Palmerston North housing’s big mover

The Square in Palmerston North

Has comedian John Cleese’s 2006 quip that “grotty” Palmerston North is the “suicide capital” of New Zealand been taken seriously? Almost as a leap of faith, Palmerston North is becoming a risk free area to invest in housing.

Massey University calls itself the engine of the new New Zealand. And Palmerston North is providing the perfect vehicle for that engine.  Constantly changing and innovating, Palmerston North draws some of the best and brightest people; a large chunk of its population changes from one year to the next. 

More, though, are staying than ever before.  They are drawn to Palmerston North’s impressive high-value industries, including education, defence, health, agribusiness and food technology.  Alongside its increasing prosperity, Palmerston North aims to be the perfect spot for families, with a low cost of living and affordable properties. 

“People come here from New Zealand and around the world, looking for somewhere where they can have a great career and spend time with their families,” Craig Nash, director of Spearhead Manawatu, says.  “This is the best place in New Zealand to raise a family because it’s big enough to be important but small enough to be a community.”

For investors, the transient population means that with a perennial small pool of good, comes quality tenants.  Combined with the affordable housing, Palmerston North is a solid property investment location.  Its yields and capital gains are far from stellar, and there isn’t yet enough tenant demand to match the supply of properties, but local investors have enjoyed many years of steady, low-stress performance from their Palmerston North properties.  This is a property market where a short-term investment simply isn’t an option: Only long-term investors need apply. 

Rents up, listings down

Rents are up around 3%/4% on this time last year, but the number of bonds lodged has dropped by around 12%, David Faulkner, rental division manager for Property Brokers Palmerston North and chair of the REINZ property management group, says.  He believes the quality of property in the city is improving and tenants are staying longer in each house.

“I think there are fewer tenants moving around and you have to work harder to maintain your property; the power is with the tenants,” Faulkner says.  He believes the strong Kiwi dollar is reducing international student numbers, which is also contributing to the reduction in bonds. 

Not only bonds have decreased. Listings, too, are “slim pickings”, Stuart Pescini, director of Harcourts Team Manawatu Realty, says.  The volume of sales in Palmerston North is down by around 20% this year to levels not seen since 2008, with not a great deal of choice for current buyers.  Pescini says the LVR restrictions have hit the market hard. Although he’s seen a slightly spring lift in listings, it’s still “really tight”.

Students are the backbone of the rental market, and student flats are the highest-yielding type of property.  If you can find a rental property that will appeal to students and maintain it well, you won’t have any vacancies.  However, don’t think students will put up with a sub-standard rental, Pescini warns.   Parents who buy houses for their student children are now buying “quite reasonable homes, not student dives”.  

“I’m seeing students in some quite salubrious accommodation. You tend to think of them living in any old thing, but not any more,” Pescini says.  “Students want a few creature comforts and they’re looking for something well-insulated and inexpensive to heat.”

What to buy

Another good option for investors is a two-bedroom unit – they can probably buy one that needs doing up for the low $200,000s, Pescini says.  Alternatively, a tidy three-bedroom house in a central spot with good access to university will appeal to a wide range of tenants, including students.  A lot of houses built in the 1950s to 1970s remain uninsulated, Pescini observes. Refurbished and fully insulated homes from those eras are popular.
This type of property can be bought for around $240,000 to $280,000; if investors can find one below that price, snap it up quickly.  As for where to buy, the good news is that there are very few places in Palmerston North investors should avoid; they are limited to certain streets, rather than whole suburbs, Pescini says. 

A landlord himself, Faulkner describes his Palmerston North properties as consistently reliable, with no vacancies and one tenant who has stayed for six years.
He, too, says that two-bedroom units are a great choice for investors.  For family homes, Faulkner sees good returns in suburbs like Roslyn, Takaro, Awapuni and Kelvin Grove.  However, if you’re looking for long-term capital gains, Hokowhitu is generally considered to be the city’s most sought-after suburb, with its excellent schools and friendly village atmosphere.

One person who has benefited from Hokowhitu’s popularity is Pauline Beissel, Manawatu Property Investors’ Association president and current NZPIF Landlord of the Year.  Beissel has been investing for over 30 years, and the majority of her properties are in Palmerston North.
Three decades ago she was able to buy high-quality properties in Hokowhitu for around $100,000 that are now worth $300,000 to $350,000. 
Cheeky offers

Positive cashflow is achievable, but it’s not a given.  Beissel says investors need to buy well, but admits she’s not too fussy.  She often makes “cheeky” offers, even on properties she hasn’t been inside, “because you have to take some risks sometimes.”  It’s a strategy that’s paid off, and she often buys for below $100,000, saying many cheap properties just need a few buckets of Janola thrown at them.  Last month she picked up a house in nearby Rangitikei for $72,000.  “We spent a little bit on it but we’ve easily doubled our money,” she says. 

“Personally, I like to look for a two or three-bedroom property I can convert to add a bedroom,” Beissel says.  “Some of the older type houses have really huge laundries that you can turn into a bedroom.  I just reconfigured a two-bedroom house with a terrible layout, and without moving any exterior walls I turned it into a four-bedroom.  And look for sub-dividable potential.”

Beissel’s strategy for choosing where to buy is based around employment.  When businesses are bringing in out-of-town workers on fixed-term contracts, those new employees bring their families and need rental accommodation.   These families often remain in the area once their contracts have finished, and, says Beissel, they make great tenants. “I haven’t struck any bad ones.” 

Long-term lookout

Finding a niche with new arrivals is a smart investment strategy, with an anticipated large increase in population to Palmerston North in the future.  The city is making the most of its distinct economic advantages, particularly its central location and the low cost of doing business.
Large companies are choosing Palmerston North as a distribution or research base or to set up headquarters.  American biotech company Proliant was a great example, planning to spend $24 million setting up a new factory in Feilding which is expected to bring over $90m to the local economy over the next 10 years.

This means the city is likely to attract increasing numbers of international and New Zealand employees, many of whom will want to rent before they buy. Savvy investors like Beissel who can buy well and target new residents are likely to benefit from the city’s future wealth. It’s unlikely that investor will see jumps in prices or rents over the next year; a long view is needed to invest in Palmerston North. 

“It’s been hard work, and there have been challenges along the way, but overall it’s been brilliant,” Beissel says.  She loves the quality of life the city offers her, and she’s in good company.  Nash says he and his wife decided to move from Auckland to Palmerston North 16 years ago to raise their children, and it was the best decision they’ve ever made. 

“The average commute is four-and-a-half minutes,” Nash says with a laugh.  “The Mayor [Jono Naylor] jokes that if you move here from Auckland, you get an extra six weeks’ holiday a year.”

What’s driving Palmerston North?

• The population of Palmerston North increased by 3% in the latest Census to 80,079 people.  The workforce has an average age of 33 with an above-average proportion of university graduates among the population. 
• The tertiary education sector provides $1 billion annually to the local economy and generates 13% of all jobs in Palmerston North.
• Palmerston North had the highest average growth rate per capita GDP of any city in New Zealand between 2001 and 2013.
• Major projects likely to boost the economy include a $105 million hospital redevelopment and a $20m inland port on the site of the old freezing works in Longburn.  World leading Food HQ   plans to double its staff to 4000 over the next 20 years.  In addition, companies like NZ Post and Beehive Bacon are putting more resources into bases in Palmerston North in recognition of its status as a leader of innovation and a transport hub. 
• The central New Zealand agribusiness working group aims to double agribusiness exports in the wider region by 2025; from $1.9 billion to $3.8b.
• Houses in Palmerston North are more affordable than in any of New Zealand’s other major cities. 

Sources: Statistics New Zealand, Palmerston North City Council, New Zealand Core Cities Report Palmerston North, Spearhead Manawatu.

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