Rich Pickings In New Zealand's Fruit Bowl
Hawke's Bay is a veritable fruit bowl of rich pickings, both in the thriving local viticulture industry and in the property market.
1 March 2016
it's official property in Hawke's Bay is hot. Over the past six months, the region – synonymous with wineries, a sunny climate, and a great lifestyle – has experienced a major upswing in demand from investors.
Real estate agents say Auckland buyers are leading the charge, attracted by lower prices and better returns compared with Hamilton and Tauranga.
All of this investor interest, plus a drop in listings means the median sales price is reaching record highs each month.
In February this year, according to the Real Estate Institute of New Zealand, the median sales price was $330,000 – a dramatic leap from $289,500 at the same time in 2015.
The median days to sell improved by 19 days compared with January 2016, from 50 days in January to 31 days in February. This was the shortest number of days to sell for a February since 2004, according to REINZ.
The increased activity in the property market is heartening news for the region, which like many of the provincial areas in New Zealand, has gone through a long eight years of stagnant economic and job growth.
Seasoned real estate agent Jason Whitaker, of Property Brokers, says bank rates are at an all time low, and supply of property has dropped considerably over the past 12 months, while demand has shot up.
A sure sign that the property market has picked up is Mum and Dad investors have released their hold on the purse strings, and are investing, he says.
Flaxmere, a north-western, low-income Hastings suburb, is known for its good yields, but can be a risky area in which to invest.
Whitaker says the suburb is in high demand, although home owners are now buying in Flaxmere as Hastings itself becomes less affordable.
Generally returns of between 8% to 10% can be achieved in Flaxmere, he says.
Veteran property investor Graeme Fowler, who manages a large portfolio of investments, says for the first three months of 2016 he bought eight properties, including one in Wilson Rd, Flaxmere.
In late January this year he paid $143,000 for the house and spent $18,000 on painting, electrical work, carpet, lino, insulation and a new inbuilt woodburner.
Three weeks later he sold the house for $205,000. After fees and holding costs, his profit was about $35,000.
“I buy a lot in Flaxmere, but in good streets where it is easy to attract good tenants and so have very few issues,” he says. “I also have an excellent property manager who screens the tenants well, which is a big part of making everything run smoothly.”
Spoilt For Choice
Whitaker says the higher income Hastings suburbs of Parkvale and Frimley are deemed to be safe propositions for Mum and Dad investors, yet it is hard to find yields much over 7% gross now that prices have increased.
Ten minutes’ drive from Hastings, is leafy and picturesque Havelock North; officially part of the Hastings borough. It is known for its choice of good private and public schools, and great mix of restaurants and retail.
The residential Havelock North market has gone through the roof, affecting yields, Whitaker says. “In a reasonable area you would be lucky to obtain 6%, however in the flatting areas, over 7% should be achievable,” he says.
Quinovic principal Martin Easthope says the areas in hot demand in Napier are Tamatea – a cheaper area than Taradale and popular with young families, and the south side of Greenmeadows, which has good quality housing and easy access to Hastings.
The inner city suburb of Napier South, close to the CBD has mid-range rents, is handy to most schools and parks, and is popular with couples and young and middle-aged families.
Other hot investment property suburbs are Pirimai, Onekawa and Marewa.
“While house prices in Napier have gone up, there are still some very good buys in these suburbs, plus rents are increasing, providing some very good investment opportunities,” he says.
While house prices in Napier have gone up there are still some very good buys in the suburbs, plus rents are increasing, providing some very good investment opportunities. - Martin Easthope
For example, in these suburbs, a tidy three-bedroom house can rent for between $350 - $370 per week.
Property Indepth valuer Andrew Chambers says he would expect investors to look for yields of between 6.5% and 7.5% in average areas, and higher yields in lower income areas.
For example, in Marewa, he cites one investment property, a stand-alone 1940s dwelling, with the use of a double garage and two semi-detached 1980s two-bedroom units. The property sold for $420,000 in June 2015 and at the time of the sale had a net market yield of 8.34%.
Yields have softened slightly as values have appreciated, he says.
Quinovic is experiencing the highest inquiries from prospective tenants it has ever had.
“Most are coming from young to middle-age families, many of whom who have moved to Hawke’s Bay and the quality of these tenants is quite high,” Easthope says.
Good Home Property Management’s Wolfgang Himme agrees.
“Tenant demand is high and that obviously has an effect on the social fabric and we have choice as long as the rent is reasonable,” Himme says.
He has noticed more tenants coming from out of the region. People from Wellington, Wairoa and Giborne are trying to find work there. “I think we are possibly only seeing the beginning of a pattern of people who are leaving Auckland and Wellington as it’s getting too expensive,” he says.
Property Indepth valuer Andrew Chambers says the low level of properties listed for sale is of some concern.
“There appears to be about eight week's supply with the agents in general continuing to say there is a shortage of supply. In many situations there are multiple offers coming to the table and prices are escalating as prospective purchasers move to secure the property,” he says.
In Hastings, 249 properties were available for sale in November 2015, which fell to 218 in December and has further declined to 200 in January 2016, he says.
In Napier, 274 properties were available for sale in November 2015, dropping to 247 in December 2015 and falling further to 236 in January.
Although February has seen a lift in listings to 246, he says.
For people wanting to buy who live outside the region, Fowler says it’s more difficult unless you know someone you can trust, who can check the streets for you or alternatively you can use a good agent.
“It’s always easier to live in the location you are buying properties in, but sometimes is necessary to buy outside your own location if yields are too low.”
When it comes to the economy, and the property market, we usually ask everyone we know about how they think things are and we are being told this growth will continue for at least 12 months. - Wolfgang Himme
“I never know what the market will do from one month, or one year to the next, so I make sure my investing rules and strategy is market proof. In other words it has to work whether the market goes up, down or stays constant for many years.”
Chambers believes investors will continue to seek out provincial New Zealand for investment property opportunities, especially if they have good equity positions on the back of value escalations in the cities.
He believes market growth will continue because of improved opportunities for first home buyers with the easing of the deposit required from 10% to 15%, the easing of the Official Cash Rate and future possible cuts still to come. “These factors along with LVR restrictions for investors in the Auckland region, rising from 20% to 30%, which has effectively forced them to look at provincial New Zealand, could continue to put pressure on capital values,” he says.
Easthope believes the future looks good for property investment in ‘the Bay’, as migration is increasing and business confidence and economic growth is gaining strength.
More jobs are becoming available because of growth in horticulture, wine, tourism and some businesses are relocating to Hawke's Bay.
Regional economic confidence rose from 14.1% in December 2015, to 33.4% in March 2016, according to a Westpac survey.
Himme says new investors are coming The Grower's Market, near Havelock North, has become a must-do for visitors and locals in the summer. Abundant wineries make for a beautiful place to live and visit.to the region, and involuntary landlords are selling.
“When it comes to the economy, and the property market, we usually ask everyone we know about how they think things are and we are being told this growth will continue for at least 12 months,” he says.