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East Auckland Investor Opportunities

East Auckland is looking strong despite the impacts of Covid-19, but investors need to be creative to achieve decent yields, writes Joanna Jefferies.

By: Joanna Jefferies

1 November 2020

East Auckland has always been favoured for its pretty beaches, excellent transport links, proximity to the airport and family sized homes and sections. It’s not a strictly defined geographical region, but it generally encompasses the Tāmaki and East Tāmaki areas, right from Glen Innes through to the Eastern beaches of Half Moon Bay and Bucklands Beach. The area is popular with families, couples and professionals, and tends to attract a range of tenants, due to the wide range of industries there.

The Tāmaki project, currently being developed by Tāmaki Regeneration Company (TRC) in co-ordination with Auckland Council, Auckland Transport and Kāinga Ora, will further enhance the area, with the delivery of 10,500 new, affordable and state homes, improved town centres, parks and reserves.

Transport links will be further strengthened across the region, with the AMETI (Auckland Manukau Eastern Transport Initiative) currently working to improve transport links and providing a congestion-free busway between Panmure, Pakuranga and Botany town centres.

All of this investment means the area is looking as solid as ever, says Crockers chief executive officer Helen O’Sullivan.

“There’s employment, schooling, hospitals and entertainment and it’s right next to the sea – what more could you ask for?”

As such, values are on the rise, with CoreLogic’s latest data confirming that values there have increased between 4.1% and 16.2% over the past year. This, despite the recession, and the impacts of Auckland’s two lockdowns.

O’Sullivan says the domestic economy is far stronger than predicted and she’s seeing that playing out in the housing market.

‘We had a lot of landlords who were gearing up for bargains we are simply not seeing that. There is increased buying activity and there’s a real mix of buyers in there’ HELEN O’SULLIVAN

“We had a lot of landlords who were gearing up for bargains – we are simply not seeing that. There is increased buying activity and there’s a real mix of buyers in there.”

First home buyers are active in the market for the first time in a while too, she says.

RENTS INCREASING BUT TENANT QUALITY VARIABLE

But despite many first home buyers moving out of the rental pool into their own homes, low rental supply means rents are increasing.

According to Residential Rentals sales and operations manager Angela Rolston, the increases are also partly due to landlords recouping costs associated with Healthy Homes upgrades.

But despite rental stock becoming better maintained, and reports of a huge undersupply of rentals she says at the coalface it’s still difficult to secure good tenants.

“As a property manager in this market we’re having to work even harder to secure good quality tenants.”

She says the housing stock in Dannemora, Botany Downs, and East Tāmaki is relatively new and means it attracts better quality tenants, but “if you’re going out to Pakuranga or Half Moon Bay, you’re looking at older homes. A lot of the properties haven’t had a facelift.”

This presents an opportunity for investors looking to add value, and she says tenants are typically families and professionals who want nice rentals. “In order for investors to attract a better quality tenant they should present a good quality home and do maintenance, making sure they have heat pumps, and insulation to comply with the Healthy Homes standards.”

Sales Volumes Up

Sales volumes took a significant hit in April as a result of the lockdown, but started to recover in August, and have steadily trended up since. Auckland’s second lockdown appears not to have had the same impact, as confidence in the market is stronger.

O’Sullivan says Crockers’ latest data shows the median house price for the area reflected a similar trend – taking a hit immediately post-Covid but then recovering and starting to track upwards.

“Similarly, the median days to sell (the lower this measure is, the faster homes are selling) got considerably longer in May, but has come back down to pretty much the same place as it was prior to the lockdown disruption.”

Barfoot & Thompson Pakuranga branch manager Grant Paitry agreesmthe market has been buoyant coming out of the latest lockdown. He says this has been reflected in increased sales volumes and activity in the market.

“We are seeing the volumes of houses being sold rise significantly with prices being impacted upwards.”

Paitry says Barfoot & Thompson’s auctions are at record numbers and are up over a thousand year-on-year.

“We continue to see full auction rooms with excellent prices being achieved. Our clearance rates through the auction process are extremely high.”

But despite buoyancy in the market and a supply and demand issue that affects the entire region, the area often fails to attract your average investor, simply because yields aren’t particularly strong.

Median values in the area typically sit above $1 million and yields are around 3%, according to CoreLogic’s latest data.

“The Unitary Plan is seeing developers come into the market in areas previously untapped, especially where you can do multi-unit developments.”

Niche Development Opportunities

Jerry Liu from Miro Homes is one such investor who’s taking advantage of the Unitary Plan’s opportunities to develop land.

He recently sold off a property in Pakuranga that he subdivided and designed four dwellings on. He did the civil works and resource consent for the four 120m2 units – a process which took him three and a half years.

“I designed four units on it, two standalone and one duplex. The market value I got from the valuer was around $850,000 [for each unit once built].”

But instead of developing his plans himself, he was approached recently by a buyer and sold the property and plans.

“I bought the section in 2017 for $850,000 and did the civil works. I sold for $1,400,000.”

The cost of the work was only $200,000.

“My original plan was to build four and hold them all, but the opportunity came up to let it go. Otherwise I would have probably built the four units and rented them out.”

Liu says projects like this one are a way investors can make a decent yield (or profit) in the East Auckland market.

However, he says because price points have risen so steadily for developable sections, profit margins aren’t as promising as they once were and it pays to look further out.

“It’s definitely a good thing to do, because you have that equity to work with. It’s quite flexible – you could sell two and keep two, or sell three to pay off the mortgage.”

Increased densification is certainly on the cards for East Auckland, says O’Sullivan, but it has traditionally seen less infill and high-density housing than Central Auckland.

“It’s always a smart move for investors to look for something that has that mixed housing urban/mixed housing suburban zoning and reasonable road frontage and access so that development isn’t too difficult.”

Looking Ahead

All of our industry commentators agree that in the current climate, with borders closed, lockdowns on the cards and an economy recovering from the impacts of Covid-19 that there is no clear prediction for the year ahead. However, the general feeling is that the supply and demand imbalance puts a seat under values.

“We find that in spring there’s always a bit of movement and coming out of Covid, people are assessing how their lives were affected in Covid and you add that to the normal spring movement and it’s active – it’s a good solid market,” says Paitry. “There’s not much reason for that to change.”

O’Sullivan agrees: “I see it having continued strength really – the sea isn’t going to stop being pretty. New Zealanders are not going to stop wanting to live near it. There’s great development going on in terms of the retail and hospitality down at Half Moon Bay and other parts of the area – great schools, great amenity – that stuff never stops being popular.”

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