Low yields mean investment properties losing their shine

House prices will surge ahead nationally in the next year if interest rates fall, but residential rents will remain relatively low and are falling throughout Auckland.

This is the outcome of a report from business forecaster Infometrics, conducted for PMI Mortgage Insurance, which found Auckland landlords shunning the market because of a severe tenant shortage.

Infometrics found that after five years of record economic growth, the economy was showing signs of slowing and real estate sales activity dropped 14 per cent since its peak in April last year.

If interest rates were cut next year, house prices would "bounce back", but real property values - those after adjusting for inflation - would still be lower in June 2007 than they were now.

Weaker net migration and slowing population growth had caused problems for Auckland landlords whose rents had failed to keep pace with house-price rises.

Average Auckland rents rose just 0.1 per cent in the year to March.

Rents fell on the North Shore, Waitakere and in Auckland City. But house-price growth had stayed high, buoyed by an increasing proportion of luxury properties selling.

First-home buyers in Auckland continued to struggle to afford a house and investor demand for rental properties was drying up because of the low yields for landlords and increasing problems finding tenants.