Caressed by sea and goldensand beaches, Bay of Plenty has always been a drawcard for summer holiday makers. But look back 10 years and you’ll find its main centre, Tauranga, languishing in obscurity. The employment market was depressed, there was little to do once the golden weather passed, and it had landed itself a reputation as a retirement town.

What a difference a decade makes. The extensive development of the Port of Tauranga (which brought opportunities across pay scales), alongside the arrival of big business such as Brother, who built a $10 million headquarters in the city in 2016, brought employment and new life to the city.

When the Auckland housing market took off in 2015, a flow of expat Aucklanders headed south. The combination of cheap(er) housing, abundant work, and those golden beaches, made Tauranga a major drawcard. Its popularity has continued, and post-lockdown the city is experiencing, like so many other centres, an unprecedented property boom.

As of October last year, the median price for Tauranga was up 17.8% year-onyear at a whopping $810,000. Sales were up 13.8% since October 2019, from 298 to 339. It’s a seller’s market, but are their opportunities for investors here? And what is the likely outlook in 2021?

Red Hot Market

Chris Sim from iFind Property says he has never seen the market so hot. “I would say that 95% of the properties are going to auction,” he says. “People aren’t wanting to put prices on them because they are going for so much more than they thought.”

Managing director and owner of Harcourts Tauranga, Simon Martin, agrees that the situation in the Tauranga market represents “a perfect storm”.

“There are so many dynamics that are influencing the market – the low interest rates, the loan-to-value ratio (LVR) drop, the fact that people aren’t able to leave the country,” he says. “These are all driving the prices up.”

Last year didn’t start this way. Stock levels were low (compared to 2019) then Covid-19 hit and the subsequent lockdowns left everyone in the dark. Economists’ predictions of steep property drop-offs didn’t eventuate, however. And post-lockdown, people were hungry to buy.

“There were people who had sold their houses just before lockdown and needed somewhere to live. This provided the impetus for the market we are seeing now.”

Martin says that the past two months have been extremely active, with demand far outstripping supply. Interest is coming from all sectors: first-home buyers, those moving up and investors.

Investors are looking at areas such as Matua and Mt Maunganui for capital gains potential, and places such as Greerton and Parkvale for rental returns. But they are being given a run for their money by the influx of new buyers, who are capitalising on the low LVRs and interest rates, and deciding to buy instead of rent.

“We just sold a property to an 18-year-old and her partner, who were about to head overseas before Covid,” says Martin. “They realised that it would cost the same to rent as to buy, so they are getting a flatmate in and planning on staying in their new home for a few years until they can travel again.”

Demand For Rentals

According to iFind Property’s Chris Sim, there has been an influx of overseasbased investors, who are now living in their investment properties. “We were checking our database and found that around 50% of our clients that had been based overseas, had now returned to New Zealand,” he says.

With investors moving back, and the influx of expats escaping Covid-19 overseas, it’s a tight market for renters. Dan Lusby from property management company Tauranga Rentals has been in the area for 20 years. He says the months post-lockdown were record breakers for his company.

“We had our biggest ever month in July and our second biggest ever month in November,” he says. “I would say that since lockdown, there has been a 20% increase across the board, monthon- month.”

Two-bedroom rentals are particularly popular, with people prepared to pay a premium. “People would be, on average, paying $550 for a three-bedroom rental here, but they will be happy to pay $500 for a nice two-bedroom place.”

And The Lakes, Papamoa, and inner suburbs are being lapped up by expat Aucklanders, which is leading to congestion in the central city: “The traffic is getting terrible, I think that Tauranga is experiencing real growing pains at the moment,” he says. Juli Tolley works for Quinovic in Tauranga (and also heads up the Tauranga Property Investors’ Association). She believes that the demographic has shifted since lockdown when it comes to demand for rentals.

“It’s a bit different now that the borders are closed. We used to see a lot of international people coming through, but now it is more expats who have returned home and people moving from Auckland.”

The rental market is being squeezed even further by investors selling up instead of spending money on costly repairs of older stock.

“A lot of tenants who have been living in a house for 15-20 years are being moved on. The houses may be needing a lot of work done, so it makes more sense for investors to sell them, rather than spend a lot of money renovating, when the yields are likely to be low.”

Lisa Anderson from Quinovic says that the demand for rentals is also incredibly high in her focus areas – Mt Maunganui and Papamoa. Expats who have just returned to New Zealand are particularly interested in new apartments by the beach, and are happy to pay top dollar.

“They are used to paying a lot for accommodation, so they are happy to pay for new, good quality apartments,” she says.

Investor Opportunities

Long-term investors may be feeling the pinch as rates, insurance and compliance costs mount up. Yields aren’t the healthiest, according to Tolley (a long-term investor herself) - they are sitting at around 4%.

But she believes that it’s still possible to find bargains if you look in the right places and are prepared for some hard work. “Formerly depressed neighbourhoods, such as Greerton, Gate Pa, Merivale and Brookfield, still have properties where you can add value through renovation,” she says.

‘Formerly depressed neighbourhoods, such as Greerton, Gate Pa, Merivale and Brookfield still have properties where you can add value through renovation’ JULI TOLLEY

Investors are likely to continue to be pushed, however, as expats are prepared to go to great lengths to secure properties for their return.

“Anecdotally, we are hearing of people buying homes sight unseen from overseas,” says Tolley. “People are wanting to be sure they have somewhere to live when they come home.” The large new developments around Papamoa (such as Palm Springs and Golden Sands) are also attracting investors, says Anderson, who are buying off the plan in the hope of capital gains.

Here you can buy four-bedroom new builds for between $600,000 and $650,000, and with the influx of people into the area, these are bound to be quickly snapped up by renters.

New Developments

Building is proceeding apace in Tauranga and further afield, as developers struggle to keep up with the burgeoning demand for property. There are new developments in Papamoa and Tauriko, with new zoning in Te Papa peninsula now allowing for intensification.

“The new spatial plan has increased the housing density and there is extensive infrastructure development here,” says Chris Sim. “The area is attractive for many reasons, including the fact that it is above sea level, which many places aren’t.” This is significant, as Tauranga now has flood plain zoning, which is tied to insurance premiums.

The average price of homes is now sitting at $577,400 for Greerton (up 7.4%) and $518,150 for Parkvale (up 7.1% year-on-year), reflecting the development potential in these suburbs.

A new $100 million business park has also been announced for Papamoa (called Papamoa Junction), which will have 50 spots allocated for residential property. But the developments are limited in scope, and according to Simon Martin from Harcourts, are likely to dry up soon.

“The larger developments are in the later stages, with properties selling now. But there is nothing massive proposed for the next few years,” he says. When the borders eventually reopen, New Zealand’s reputation as a safe haven is likely to draw more interest from overseas, and the demand is set to continue.

“I predict that in the next three years, the prices will keep climbing,” he says. “Nothing is going to slow it down while there is so much demand and so little housing stock.”