Demand driving regional prices

Much has been written about the competition investors are posing first home buyers in regional markets near Auckland.

Prices are going up in such markets, particularly around the Waikato – and this does make it harder for first home buyers.

It also begs the question of whether investors are paying over the odds in towns like Huntly and Te Awamutu and driving unsustainable price growth.

QV Hamilton valuer Stephen Hare said Auckland investors are definitely buying properties in places like Huntley, which does impact on the markets in those towns.

“We do see more investors, than Auckland home buyers on the move, in these smaller towns because they do offer prime opportunities for investors.”

“And investors might be willing to spend a bit more on these properties than others.”

But he said there is currently more competition for these properties – from locals and other first home buyers as well as investors – than there was.

“It’s simply a more competitive field and that has contributed to the increase in prices, which does make it a bit harder for first home buyers.”

Hare added that, while property prices have gone up, typically, it’s off the back of a much lower value base.

“So properties are selling more over their capital value because they are coming from a lower base.”

Other factors, besides investors, are also playing a part in the strength of regional markets.

Lodge Real Estate managing director Jeremy O Rourke said the influx of Auckland investors in to the Hamilton market, as well as other markets in the Waikato, coincided with historically low interest rates.

“Increased investor presence in these markets has added to demand and competition – and that has had an impact on these markets.”

He doesn’t think investors are necessarily prepared to pay significantly over the value of a property.

“But the more buyers there are in the market the higher the prices will be – especially given the lack of properties around at the moment. That makes the market tougher.”

In O’Rourke’s view, the biggest influence Auckland investors have had on markets in the Waikato is their higher tolerance for lower yields.

“Auckland investors are prepared to pay more and accept lower yields. That has forced local investors to reset their way of thinking too.”

Meanwhile, experts have warned that, while regional markets might be strong now, it might not last.

BNZ chief economist Tony Alexander believes investors will be returning to Auckland once the current run of regional growth peters out, perhaps early next year.

He recently said that, unlike Auckland, many other parts of the country actually have an over-supply.

“If you are an Auckland investor jumping boots and all into the regions buying what you consider to be cheap properties with good yields be very, very careful.”

Further, a range of experts have previously told landlords.co.nz that investors buying in smaller towns should always tread warily.