Nelson values hold firm

Friday 5 January 2018

A tight market characterises both the Nelson and the Tasman regions, writes Louise Richardson.

Blessed with a temperate climate and low rates of unemployment this is a region that looks set to be increasingly popular. It’s an adventurer’s paradise with three national parks, a thriving arts and culture scene and of course, the renowned beer and wine industry – with more than 10 craft breweries and over 20 boutique wineries.

Port Nelson is the largest fishing port in Australasia and forestry and tourism are other critical local industries, almost all of which bring increased accommodation demand due to seasonal workers.

There’s been strong growth in the retail sector, hospitality and tourism over the past few years and visitors aren’t only from within New Zealand, with the region firmly on the radar of those overseas, who are including it on their itineraries in greater numbers.

On the rise

While a 28% year-on-year decrease in house sales was markedly clear from REINZ’s October report, there’s no obvious indication that prices will plateau or drop any time soon in the Nelson/Marlborough/Tasman region, although the volume sold in September 2017 was just 170, compared to 236 a year ago.

The median price in September was $472,000 – slightly down on August but significantly higher than September 2016, when the median was $450,000.

Nelson’s median was $481,000, with Marlborough and Tasman at $396,000 and $572,500 respectively. Tasman was the star performer – up 19.3% on September last year, while Marlborough had the lowest number of sales in five years.

REINZ chief executive officer Bindi Norwell expects an upturn in the local market as the wet winter and post-election uncertainties are finally put behind us.

“Despite the decrease in sales for the Nelson/Marlborough region, vendor expectations continue to remain positive and prices continue to hold firm,” she says.

Healthy Homes Bill woes

Norwell notes that approximately 70% of buyers during September were locals as opposed to August when only 50% of buyers were from the region.

Interestingly, recent Westpac data shows that in the year to September 30, the number of homes sold to first home buyers was up by 74% in Marlborough and 30% in Nelson. This suggests that the existing LVR rules - along with the new government’s policy statements around potentially extending the Bright Line Test, and removing negative gearing - might be forcing investors to give way.

If Andrew Little’s Healthy Homes Guarantees Bill, which aims to set new standards for insulation, home heating and ventilation – with a minimum indoor temperature - is passed into law, it’s possible more investors – especially small-time ones, may find the whole business just too difficult and expensive; exiting the market.

Add to this the fact that the exodus from big cities to the provinces continues – albeit perhaps not so urgently now - and that Nelson/Marlborough/Tasman has been experiencing a shortage of quality rental properties over the past few years.

If local investors continue to leave and/or stay out of the market this could lead to a yet more serious supply problem and the myth about Auckland investors buying up large at the top of the South Island is just that: a myth, with multiple home owners from the big smoke only making up around 2-3% of sales.

Rents on increase

Summit Property Management property management general manager Stewart Henry says while the shortage of rental properties is real, it’s not all doom and gloom by any means.

“We’re careful to only look after properties that are maintained to a high standard so although the LVR rules are definitely impacting some of our landlords who’d like to buy more properties but can’t, the Healthy Homes Bill shouldn’t make much difference to most of them.”

He says if anything, landlords might have to install a heat source.

“And that’s a positive thing because it will lead to higher rents. Overall, we’re seeing that the majority of our investors have between one and three properties and some have owned them for years and years. They’re not worried about capital gains and they like to keep up a good standard.”

He says that rents are still rising at a respectable rate.

“A three-bedroom place in Blenheim would average about $385 per week and that’s up from $368 last year. They’re getting good tenants who realise that they’re onto a good thing, and are very reliable as a result.”

Henry says in Nelson central you’re looking at $470, up from $437, which he describes as a healthy lift.

“Richmond’s the real hot spot right now, with supply outstripping demand really massively, especially in the last few months, but portfolios certainly haven’t shrunk.”

Serious rental shortage

In a general sense Henry puts the current dynamic down to a consistently healthy economy and the very real prospect of further growth in terms of industry – and population.

“I remember when there was a dip in the grape market a few years ago and landlords were affected, but that’s all good now.”

“To sum it up from our perspective,” he says. “We’ve got around 1000 properties on our books, across Nelson, Tasman and Marlborough, and only three current vacancies.

Growth ahead

Nelson Property Investment Association’s Glenn Morris says that he’s never seen the rental market so tight.

“I’ve been tracking the Nelson [available to rent] figures on Trade Me for five or so years now and the numbers of properties on offer increased in March as it usually does, but then it shot right down again, and I haven’t noticed that before.

“The interesting thing is that while Auckland was powering ahead, Nelson didn’t get started until much later. Now, the tables have turned and Nelson’s the one that’s doing really well.”

He says that the accommodation shortage in Nelson will eventually ease as more dwellings are built.

“As of the end of September there had been 545 consents issued for Nelson and if you compare that with Hawkes Bay it’s interesting. They had 451 consents - for 50% more people, in terms of population.”

Meanwhile, Tasman (at 2.2%) is building at roughly the same rate as Auckland, on about 2.12%, so you can draw your own conclusions from that!”

Basically, Morris sees Nelson as a district that’s continuing to grow exponentially.

“People want to come here and they always have. It’s just taken a while for governments to realise this and let that expansion happen. If you look at our airport, for example, more than 1 million passengers are passing through each year. After Auckland we’re only second to Queenstown!” he says.

Morris also points out the shortage of rental properties in Marlborough over the past two or three years is partly the result of the expanding viticulture industry. Around 5000 people (one in ten of locals) are employed permanently in grape growing and wine making with a further 3000 seasonal workers coming on-stream, when required.

Local growers say that the business will grow by about 24% over the next three years, with an extra 2200 hectares of grapes having been planted since 2014.

The local council has zoned land for building the new dwellings that are required with around 2000 sections expected to be available to buyers between now and 2020 but building that number of houses takes time, naturally, so the supply problem doesn’t look likely to end in the near future.

Oddly, despite this, median rent in Marlborough is down 6% to $230, while elsewhere in the country it is static - according to Trade Me’s latest figures, to the end of September. However, summer will inevitably see the rental market heating up again, so lower rents won’t be around forever.

At a time when a new government is seeking to change the dynamics of property investment, of course there’s uncertainty around the market.

The possibility of a capital gains tax along with other measures designed to dampen the market will certainly be giving landlords reason to consider their own situation and intentions but, overall, in Nelson/Tasman/Marlborough the signs are still positive and for now, at least, the future looks bright.

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