Northland: On the up, up north

When Whangarei property investor Roger Raymond says his equity gain has been “bloody good” in the past three years, believe it.

He is the human face of the latest Real Estate Institute of New Zealand (REINZ) statistics for Northland, which record that the dwelling median price for the region has jumped nearly 61% in three years from $157,750 in November 2002 to $253,500 in November 2005.

But in spite of this the Whangarei property market has not been for the fainthearted.

In November 1998 the median price was $146,000. By the following November it had sunk to $142,000. In 2000 it spiked to $159,000, only to fall to $154,000 by November 2001.

The reasons for the roller coaster ride – and those before 1998 – are down to Northland’s key, and cyclic, earning sectors: pastoral farming, tourism, forestry and wood processing. Their cycles have impacted on the region’s economic stability, and therefore, on its residential property market.

Latest available information from the Ministry of Economic Development shows Northland’s economic growth between 2001 and 2004 averaged 1.2%, compared to 3.5% for the national economy.

Northland accounted for 2.9% of total economic activity in 2004 with a regional GDP of $4 billion. Northland had the lowest per capita GDP of the 12 regions covered by the New Zealand Institute of Economic Research in 2004.

It is under-represented, relative to the New Zealand economy, in the business services, food, beverage and tobacco manufacturing, and transport and communications sectors, all high growth areas at national level in recent years.

But, as economic promotion agency Enterprise Northland tells it, things are on the up.

Talk that Whangarei will be the next Tauranga no longer sounds like empty marketing hype as Aucklanders and immigrants chase Northland’s sun and cheaper lifestyle and new investment and industry sprouts.

Exclusive housing developer Hoppers has added to the new gloss with a canal housing and 250-berth marina project south of Whangarei city at Marsden Cove, on the shoreline of Whangarei harbour, just less than two hours drive from Auckland.

The company, best known for its exclusive developments on the Coromandel Peninsula, is also developing river-front land at Ruakaka, south of the city, for coastal holiday, permanent and retirement investment.
Enterprise Northland’s third annual economic report card, published late last year, showed the region had improved its average weekly income ranking from eighth out of eight regions to fifth.

The study also showed Northlanders moved from last to sixth-equal place for new motor vehicle registrations, and that the annual retail spend per person had increased from just over $11,000 in 2004 to nearly $13,000 in 2005.

New home construction, measured by dwelling consent numbers and value, beat any comparable region (Waikato, Bay of Plenty, Gisborne, Hawkes Bay, Manawatu/Wanganui, Taranaki, West Coast, Southland.)
Agriculture, Northland’s biggest industry, earned $1 billion for the first time last year, and number two, the visitor business, is estimated to be worth more than $600 million. More than 1.4 million people visit Northland a year, with 66% of them New Zealanders.

Northland’s wood processing cluster late last year reported slowing business growth rates, but said confidence was reasonably high among the majority of members.

Last year the group reported combined turnover of $155 million and exports valued at $66 million.
Northland Property Investors’ Association president Dave Smyth says Northland is showing one of the highest growth rates in the country, boosted by industry growth and a flood of Aucklanders moving permanently to the region.

The house market has been “really crazy” in the past three years, but in recently there has been a significant slow down, he says.

“The agents are saying they have no trouble getting listings but nothing is selling. I think the market has realised it’s got no clothes. It got to a point where prices went up and up and hit a wall.

“The growth was always unsustainable. You can’t have growth of 20% to 30% when people’s incomes are only going up by 5%,” Smyth says.

Raymond, also on the committee of the Northland Property Investors Association and a former federation committee member, says the market has been great for capital gain but with its high prices and low yields, is no longer a comfortable place for the investor.

“But a lot of investors are still coming up (here) but they are the ones happy with low yield or negative-geared property. It depends on which rules the investor plays – for my rules it’s not a good market.”

Smyth says yields are “a thing of the past”.

“Three years ago I was going around looking at property saying I don’t want that, it only has a return of 8.5%. Even in Kaitaia and Dargaville, where a number of overseas and out-of-town investors are buying in, it’s still pretty hard to get decent returns.

“You’re lucky if get more than 7% return, which means it’s not worth buying.”

Raymond hasn’t bought a property in two and a half years – but he does not think the Whangarei market is over-valued.

Smyth disagrees. He believes some properties have been priced $40,000 to $50,000 higher than they should have been. Just two association members in a room of 40 put up their hands when the question was asked who had bought property in the past year, he says.

But the time of the investor may be returning.

Smyth says the size of the local property guide has swelled by around 50% since mid-November.

“I don’t know whether it’s going to turn really badly, but (real estate) agents to a degree have to accept some responsibility. They’ve been making outlandish promises about the prices they can get, and now that the market has come to its senses they have to turn around and say I can’t get you that price anymore.”
Smyth and Raymond say demand for rentals is strong. Smyth says a contributing factor is that landlords are selling up because they fear crunch-time is coming.

Raymond says Whangarei has come-of-age as a city. Key sectors have been performing well and the building industry is booming, creating jobs and opportunities for newcomers. There’s also been an influx of South Africans and English immigrants who want to rent while they get settled, he says.

But the pair reckon the rental market is inefficient and they have called on landlords to put up rents.

Smyth says it is getting more and more expensive to hold property with interest rates rising.
“I’ve put up my rents and had no trouble renting them. Part of the problem is few people are involved in an investor association, so they buy a property, put a rent on it, and don’t review it, or keep pace with what the market is doing.

“A lot of people don’t treat it as an investment … but as a nest egg.”

Raymond says landlords should not fear losing tenants, and property managers should be encouraged to put up rents too.

Property trader and association committee member Mike Austin says houses in Whangarei are fetching “very high” prices but lately there are more sellers in the market so sales are taking longer.

He bought just one property last year and says the return on it is the exception rather than the rule. The city property cost $120,000 and with $20,000 spent on upgrading it is returning a weekly rental of $245.
He says the buyer competition will have to cool off considerably before he gets out his cheque book again. He believes the Whangarei market continues to be driven by out-of-town purchasers.

The property buzz isn’t confined to Whangarei.

At Kerikeri, New Zealand’s oldest town and about 75 minutes drive north, the average house will now set you back about $380,000, says Harcourts’ Kerikeri owner Sue Stocker.

For an investor, that spells a yield of around 4%, so investors are shy of this horticulture and arts town, a popular base for exploring the Bay of Islands.

Stocker says the market has eased off slightly but demand for property in the Far North by lifestyle seekers is still strong.

Over the past 18 months the town has seen the arrival of a lot more permanent residents, and English buyers are sniffing out property in the area and in the Bay of Islands.

Smyth says he’s been shy of investing in the “fickle” Far North markets of Kaitaia and Dargaville, but Kerikeri is forging ahead.

“I turned down a property there three or four years ago. It was three bedrooms going for $150,000. Now you can’t touch anything for under $250,000. A lot of retired people are going there.”

Raymond says he will invest in Kerikeri one day – when the market changes.

Meanwhile Raymond, owner of Adstyle Homes, is picking tougher times ahead for Whangarei’s section shoppers and the building industry as section prices swell.

He says sections are “flying out” of new, no-frills suburban subdivisions.

“The cheapest sections on the market are $100,000, and to me, that’s going to slow the building industry because people can’t afford to buy sections and build the dream home. “It costs $300,000 to build a nice sort of home now.”

Raymond says he has construction work booked up for the next nine months. Last year at times, his waiting list was a year long.

He’s also picking that people at the tail-end of a Whangarei rush into “do-ups” could be heading for financial pain.

“Again the concern is everyone jumping in. When the market slows they are going to get burnt – just like anyone at the tail-end of a market.”

As reviewed in the NZ Property Magazine, February 2006

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