For property investors, it’s a steady-as-you-go market.
“Traditionally Hamilton is easy going. We haven’t had the massive increases or falls that some other centres have experienced,” Waikato Property Investors Association president Brian Hancock says. “Sure there has been movement up and down, but not to the intensity of some other markets.
“There is stability here.”
Hancock, who is also a director of Quinovic Property Management, said demand for rental properties in Hamilton was outstripping supply, though not phenomenally. “But there is still demand nevertheless. Key rental areas are close to town and in the more established suburbs. We get a number of requests for houses in areas with particular schools. Aberdeen Primary has a good reputation. Out-of-towners looking for rentals tend to go for areas like Rototuna for the schooling.”
Other key rental areas include Chartwell, Hamilton East and Dinsdale.
Demand is strongest for tidy, well-maintained three or four-bedroom homes. Hancock says general feedback from other rental property companies indicated that they were having trouble filling two-bedroom homes.
“People don’t want to be out of pocket and are trying to consolidate the amount of money they spend. A couple may find it more economically viable to team up with another couple and rent a four-bedroom home, especially one with two living areas and an ensuite.”
Rental incomes are also starting to creep up due to demand. A 15-20 year old house yields about $320-$350 a week, says Hancock. And while not the most common in demand for rentals, a more up-market home will return around $385-$450.
Based on the trend of the last cycle, Hancock says Hamilton could experience a glut of rental properties, through people not being able to sell their homes. “Private landlords feeling the pressure, and who manage their own properties, may drop rents to secure a tenant, thus limiting overall rise in rents.”
Despite a decline in the property investment market, Hancock says there has been an increase in the number of ‘accidental’ landlords.
“This is due to people wanting to sell their home, or those who have built a new one, and have been unsuccessful in selling, and so make these properties available for rent instead.”
Hancock believes that given the current state of the market, putting a house up for rent rather than having it empty while waiting for it to sell, may be the best option. Although, he says an issue to take into account before renting is ownership and mortgage structure.
“I’ve also noticed people who committed to purchase property eight to 12 months ago. When it’s finally ready to settle, the property cannot be on-sold profitably. These properties are being rented out instead, to assist with cash flow. They came into the game too late.”
Hancock attributes the current situation to rising interest rates and economic uncertainty, along with the rising cost of living.
“Recently we have seen a number of mortgagee sales. As far as property investment is concerned, someone’s misfortune becomes another person’s good luck.”
“We saw similar scenarios in the last cycle. If investors are not too heavily geared, and are able to find their way through the current cycle, residential property investment is still worthwhile.”
According to David Kneebone of Lodge Real Estate, the rental market in Hamilton continues to hold momentum.
“With the slow-down in sales, some owners are electing to place unsold properties into the rental pool. Consequently, we have added some good quality rental properties to the portfolio. At this stage demand has soaked up the additional supply with rents maintaining levels.”
Ray White salesman Lynn Eagar, a veteran of 27 years and an experienced auctioneer, says the current state of the market is akin to that of 1991. “That was toughest year ever in real estate. It was worse than the 1987 crash, and took a longer time to recover.”
Eagar agrees that mortgagee sales have increased markedly, although is surprised there aren’t more investors having a go at the lower end of the market. “More and more properties under the $200,000 mark are coming up for sale. They stack up well as an investment in today’s market and are showing a better return than most.”
Another thing Eagar sees in the current market is the emerging trend for individual units in blocks. “We’ve had good inquiries from these mortgagee sales. They are pretty bullet-proof investments. If a residential home gets damaged it can cost you a fair amount in repairs, but these units are built to withstand a nuclear bomb. And they’re not a major to redecorate.”
Because the real estate market is subject to fluctuation, Eagar says people need to adapt to current conditions. “There are positives to be had out of negatives. Now is opportunity time. In fact, it’s a great time to buy. People shouldn’t miss the opportunity if they’re serious about investing.”
However, he is concerned about the future of development being stymied by the major reduction in the number of second-tier lenders in the market place.
Campbell Scott of Lodge Real Estate’s commercial division says a trend over the last couple of years indicates that investors are acknowledging the better returns on multi dwellings and commercial property in general, as opposed to residential property.
“Investors have traded up. Interest rates have not had a big effect on the market – investors are simply looking for bigger returns.
“The current market is more competitive. When there is more stock, investors will choose property that will produce a higher return. The shoe is on the buyer’s foot. Investors are cutting their shopping list on the basis of return.”
Scott says a three-bedroom house in Hamilton’s suburbs generates a gross return of between 5% to 5.5% on average. “A block of six to eight flats priced around $800,000-1,000,000 shows a gross return of 7% to 7.5%. The next step up is commercial investment, such as a small office block or retail shop where you can expect 7% to 7.5% net return, and gross of around 8.5% to 9%.”
Commercial and industrial property salesperson, Paul Sumner, of Hamilton’s Realty Plus believes, “If you’ve got the ability for commercial investment, the returns are still much better than residential. It’s all risk dependent, though. If you are looking to either buy or sell, commercial property in a good location with a reliable tenant will always retain its value and can be a good investment portfolio component.”
Sumner also believes that in the last two to three years some investors have been carried along with the buoyant market and bought commercial property that has lower yields but “stands tall in the eyes of the purchaser. Now that the tide has turned, in relation to demand and investor expectation, we’ll see what’s been left on the beach.
“We are seeing a change in circumstances for some owners and vendors due to higher interest rates and market conditions. Seasoned investors are coming back into the market to take advantage of these circumstances. Good commercial property will always weather against the storm and the tide.”
Flats are generally regarded as a commercial investment, Sumner says, but also tend to take on some of the perceptions of the residential property market. In the current market Sumner has seen a change in value of flats and multi-residential dwellings dropping slightly.
“Unrealistic vendor expectations are not entertained as much now as they were six months ago. The market is really talking and creating its own values.”
Experienced real estate salesperson Glenn Collins and his partner, Sonia Christison, turned over $50m in sales in Hamilton last year. Two years ago, residential property investors made up 25% of their sales, but now only constitute 5%.
Collins says it’s all about numbers. “The gap has broadened too much between yields and interest rates.
“As a whole the Hamilton economy is strong, but building consents are down and the residential property market has slowed considerably. Generically, sales values have been down 10% since September 2007.”
Collins believes smart investors are still looking for opportunities but are being more cautious and pragmatic. “They will only land bank if it attracts a reasonable yield, whereas in the past yield has not been part of the equation.”
Collins says the increase in mortgagee sales was definitely coming from the investor market. “Some investors are too highly leveraged. They’re coming off their current interest rates and having to re-finance at higher rates. The homeowner mortgagee sales we’re seeing are generated from second tier lenders.”
He believes the rental market is very strong, and the vacancy rate is negligible.
“It’s great time to be buying. At 6% to 6.5%, yields are slightly better than last year’s (5%-5.5%) returns. But there is a current lack of confidence. We’re seeing lots of people with pre-approved loans sitting on the fence. I believe there is a catalyst around the corner. There are a lot of factors that could instigate this, and give rise to optimism and prompt people to start making those buying decisions again.”
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