Nelson: Under the sun
Thursday 9 October 2008
Sunshine and a pleasant lifestyle make Nelson a popular place to live – and a safe bet for investors, reports Karen Clark.
By The LandlordTucked away in the north-western corner of the South Island, the Nelson region basks in a benign micro-climate.
A ring of mountains protects it from the biting southerly winds which whip much of the South Island in winter. They also stop the rain clouds in their tracks, making the region one of the sunniest in the country.
The warm climate ensures there’s a steady stream of people wanting to settle in the region.
They come for lifestyle reasons too, such as easy access to three national parks – Abel Tasman, Nelson Lakes and Kahurangi – and an array of beaches. For the more culturally inclined, there’s a vibrant arts scene, and for those wanting to indulge in wine and good food, a growing number of wineries and cafes.
Inward migration played a major part in the region’s property boom from late 2002 to early 2004, when house prices spiked dramatically – much more dramatically than the rest of the country. However, migration has eased off since then.
So how’s the region’s property market faring at the moment?
As in the rest of the country, high interest rates and falling consumer confidence have had an impact on house sales.
Figures from the Real Estate Institute of New Zealand (REINZ) show that in June, 108 houses sold in the region, compared with 129 in June 2007 and 190 in June 2006. In the Nelson city zone, houses took a median 53 days to sell in June, compared with 28 days a year earlier.
Haven Realty Richmond sales consultant, Craig Hamilton, says neither first homebuyers nor investors are in any rush to buy.
First homebuyers are being very choosy, while investors are waiting to see if interest rates will come down, he says.
“Investors are sitting on their hands at the moment.”
Hamilton, who is a property investor himself, is a little perplexed at the lack of interest in some properties listed with him, which he considers good investment buys.
One of them, a three-bedroom bungalow, is on the market for $280,000, down from $300,000 six months ago. He reckons it could be rented for $350 a week, but there’s been little interest from investors.
Harcourts Nelson managing director, Paul Hedwig, says he’s certainly noticed that there are a lot of lower priced properties on the market at the moment.
“I haven’t seen so many properties for under $300,000 available for a long time,”
Whether that’s because first homebuyers simply can’t afford to take out a mortgage is hard to say – but whatever the reason, it does present an opportunity for those in a position to buy.
Hedwig notes that there are also a lot of rural lifestyle properties available at the moment.
His observation is backed up by a recent report by valuers TelferYoung (Nelson), which
found that as of July this year, only 15 vacant lifestyle blocks had sold in the Nelson region, compared with 116 during 2007.
The drop in demand was attributed to economic uncertainty and rising living costs, particularly fuel costs. With an increase in supply of such property, prices could be expected to drop, the report said.
According to the REINZ, house prices in the region have still been rising despite the fall in sales volumes. The median sale price in June was $345,000, up from $312,000 in June 2007. Over the same period the national median fell 2.15%, to $340,000.
Figures from Quotable Value (QV), which are prepared on a three-month rolling average basis, paint a slightly different picture.
In the three months to June, residential property values in Nelson city were down 0.1% on the same period last year. In the Tasman district – the area stretching from the city boundary to Golden Bay in the west and Murchison in the south – values were 2.7% higher.
QV central region manager, Blue Hancock, says it’s clear that prices are levelling out following the dramatic growth of previous years.
“As a rule of thumb prices double every 10 years. We’ve had our growth. I think the market will be reasonably stable for the next three to five years,” he says.
For those considering investing, Hedwig says the desirable places to buy are much the same as they have been for years.
“Anywhere with a sea frontage or good sea views,” he says.
That includes the Nelson suburbs of the Port Hills and Atawhai, which overlook Tasman Bay.
The well-established neighbourhood near Christ Church Cathedral, which is within walking distance of Nelson’s CBD and Nelson Girls and Nelson Boys colleges, is also sought-after.
Further out from the CBD popular locations include newer parts of the suburb of Stoke, because of the proximity to schools. The rapidly growing township of Richmond, 15km south of the CBD and the region’s second biggest urban centre, is popular for similar reasons.
Rental demand and yields
Nelson Property Investors’ Association president, Terry Bolitho, says from a landlord’s point of view, Nelson has much going for it.
For a start, the supply of flat land in Nelson city is limited, because of the hilly terrain. This limits the development of new housing, ensuring good demand for existing rentals.
Then of course there’s the sunny climate, which keeps drawing people to the region to live.
Employment prospects are also good, despite recent lay-offs such as the axing of more than 300 jobs at Sealord’s mussel plant in Nelson, he says.
“Our unemployment level is low anyway, so there will be other employers looking for staff.”
Association secretary, Glenn Morris, who manages about 200 rentals through his business Glenn’s Vacancies, says the demand from tenants continues to be steady.
In the past few months he’s had an increase in properties to manage as homeowners struggling to sell properties opt to rent them out in the meantime, but he’s still finding tenants for them.
“Mostly they’re better quality homes, but I’m still managing to let them. There’s demand right across the price range,” he says.
Morris says he’s had a number of English immigrants rent while they look for houses to buy, although they tend to come in the summer months.
Another significant group of tenants are Burmese refugees. About 350 Burmese refugees have settled in Nelson in recent years, many renting in the Victory Square area.
“I’ve got 10 Burmese refugees at the moment and I’m always pleased to get them because they’re great tenants,” he says.
Summit Property Management manager, Stewart Henry, says traditionally the demand for rentals in Nelson fluctuates depending on the time of year – dropping off in winter and picking up again in summer,
However, as long as landlords are realistic with their rents, they should find tenants, he says.
“We look after over 600 properties and there’s probably less than 10 of them vacant at the moment. The occupancy rate here is good – you just have to make sure the price is right. Tenants are shopping around, they’re not going to take the first rental they see,” he says.
Popular areas to rent include the suburb of The Wood, within walking distance of the CBD. Further out, the suburb of Tahunanui is popular because of its flat terrain and easy access to schools, as is Stoke.
Rentals in Richmond are relatively easy to let, but tend to cost more to buy. (The median house sale price for Richmond in June was $355,000.)
Henry says an average three-bedroom house in Stoke or Tahunanui is likely to rent for about $320 a week, and in Richmond for $340 a week. Rents in central Nelson range from $290 to $370 a week, depending on the location.
Department of Building and Housing statistics show rents have risen steadily in the past couple of years. As of June, the median rent for a three-bedroom house in central Nelson was $332, up 14% on June 2007 and 23% on 2006.
According to Infometrics data, rental yields in the region have hovered around the 4% mark since 2004. Yields dropped sharply in the wake of the 2002-04 price boom, from 6.3%. However, since then flatter house price growth has seen yields come closer to the national average. As of June, Nelson’s estimated yield was 4.4%, compared with the national average of 4.6%.
The yields are better for commercial property.
Harcourts commercial sales and leasing consultant, Neil Hodgson, says investors are likely to achieve yields of 8% to 9% on average.
Those yields may not be as high as some other centres, but most investors also focus on long-term capital value gains, he says.
Hodgson says the supply of commercial property in Nelson city is constrained by the lack of land available, and because much of the existing commercial stock is owned by well-established, long-term investors who are disinclined to sell.
Richmond offers more opportunities for investors in the future, because that’s where land has been earmarked for commercial development, he says.
The Tasman District Council has proposed that 270ha of mainly rural land on the western outskirts of Richmond be rezoned for commercial and residential use. Of that, about 173ha is intended for industrial, retail and business activities, which Hodgson says is enough to cater for the region’s needs for the next 25 years.
Provisions for future residential growth include the western Richmond proposal, and the rezoning of just over 100ha of rural land to the south of Richmond. The rezoning of some rural land in Richmond East to residential is also being considered.
Looking ahead to the future, local body leaders are upbeat about the region’s economic prospects.
Tasman Mayor Richard Kempthorne says the lowering of the exchange rate is a positive sign for key industries in the region such as horticulture, fishing, forestry, and tourism.
Aldo Miccio, who has the economic development portfolio on the Nelson City Council,
says a planned performing arts and conference centre in central Nelson will bring in more visitors and boost the local economy.
He adds that the region’s population is predicted to keep growing steadily. Figures prepared for the Nelson Regional Economic Development Agency estimate that the current population of 90,000 will grow to at least 110,000 by 2026.
Infometrics managing director Gareth Kiernan is a little more circumspect with his economic forecast.
Kiernan says the slowdown in the property market and service sectors such as retailing will limit economic growth in the short term.
However, in the medium term, Nelson’s importance as a service hub for the top of the South Island will continue to grow, he says.
Kiernan adds that while property prices are expected to drop throughout the country over the coming year, they may not drop as much in Nelson as in other regions.
This is because the Nelson market slowed quite markedly after the 2002-04 boom.
“Sales volumes in a number of other South Island provincial areas rose pretty consistently between 2002 and 2007, so those regions are now feeling the full brunt of the
downturn, whereas Nelson experienced something of its own individual correction back in 2004,” he explains.
“Plus population growth in Nelson is still reasonably good, so the region can absorb some oversupply of property.”
Long-term investors such as Morris, however, aren’t too concerned about short-term trends.
“I’ve been a landlord now for 20 years and I’ve seen the doom and gloom of the late 1980s and then the late 1990s, and the boom of 1993-94 and 2002-04. We’ve had ups and downs, but we just carry on,” he says.
Facts and figures
Population: Estimated at 90,500 in June last year. Between 2001 and 2006 the population grew by 3.2% in the Nelson city area and 7.9% in the Tasman district.
Population make-up: The median age in Nelson is 39.4 years and in Tasman 40.3 years. The national median is 35.9 years.
Homeownership: In Nelson, 57.4% of households own their own homes and in Tasman 62.7%. The national figure is 54.5%.
Income: Average weekly income $646 (Nelson, Tasman, Marlborough,West Coast – June 2007)
Unemployment: 3.7% for the March quarter (Nelson, Tasman, Marlborough, West Coast)
Source: Statistics New Zealand
Commenting is closed
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