Hamilton: river city on a roll

Hamilton's future is looking bright. “You can't stop growth,” Mayor Julie Hardaker says. Along with recorded increases in the economy, retail sales and building consents is a marked incline in the population, which is growing by 3000-4000 per year, or a street a week.
“When we look at population projections over the next 30 years, Hamilton will increase by the size of Rotorua,” Hardaker says. “That’s significant. And more recently the Auckland influence has been more of a factor than expected.”

Hardaker attributes growth over the last 10-15 years to natural births, people returning to live, increased strength in the manufacturing sector and robust industries, plus the presence of government departments, university, and large centralised health services. Waikato Hospital employs over 6000 staff. She says other drawcards of the family-focused city are its great schools, good recreational facilities and easy commuting. “We are a diversified city, with good business and support services.”

50-50 brown and green
Building consents in the last two-three years have increased and infrastructure is developing. Rototuna in the north has two new primary schools, with a junior school due to open at the beginning of 2016 and a senior high school the following year. Subdivisions have sprouted in Rototuna and Rotokauri, south in the Peacockes Rd area, west in Dinsdale, and east in Ruakura, which encompasses retail, residential and high-medium density living options.

While Hamilton City Council is confident of having 10 year's worth of land available, it is constantly checking its assessment, monitoring population projections and talking to developers.

The Land Use Plan aims at 50% brown fields and 50% green fields. High density living is currently around 42%, with a goal to be 50/50. High density living features more in established areas, including around the University of Waikato, Frankton, Dinsdale, and close to the CBD. “A lot goes on,” Hardaker says. “Our job is to achieve half high density and half residential.”

Involved in numerous projects around the city, Ted Letford, of Align Surveyors, says his company has experienced an increase in apartment construction/unit title subdivisions in the Residential Intensification Zones around Hamilton. “These have been close to the city in areas such as Ulster St and Vialou St, as well as areas around the university.”

The CBD is undergoing a renaissance. Proposed developments, designed to merge the CBD and riverbank, aim to increase flow between the two. Letford believes these developments should increase the number of people interested in visiting or living in the CBD area. “The appearance and functioning of the CBD is important in terms of Hamilton being a vibrant and beautiful city,” Letford says. “Good design, accessibility to features like the river, and more apartments, will aid its growth and make it more desirable for people to live in.”

A planned 600ha commercial and residential development at Ruakura by Tainui Group Holdings (TGH) and Chedworth Properties, including the 80ha Ruakura Inland Port and logistics hub, will impact significantly on the city in terms of economic benefits and job opportunities. Designed to meet the increasing population and freight demands between Auckland, Hamilton and Tauranga, the so-called Golden Triangle, it has the potential to increase the gross regional product for the Waikato region by $4.4 billion and create 11,000 new jobs.

Residential development is surging ahead. Jeff de Leeuw, managing director of R.G. de Leeuw Construction Ltd, Waikato franchisee for G.J. Gardner Homes, says that while development continues in the north, the coming construction season will see developments happening in all corners of Hamilton. “The traditionally favoured areas of Rototuna are still extremely popular but we have seen a resurgence of interest in the north-west Rotokauri area and south-west Peacockes area,” de Leeuw says.

The current shortage of clear, titled land should be mitigated with the coming development season and more opportunities in the new year. Buyer inquiry is very strong, particularly in house and land opportunities. “Most recently we have experienced great sales to investors and out of town commuters.”

De Leeuw believes Hamilton's strengths lie in its stable work force, strong links to the rural community, and busy businesses. It offers big city opportunities, a structured community feel, and great proximity to Auckland and the Bay of Plenty. “The property market has consistently provided good continuity and opportunity for traders and sound capital gains for owner occupiers,” he says.

“New homes for investors provide greater capital gains, easier rent ability, stronger tenants, longevity of tenure and less maintenance costs.”

Seller’s market

Quinovic Hamilton franchisee and property investor Mark Laurence describes Hamilton as a seller's market. “The city is gaining some positive steps,” Laurence says. “People who have held onto investment properties are able to settle them.” Laurence says he finds the market a bit worrying, however, because of increasing investment from out of town buyers, which is driving up prices. “Buy prices are more than they were 6-12 months ago; Auckland is invading the market.”

With prices escalating, yields are lower but capital gains are being realised. “This is great for people who have held onto property for five-seven and stuck with the changing times. It's gold at the end of a hard game.”

Laurence says out of town buyers see Hamilton as a smart, reliable place to invest. The local market is noted for its consistency, sustainability and resilience, and ability to produce a 3%-5% average capital gain per year.
“Supply and demand rules,” Laurence says. “People are settling on new properties every day but there is not enough stock to keep people happy. The spring flush should bring more properties to market and extend supply.”

Amazing results

Demand is high all over the city. Laurence cites an example in the southern suburb of Glenview where an older style home with four bedrooms, two bathrooms (en suite), two living and heat pump sold in February for $368,000. The owner couldn't realise her aim of moving into the home in July and had to sell it. At $430,000, it sold for almost 20% more than that for what she'd bought it less than six months earlier.

He says the case is not isolated and knows of other amazing results. Capital growth of up to $2000 per week is currently being realised so every day watching the market is costing people. “Standing on the sideline is expensive.” Rototuna and Flagstaff are areas achieving strong capital gains and rent increases.

Quinovic processed above average tenancies for June and July, with over 30 signed up over the two month period, well exceeding the monthly average of eight. “Over 80% of our portfolio has sustained rent increases and tenants appear to be absorbing the costs.”
Laurence believes that if you were to draw a line around Hamilton's current boundary, encompassing all established suburbs, the city would continue to be a safe bet for generational wealth. A smart move is to buy spec homes in Rototuna, Huntington and Flagstaff over the next 12-24 months and keep them in your portfolio.

“The dropping interest rates are fantastic. Higher purchase prices are countered by an almost 1% lower interest rate. Gross yields are not eaten up by such a high interest rate.”

Attracting investors

Brian King, well-known realtor and director of Hamilton Harcourts (Monarch Real Estate Ltd), reports a very busy local market, investment-wise, with big volumes.
“It's the biggest since the mid 2000s and a lot of it is investor driven,” King says. While Auckland investors are well represented, the out of town buyers are not solely Aucklanders with King saying he is fielding buyer inquiry from overseas, especially Australia, where property in Sydney and Melbourne is becoming out of reach. Kiwis living further abroad, in places like London, are also entering the Hamilton market.

Value to city
Another positive factor is the Hamilton business community, which is regarded as being in reasonably good shape. A lot of people are coming back for work, particularly in industry type areas. High technology machinery, equipment and material manufacturers, demonstrating comparative and competitive advantages, are trading nationally and internationally. They are of high value to the city.

As a result, good work opportunities and a strong job market are making the city good for rental. Increasingly more people from South Auckland are buying in Hamilton and commuting. “They are finding the lower prices more affordable and the commuting more attractive,” King says.

The University of Waikato ensures such suburbs as Hillcrest still go well and constantly draw investors. Property around the hospital area is prime investment. Good family homes in the suburbs offer solid investment buying as they attract the “mum-dad-and-the-kids” type of renter seeking longevity in terms of tenancy. Areas with good schools are always in demand, particularly suburbs on the north-east side of Hamilton, and Pukeke. Development of infrastructure and new schools in Rototuna and Flagstaff create a strong market for rentals.

Stock is in demand in more established suburbs where houses are cheaper, provide good value and are accessible to sought after schools. Decile 10 Hukanui Primary, for instance, is zoned for areas including Chedworth and Queenwood, both of which are well established yet always in demand.

While apartments are going well, residential homes are more keenly sought, primarily because there is more choice in the market place and more flexibility in terms of living, especially for a family.

The very busy Hamilton market has created a shortage of available stock. “I potentially see this market running for quite some time,” King says. He predicts a very busy summer ahead which he hopes will provide enough power to get through the coming year. “Dropping interest rates are definitely impacting on the investor market.”

Demand for Rentals High

Fraser Coombes, Property Management Principal at Ray White Hamilton City, says demand for rentals is high.  The largest Ray White franchise in the country with over 1700 properties under management, they are sitting on 1% vacancy. “Tenants are more selective and discerning so people are insulating and maintaining properties to a good standard” he says. “It is easy to fill a well-presented warm and dry home.”

Rents are increasingly accordingly. One of their property managers has the impressive achievement of having just increased rents in 50% of the 208 properties she manages in only one month, Coombes told NZ Property Investor.

Care in hot market

While impact from investors outside of Hamilton has created a hot market, former Waikato Property Investor Association (WPIA) president and long-time investor Nancy Caiger cautions investors to not get swept up in the frenzy. Caiger has seen some strong bidding in auction rooms of late, and also, disappointingly, some baiting by auctioneers. “Prices are significantly higher, often beyond agents' expectations and this concerns me particularly in view of what it means to Hamilton investors,” Caiger says. “They could be paying more than what property is worth right now.” Caiger said he believes that at these inflated prices, the investment properties won't have any positive carry and investors should be very careful that they don't overstretch themselves.

She advises investors to keep to their rules, know what they're looking for and take longer to search. “It might require more hard work.”

Caiger favours a counter cyclical strategy. She likes to buy when nobody else is. “You get the best deals and don't get caught in the heat.” With a 23 year history of investing in Hamilton, Caiger is currently assessing her portfolio and seeing how she can add value to existing properties. She invests for the long term and says she'll probably come back when the market turns. “If you buy right and hold it, it will reward you.”

Property cycle

School zones continue to drive home buyers and tenant suburb choice, according to Tony Begbie, President of the WPIA. Begbie cautions investors to educate themselves as they'll be better off in the short and long term. “Out-of-town buyers should be aware that Hamilton has its own metrics and property cycle. While there is great opportunity for long-term capital growth and yields, they should still do their numbers.”

Understanding the local market is essential. Investors should consider the purchase transaction as well as the rental market. “They are competing in both markets. Anecdotally, 50% of purchasers currently are Aucklanders and they're changing the rental market.”

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