640), and rates, insurance and maintenance ($3000).

To read the full NZ Herald story click here

Posted: 1 Mar 2009

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