Sensitivity analysis

Sensitivity analysis tests how an investment's outcome changes when key assumptions move, identifying which variables matter most and how much risk each carries.

The variables that matter in NZ property

• Interest rate — usually the largest single driver of residential cashflow
• Rent — both level and vacancy
• Expenses — particularly insurance, rates and maintenance, all of which have risen sharply
• Capital growth rate — the assumption with the largest effect on long-run returns and the least reliability
• Time to sell, and selling costs
• For development: build cost, consent timeframes, development contributions, end value

How to do it properly

Model three scenarios rather than one: expected, pessimistic, and stress. Move one variable at a time to see which the outcome is most sensitive to — then move several together, because in a downturn they tend to move together.

Common misunderstanding

Correlated risks are the real danger. Rates rising, values falling and vacancy increasing are not independent events — they tend to arrive at once. A model testing each in isolation understates the risk substantially.

The capital growth assumption does the most work and deserves the most scepticism. A model that only works at 6% annual growth is a bet on growth, not an investment analysis.

Related terms

Last reviewed: 1 August 2026 · General information only, not financial advice.

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