- The “Thirsty Boys” villa in Dunedin is attracting investors due to strong demand and good cashflow.
- Out-of-town buyers are replacing ageing landlords, seeking high-yield properties near Otago University.
- Dunedin’s student rental market offers high yields, with increased demand despite property condition challenges.
On Dunedin’s most infamous student street, two battered couches and an armchair guard the front of a two-storey villa that’s been tagged with the words “thirsty”.
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You wouldn’t expect the house to be anyone’s idea of a good buy, but the iconic “Thirsty Boys” villa is a popular berth with second-year students at Otago University - and for investors, that signals strong demand and good cashflow.
The six-bedroom, two-bathroom property at 631 Castle Street hit the market at the start of the month with an asking price of $1.05 million and a gross yield of 7.28%. It is one of about 40 student rentals for sale in North Dunedin that are catching the attention of out-of-town investors.
Buyers have plenty to choose from as the city’s landlords reach an age and stage of life where selling up makes financial sense.
Matt Morton and Co Real Estate director Matt Morton said a lot of his clients were “baby boomers”, who were only selling because they were getting older.
An Auckland investor snapped up a five-bedroom property on Clyde Street for $650,000 within 48 hours of it hitting the market. Photo / Supplied
A five-bedroom property on Dunedin’s Castle Street was snapped up last month for $795,000. Photo / Supplied
He said they were being steadily replaced by out-of-town buyers who have found high-yielding properties hard to find in a lot of other markets.
“We are getting all this interest from out of town, but they are all new to the market, and they don’t quite understand how it works.”
He said they were often quite picky, which is why he urged vendors to provide LIMs, building reports and electrical reports to give them confidence. “They [the properties] are not in fabulous condition. They are a bit rough around the edges.”
Morton said buyers quickly learned that most of the city’s student flats were huddled around the University of Otago’s main campus and were rented out on 12-month leases.
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“You hardly get any workers renting there. It’s purely a student market, which is why it’s always been quite attractive for students; they can walk [to campus] really easily, and they are just surrounded by the same people as themselves.”
He noted there was a supply problem for rentals in the suburb. “There’s this one little spot, and the first problem we have is that there’s no more land. In terms of knocking something down and rebuilding, the numbers just don’t work.”
The university has expanded its halls of residences by another 520 beds in the past two years, but it was already “chocka”, Morton said.
By the start of next year, about 43 more five-bedroom flats would be needed to accommodate those second-year students.
Enrolment numbers at Otago University are rising. Photo / Getty Images
The increased demand was a good thing for investors who are starting to return to the market after a tough market period.
Sales of Dunedin’s student accommodation reached 50 last year and 64 in 2024, but are still below the pre-Covid figures, where an average of 80 to 85 student flats were sold each year.
Morton said investors sought out four or five-bedroom, one-bathroom properties priced between $600,000 and $800,000 with yields of 7%.
Just recently, a five-bedroom flat at Clyde Street sold within 48 hours of being listed after attracting five offers from Auckland and Dunedin buyers. The previous vendor paid $205,000 for it in 2004 and resold it for $650,000 to an Auckland investor.
And a five-bedroom, one-bathroom property on Castle Street sold for $795,000 after the owners paid $185,000 for it 28 years earlier.
Morton said properties with multiple flats had higher price tags in the $1m to $2ms.
Edinburgh realty agent Lance Sievwright, who is marketing 631 Castle Street, said most of the student flats he was selling were owned by experienced investors who had held the properties for about 20 years.
A 10-bedroom flat at 685 George Street, in North Dunedin, has an asking price of $1.225m and a gross yield of 8.4%. Photo / Supplied
A 1980s property called The Lodge is one of Dunedin’s newer offerings. Photo / Supplied
“Circumstances change. It’s nothing to do with the actual Dunedin market, which I think is pretty good. I think there’s a pretty good response from people, rents are going up nicely, so from that side of things, I think Dunedin is going pretty strong.”
Between a quarter and a third of the buyers he dealt with were parents looking to buy a property for their kids to live in while at university. The remainder tended to be new investors looking for properties with good cashflow.
Sievwright said a lot of the flats coming to market had been improved by their owners. Examples of low-maintenance properties include a 1980s seven-bedroom house at 112 Union Street, bought for $475,000 in 2006 and now asking for $1.235m, and a well-maintained character home at 99 Queen Street, which the owners paid $485,000 for in 2006 and is now inviting enquiries over $820,000.
“Dunedin has always had a good balance of the yield that owners get on the rental and what the capital growth is over time. Whereas some other centres have a very low yield because their capital value is so high.”
LJ Hooker Dunedin managing director Jason Hynes also noted a clear uptick in investor interest, particularly from Auckland. One buyer from the city had picked up two self-contained units on Pitt Street in North Dunedin for $1m. He had also been fielding interest from Australia.
CoreLogic chief property economist Kevin Davidson says the Dunedin property market overall has the highest yields in the country at 5.2%. Photo / Supplied
“Owners have got a bit of confidence that there are more people out there to buy those types of properties.”
He had one long-term investor selling a block of flats at 685 George Street, in North Dunedin, for $1.225m at a yield of 8.4%. The client had bought the 10-bedroom, three-bathroom property from the church 16 years ago and was now looking to divest.
CoreLogic chief property economist Kelvin Davidson said based on the current numbers for all investment properties (not just student accommodation), Dunedin appeared to be an attractive proposition because it had the highest yields and the biggest rent increases.
“There does seem to have been a bit of an upturn in rents in Dunedin (up 2.3%) as opposed to other parts of the country that are still pretty weak. And if you look at the average rent in Dunedin, you do get a reasonably high gross yield – we’ve got that at 5.2%.
“I think the bigger picture is that in Dunedin, the rents have been a little bit stronger than elsewhere; yields are pretty good, and there’s always going to be that basic demand base there from students.”
However, investors did have to be aware of the risks associated with renting the homes to the student market.
Valocity senior research analyst Wayne Shum said suburbs near tertiary institutions generally showed gross yields in line with the broader area, and according to his data, North Dunedin offered an average yield of 5.1%, which was slightly less than Dunedin Central’s 5.3% yield but above the 4.2% in the city’s prestige suburb of Maori Hill.
Shum said there was also a greater demand for student accommodation in Dunedin because the University of Otago was a destination university, while students attending the University of Auckland, AUT and Massey Auckland Campus had a greater share of students already living in the region and able to stay at home.
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