Rotorua: Hot opportunities

Rotorua is the second-largest city in the Bay of Plenty. It is centered around a thriving urban area on the southern shore of Lake Rotorua and extends to include a substantial rural area as well as many lakeside communities.

The surrounding area encompasses 16 lakes, active geothermal areas and around 1,800 ha of reserve managed by the local council.

Rotorua’s population sits at around 66,000, with almost 20% of the population living in rural and lakeside areas.

Rotorua also has a broad range of industries impacting on the local economy, the three main areas being tourism, agriculture and forestry, which combined contribute an estimated 25% of the local economy. 

Known as one of the greatest tourist destinations in the country and considered the heart of Maori culture, Rotorua has thousands of visitors to the city and surrounding areas each month.

Rotorua also boasts some of the world’s greatest mountain biking trails and has a loyal base of mountain bikers, along with adventure-seekers both local and from overseas.

Rotorua’s property market is picking up the pace compared with much of the country. Median house prices picked up from a low of $247,000 in May to $277,000 August, whereas most other areas saw further declines.

House prices are affordable, especially when compared to surrounding areas such as Taupo, Tauranga and Hamilton, which tend to be $50,000 to $100,000 more than prices seen in Rotorua, and which also have a surplus of houses and land available.

Hot yields
The Rotorua property market is attractive to investors as it is affordable, but also has many good yielding properties on offer.

Property finder Marie Mortimer of Koru Homes says many of the city’s rental properties are owned by investors from other areas including offshore. They are attracted to the city because of the yields. A year ago she was finding properties with gross yields of 7%, but now prices have come down there are more properties with yields of between 8% and 9%, she says.

Often the properties with good yields are in some of the smaller, less desirable outlying areas, such as Murupara, because house prices are low.

Rotorua has the yields but is also a vibrant city, Mortimer says.

She says the yields tend to be better than in surrounding areas including Taupo, Hamilton and Tauranga.
The other characteristic of the market is that its house prices seem more stable and aren’t as volatile as surrounding areas.

LJ Hooker business owner Malcolm Forsyth agrees and says that house prices in Rotorua are between $50,000 and $100,000 less than in surrounding cities such as Tauranga, Hamilton and Taupo.
He says the median price, in August, was $277,000.

Forsyth says that the Rotorua property market, like in other area, just stopped during winter. Sales and prices, along with volumes, were well down on the previous year.

However, he says there has been a lift in the market recently and prices have come up although volumes are still low.

The price is right
“Our prices are right now,” Joy Kelly, sales manager of Eves Rotorua says.

The gap between vendors’ and buyers’ expectations on price is also narrowing, as numbers come more into line with each other.

Although the number of houses selling hasn’t dramatically jumped, buyers are “nibbling” and interest is definitely picking up, she says.

The general consensus is, buyers and sellers have waited enough and spring is a call to action.

Kelly believes property investors are emerging from winter hibernation and are becoming more active in the market. This is also helped by good stock levels available at present and the fact that prices are finally right.

It’s an “exciting” market out there, says Kelly, because investors are looking to buy and looking to buy well. There are good stock levels, around eight to 10 months, according to the Eves team, with around a third of them suitable for investors.

There is also reasonable rental returns for investors, where as previously rents haven’t matched house prices.

Kelly says investors aren’t too focused on capital gains in this market, but rather they’re becoming more income-focused.

Many investors Eves has come across are looking for 10% yield or more, although 7% to 9% yield is more achievable in the current climate, according to Eve’s residential marketing man Bruce Meikle.

The do-up market is very quiet at present, but that’s not surprising considering the number of houses available and price expectations. The current market is more suited to buy-and-hold investors and those adding to their long-term portfolio.

Investors are generally looking all over town for rentals, although outer areas have better returns due to the lower cost of housing and the ease at which they are rented.

Forsyth said one area he has seen interest is in new houses for sale. While investors still tend to buy older houses he is seeing demand for some of these newer properties.

Forsyth says he recently had an investor from out of town who bought one new property and is so happy, he asked for another to be built. These tend to be brick-and-tile places which are easy to maintain, and they attract a good quality of tenant.

Forsyth says returns aren’t has high as older properties but they are easier to manage and look after.
While there are plenty of rental properties in the city area, Rotorua is surrounded by a wide variety of towns and settlements. These range from the lakes, such as Tarawera and Okareka, which have high value homes, to the forestry settlements of Murupara and Kaingaroa Forest which have many rental properties.

Forsyth says some of the outlying areas, such as Murupara have seen phenomenal increases in house prices. He tells stories of places which sold for less than $10,000 several years ago now changing hands at more than $50,000.

He says investors are buying properties in these areas as they have high yields on them. The areas, though, tend to attract investors who are highly-focused on numbers and evaluating the financials of a deal, and it is not uncommon for properties to be bought sight unseen.

Some of these areas tend to be rough neighbourhoods and the NZ Property Investor is aware that some property managers refuse to look after investments in places like Kaingaroa Forest village.

Exciting growth potential
While the market is showing signs of coming back to life Harcourts chief operations officer David Martin says there is good potential growth for Rotorua too. Two factors he highlights are plans by the Rotorua District Council to convert the domestic airport into an international facility with direct flights between Australia and Rotorua.

Using the Queenstown experience as a benchmark, he says this will be a huge boost for the region and its property market.

The other trend he sees emerging is the development of an apartment market in the city. Currently there are few apartments, however recently several plans have been unveiled for apartments in the CBD and on the lakefront.

Apartments in Rotorua will be a little different to the big cities such as Auckland and Wellington. Martin believes people from outside of town will use these when they visit to access the forests and lakes. Also there is quite a lot of hidden wealth in the area. There is talk locals who live out of town may use apartments.

Another area where Rotorua is different to the surrounding cities of particularly Taupo and Tauranga, is that there hasn’t been an oversupply of new developments and subdivisions. Martin says the council has done a good job.

Attractive to outside investors
Mortimer says Rotorua has a couple of other features which make it attractive to outside investors, including that it has a lot of good property managers, and for locals it has a “really active property investors’ association”. The association organised this year’s annual property investment conference which was held over Labour weekend.

Besides these features, its yields and affordable houses, there is one other factor which appeals to some investors, Mortimer says.

An added bonus for out-of-town investors is that they can use their properties for tax-deductible holidays to the city.

Rotorua is New Zealand’s largest tourist destination with a huge variety of attractions including its lakes and forests. Mortimer says a number of investors buy in Rotorua then come and visit, to check out their properties, and end up having a tax-deductible visit to the city.

Property management
Property managers in Rotorua agree there are three things tenants are looking for in property; heating, fencing and garaging.

Heating because the city, being on the central Plateau and 1,000 feet above sea level, gets cold in winter. Garaging is important, not just for cars, funnily enough. Rather, people in Rotorua own bikes and boats to use in the forests and lakes, plus garages are good places to store firewood.

Richard Evans of Rotorua Rentals, one of the biggest property management firms in town, says there has been an increase in the pool of rental stock because people have been unable to sell their properties. He says this has lead to an oversupply in some areas in the city.

He says a key factor to consider when buying investment properties is the proximity to schools.
This has a big impact on rentals, Evans says. Tenants want to be within 1km or walking distance of good schools. In particular people are looking to be in the Lynmore school zone in the eastern suburbs, or be near Otonga school in the south-west (which isn’t zoned).

The other issue showing some signs of impact on the market is high petrol prices. Evans says there are quite a few lifestyle rental properties in the Waikite Valley area south west of the city, but they are harder to rent because of increased travel costs. The same thing is happening with one and two-bedroom properties on the outskirts of town.

“Some people have decided to move closer to town because they can’t afford costs. This has affected rents of outer suburbs and out-of-town houses,” he says.

At the northern end of Lake Rotorua there is the Marama Point apartment complex on the Ohau Channel which has two-bedroom units. Up there rent has dropped from $350 to $250 due to oversupply.
Also at the top of the lake is Hamurana and Kaharoa which have many lifestyle blocks. Evans says Kaharoa is renting well because it has a good school.

Further around the lake on the western side is the town ship of Ngongotaha. This area has been redeveloped and some new subdivisions have gone in. Evans says it is still popular, and the sealing of the gorge on the Tauranga Direct Road (State Highway 36) has helped the area.

The area directly to the south of the CBD, Glenholm (sometimes described as old Rotorua) is popular with Asians and executives as it is within walking distance to town and the main shopping complex.

The two areas to be wary of are Fordlands and Pohutakawa Drive, Evans says.