West Coast - Riding a wave

A buoyant regional economy and high employment has seen the West Coast go from backwater to boom town in recent years.

At the same time there has been an influx of people from around New Zealand and overseas attracted by job prospects, a high-quality lifestyle, affordable housing and safe, friendly communities.

Latest figures from the National Bank’s economic activity index – calculating key economic indicators including consumer confidence, regional exports, real estate turnover and registered unemployed – show that while the West Coast has lagged behind New Zealand over the last ten years, in three of the last five years, economic activity has increased faster on the West Coast than the rest of the country and the gap appears to be narrowing.

That success has been fuelled by growth in the key industries of dairying, mining and tourism. The coal mining industry alone is predicted to double in size within the next ten years, with wages for this sector the second highest in the country.

All this has been good news for the housing market.

A slow starter, the West Coast property scene did not take off until about five years ago, well behind the rest of the country. But those who saw its potential have reaped the rewards.

“The last five years has just seen house prices rocket. Particularly property prices in less desirable areas,” said Frank O’Donnell, principal of EV Arthur First National and local Real Estate Institute of New Zealand (REINZ) spokesman.

“The biggest change really has been the increase in buyers,” said O’Donnell, who has 38-years experience in West Coast real estate.

“Five years ago there was no demand. It wasn’t uncommon for houses to sit on the market for 12 months or more. Now there aren’t enough houses to fill the demand.

“The rest of New Zealand has already seen this but the West Coast has never had anything like it.”

His confidence is mirrored by two newcomers to the West Coast property scene – real estate company LJ Hooker and home builders Jennian Homes, both entering the market later this year.

“It’s an area we haven’t really targeted before,” said LJ Hooker South Island regional manager Mark Stagg.

“It’s moving ahead. Things are happening on the Coast, there are a lot of successful real estate offices and we think our brand can add a lot of value over there.”

Simon Collett of Jennian Homes Nelson was expanding into the area because it was a challenge and a good place to invest.

“There’s no shortage of land and it’s good quality and well priced. Plus the cost of living is low and it’s a more affordable place for young families entering the market,” Collett said.

Compared with the rest of the country the West Coast may still be affordable, but not compared with a few years ago when $50,000 houses were common place.

In May 2001 the median sale price on the West Coast, including Westport, Greymouth and Hokitika, was $73,000 with sales values for that month totalling $2.7 million. In May this year, it was $175,000 with sales totalling $9.8 million.

The most significant changes occurred in 2003, influenced largely by new property investment.

In just one year, between July 2003 and June 2004, median sale prices went from $73,500 to $126,500. In that same period the median time taken to sell dropped from130 days to 30.

“Investment in coast properties didn’t take off until 2003,” O’Donnell said. “Investors then were buying on a positive market. Prices were well below the national average, and many properties sold for under $100,000, some under $50,000.”

He said some buyers, mainly from Nelson and Christchurch, snapped up eight or nine houses at a time for under $100,000 with some bought for as little as $22,000.

One buyer described the scene at the time as “like a lolly scramble”.

In such a small market that new demand quickly influenced house prices.

“Those investors were comfortably getting between 50 percent and 100 percent capital gain on their investments in a short space of time,” O’Donnell said.

Rents also rocketed as buyers sought to get the most out of their investments.

“Pre-2003 it was unheard of for rents for an average three bedroom house to exceed $250. Even in good areas most rents were between $150 and $170, but now $350 rents are becoming more common.

“The ones who hung on to their investments are getting terrific returns now. There’ve been some wonderful capital gains.”

O’Donnell said the bargains of a few years ago would be rare now and it would be hard to find anything for sale under $100,000, even in less desirable or outlying areas.

“Demand is still high but there aren’t the houses out there, especially not at the prices previously paid.”

West Coast Property Investors’ Association secretary Linda Caldana said investment remained strong in the region despite the increased cost of housing.

This was largely due to demand for rentals, particularly in main centres such as Greymouth, which were commanding unprecedented rents. She knew of some investors buying houses specifically for waiting tenants.

“Rental properties are in huge demand. There’s a lot of tendering going on – it’s a landlord’s market. They can pick and choose who they rent it to and virtually set the price they want.”

A good quality house in traditionally less desirable parts of Greymouth, like Cobden or Blaketown, now sold for around $200,000 - up to three times more than a few years ago – and could command rents of between $300 and $350 per week.

It was not only the main centres of Greymouth, Westport and Hokitika experiencing higher house prices.

Greymouth Gold Harcourts branch manager Lynette Hourston said outlying were also seeing good returns.

“Because of the high employment rate there’s demand for properties in all areas. People can move around and find work. There aren’t enough homes for sale or rent anywhere on the Coast,” Hourston said.

“I think because of our employment situation the coast is still very buoyant.”

Caldana said a perceived shortage of houses was not a barrier for West Coast investors who had the advantage of local knowledge and were often aware of properties for sale before they were advertised.

“While there may not appear to be houses available there are still a lot of properties if you know where to look,” said Caldana.

And, according to Stagg, there are still good returns to be had.

He knew of one buyer who bought a property near Westport last year and within 12 months sold up and doubled their money.

“That isn’t happening much anymore in other regions but on the West Coast, there are still pockets of areas that make for really good investment,” Stagg said.

“Property prices on the West Coast are completely different from elsewhere in the country. Over there $150,000 will buy you a reasonable house with a bit of land. It mightn’t be the greatest house in the world but at least you can still pick up a house at that price. In Christchurch you’d spend three times that for the same thing.”

Collett believes employment opportunities created by the opening of Solid Energy’s Pike River coal mine next year will see an increased demand for housing.

“There’s a shortage of quality existing housing which makes building new more attractive.”

Stagg was also optimistic about the future, saying there was still a lot of untapped potential in the market.

“If you do your homework you’ll see there are some areas there that still make excellent investments,” said Stagg.

Stagg believes the region’s isolation from main centres will be less of a barrier to investment.

“Property prices are moving up everywhere, wherever you live in the world. They don’t usually go backwards.

“You can’t have a place like the West Coast isolated from the market for years on end with house prices staying the same, because the pressure from outside will be too great.

“It’s an area that’s been isolated for a long time but all that is changing.”

He said one reason LJ Hooker entered the West Coast was the increase in enquiries from New Zealand and overseas about the region, particularly Australians looking for “a good New Zealand investment”.

O’Donnell has also noticed more interest from overseas, including from Australia and the United Kingdom.

“They see a good sized rural section for $35,000 and think it’s a bargain. They don’t see how they can lose.”

But Caldana said while the risks were minimal on the West Coast it was important to consider location – especially for those seeking long-term investments.

Smaller towns like Westport and Hokitika may seem affordable now but their limited employment opportunities and small populations made them vulnerable investments long-term.

She said Greymouth was a safer option as it was the largest centre and had greater employment opportunities. Most of the region’s biggest employers were based there including the West Coast Regional Council and District Health Board, so there would always be a demand for homes and rental properties.

“Places like Westport might seem like an affordable place to invest but you need to look at what brings people to town. Where are your tenants and buyers going to come from?

“If you’re just coming in to buy and sell quickly then buy anywhere, but it’s a risky option if you want something that’s going to pay for your retirement.”

The facts:[.1]

West Coast total population: 30,540

Three administrative regions make up the West Coast:

Buller, Grey District and Westland.

The three largest towns are:

Westport - pop. 5,500,

Greymouth- pop. 6,400

Hokitika – pop. 3,300