High housing prices and low rental yields in Auckland are causing many experienced investors to sit on the market sidelines or buy properties in other parts of the country, according to the president of the Auckland Property Investors Association, Andrew Bruce.

However many first time investors are still jumping into the Auckland market.

"The people that are more developed in their portfolios, they may understand the market cycles a little bit better than those who are just wanting to get into the market right now," Bruce said in a Double Shot video interview with interest.co.nz.

People who had owned their rental properties for a few years had certainly been helped by the combination of rapidly rising house prices, steadily increasing rents and low interest rates, which would have boosted landlords' equity and increased their rental incomes, he said.

But the downside was that rents had risen more slowly than prices and that reduced rental yields made buying additional properties a less attractive investment proposition, unless you were primarily chasing capital gain

Bruce said people often confused investors with speculators and the difference was that investors were buying for the long term, while speculators where buying to resell a property for a quick capital gain.

Many experienced investors were choosing not to buy further properties in Auckland, because although prices might keep rising, the rental yields were low and cash flow could become an issue when interest rates eventually start to rise again.

Instead they were using their rising rental income to complete maintenance or refurbishment work on their properties, having them revalued and restructuring their finances to take advantage of some of the very competitive mortgage deals banks were offering.

Bruce said many experienced investors were "in a little bit of a wait and see mode."

Hamilton, Tauranga and Rotorua

Those that did have spare cash and were wanting to add to their portfolios were often looking to buy properties in places like Hamilton, Tauranga and Rotorua, where prices were lower and rental yields were higher, giving them better cash flows.

"Rotorua has a lot of landlords who are Auckland based," he said.

Bruce said he was one of them, and that he had bought his rental property in Rotorua when the last market cycle was at about the same point as this one.

However many first time investors were still jumping in to the Auckland market, often because rising property values had increased the equity in their home and they wanted to borrow against it to buy an investment property.

"People who are newer to the market, they may not follow the [market] cycles so much and once they are in the position that they've got some extra equity, either in their property or because they've come into some extra money, they tend to jump into the market when they are ready," Bruce said.

"That was the situation I was in when I started investing. I didn't wait for a cycle. I didn't really know about cycles.

"I just went into it because I could afford it and was all fired up and ready to go."

'Interest rate will go up'

Bruce said one of the biggest risks investors buying into the current Auckland market faced, was a rise in interest rates and the effect that could have on their cash flows if they were highly geared.

"There's risks with everything, but as with any business, cash flow is king," he said.

"I don't know when they'll go up [interest rates] but at some stage they will."

"That's going to put the squeeze on something that works at today's interest rates."

However he doesn't think the supply of new houses is likely to catch up with demand in Auckland in the foreseeable future.

"There's a lot of noise out there about properties being built in these special housing areas, but it's still hard to get things through [the regulatory process], he said.

"It's still not a quick process and it's still an expensive process.

"Yes, there will be more houses built, but whether it's going to catch up with the 20,000 shortfall or whatever the number actually is?

"Yes there'll be a slight catch up but I don't see it getting to a neutral position, in the next two or three years anyway."