Auckland property investors, and others from around the globe, are buying up Wellington rentals, driving up prices in an already sizzling residential housing market.
"Auckland investors are just absolutely pummelling Wellington," Joseph Lupi, owner of Wellington's Century 21 First Choice Realty, said.
Investment from outside the city was squeezing out Wellington buyers and driving up prices across the board especially in the city and surrounding suburbs, Lupi said.
Citing bigger returns, one Auckland buyer bought seven apartments, unseen, and Lupi said the international agency's website had registered a "solid stream" of interest from Dutch investors as well as from investors and returning expats in Britain and Europe generally.
Lupi said political instability and concerns about terrorism in the region could be a factor in the offshore investment surge in the capital.
The latest figures from QV show the average value of a house in the Wellington region is $491,236, up 3.1 per cent over the past three months.
As a result, Wellington house values are 7.5 per cent higher than they were a year ago.
Last week a foreign buyer paid $641,000 for a "pretty tired" Northland three-bedroom rental with a rateable valuation of $440,000, Lupi said.
The central city and surrounds was attractive to investors with stability tied to relatively high household incomes and a less transient rental market due to Wellington's high numbers of government workers, he said.
Auckland rental investors were more comfortable taking a lower yield of 6 to 7 per cent, unlike Wellington investors, who were looking for a 7 to 8 per cent return.
"In many cases, rental yields for residential property investors in Auckland are down to around 3 per cent. Yet yields in Wellington are mostly double that and, in many cases, much more," Lupi said.
Another factor buoying investors was the record low Official Cash Rate, which had prompted some retirees to trade under-performing bank deposits for investment property.
Lupi said new lending rules for investors in the Auckland area had also forced some Aucklanders to head south.
Craig Lowe, of Wellington agents Lowe & Co, said while Auckland investment was certainly a factor it should not be oversold and the main market pressure was still from local first home buyers.
Wellington's market had been flat for the past eight years and the city was now playing catch-up with local investment still dominant.
Lowe said housing was now more affordable with incomes 13 per cent higher and borrowing costs half of what they were in 2007, when the market last boomed in the capital.
Tommy's Wellington agent Nicki Cruickshank said Auckland investors were about 20 per cent of the market but Wellington buyers should not be scared off by them.
"It's a factor but it's not an overwhelming factor," she said.
Not all the Auckland buyers were investors, with many buying in the capital to live.