Hamilton on the move

Hamilton remains a great place to invest

A rapidly growing population means Hamilton is still a fantastic location to invest in despite a recent softening of the market.

Over the past 18 months Hamilton has seen unprecedented growth in house values – hitting a high of around 25% growth in the year to October last year, when the average house value peaked at $537,000, according to CoreLogic data. This means an average capital gain of $108,000 – but it’s come back 1% since – a drop of around $5,000.

Auckland investors made up 18% of buyers before the introduction of 60% loan-to-value ratios (LVRs) late last year - that number has dropped to 10%. The higher Hamilton values seem to have subdued Auckland investor activity in the market alongside investors’ curbed ability to secure lending. Correspondingly house prices haven’t been as well supported across the board.

But Lodge Real Estate branch manager Richard Lindsay says he has seen a return of Auckland buyers back in Hamilton over the past few weeks.

“I think the buyers are seeing opportunities out there – for investors there’s not as much competition,” says Lindsay.

Lindsay believes values will now stabilise until the demand rises again.

Population on the rise

Growing demand is certainly looking likely with Hamilton’s population reaching 162,000+ (up from 150,200 in 2013); house numbers are at 56,385 with an expected growth rate of 1,000 dwellings per year.

The swelling population is not only increasing pressure on house prices, but on rents too, says Ray White property management director Fraser Coombes. The increased compliance cost of new builds and the improvement of existing rental stock are both leading to pressure on rents.

“From our own data and what we’ve read as well, Hamilton rents have increased 11% on average across the board - that covers all types of property. We’ve had a big rush of rent increases in January.

“Out of the 1,800 properties we manage that’s $450,000 of rent increases for those people. Only 2% of tenants vacated after receiving a rent increase notification. So, not many people are moving. It’s a sign of the times. The market is improving,” says Coombes.

Waikato Property Investors’ Association president Daryl Fisher says many local investors can’t secure the deals – or the lending – they are used to and instead are upgrading their current rental stock to increase returns.

“I’m actively looking for myself but I haven’t been able to find anything that works for me. I like positively geared properties and for me that means 7%. There’s the odd one in a street I wouldn’t normally purchase in.

“I’m very active doing renovations to my houses at the moment. It’s just a far better return on my dollar. We are climbing the rents by quite a bit. For example, on a $20,000 renovation we are bumping up the rents by $50 a week and increasing the value by about $50,000,” says Fisher.

Coombes sees continued pressure on rents “If I was going to put a finger on it, I’d say five to 10 percent range for the 2018 year. There really is increased demand from investors to get better yield on their properties due to the increase in house prices.”

Low inventory pushes growth

Alongside a return of Auckland and local investors to the market, Fisher says a low sales inventory means he expects prices to rise in 2017.

“I expected 1,200-1,400 houses to be on the market currently, but we are currently sitting at 815. It’s only gone up in the last few weeks by about a 100 and this is our flood time for listings coming on to the market,” says Fisher. “In Hamilton, there is a summer/winter cycle – people don’t list generally going into winter.”

“My gut feeling is you’ll get 0 to five percent capital growth this year. It won’t be anywhere near like it was in the last two years.”

New growth areas

The construction of two freight hubs near Hamilton will attract Auckland industries to move south and will bring employment and investment to the area.

Soil has been turned on Ports of Auckland’s new 33ha Horotiu inland port 15 minutes north of Hamilton, a development which will create 300 jobs directly, while facilitating thousands more by acting as an economic catalyst for the area. 

In Ruakura to the east of Hamilton a $3 billion inland logistics facility, integrated commercial and lifestyle development has been consented. The 822ha site has set aside 138ha for residential development.

“What that does is it gives confidence and brings employment. It brings new people and a certain amount of those people will rent,” says Lindsay.

Subdivisions to the east and north of Hamilton are also busy creating medium density housing.

“Northern areas are still going really well, it’ll carry on growing that way – the infrastructure is there. But there’s quite an eye on the land to the South. Once the infrastructure gets down to the southern area there will be big demand. When land is opened up in the south it sells very readily,” says Lindsay.

Coombes agrees there are plentiful opportunities south of the city.

“The untapped ground really is south Hamilton. So, you’re looking at the area around Peacockes [Rd] or Fitzroy/Tamahere.”

New builds

Coombes says investors active in the market are targeting new builds as a way of getting around lending restrictions.

New builds in Hamilton are predominantly townhouses in complexes of eight to 10 units over one or two storeys.

These complexes are mostly centred around Hillcrest (a suburb in close proximity to the University of Waikato), the hospital – which employs close to 7,000 - and the city centre, but they do appear across most of Hamilton.

Coombes says these types of units are now being developed on the CBD fringes, which will drive more people into the CBD. However, he warns that the student market has been saturated with this type of townhouse development in recent years.

Hotspots

Coombes believes new three-bedroom town houses in the CBD have untapped potential for investors, while King says Pukete and Beerescourt are offering good value as well as Dinsdale for its affordability and reliable, “mum and dad-type tenants”.

Property Ventures’ Dan Edgecumbe says five percent gross yield in Hamilton is considered a fairly good rate of return and they should look for property in a good location where they can add value.

But be aware, Edgecumbe says “Hamilton is a ‘street-by street’ not an ‘area-by-area’. I would suggest talking to some local experts down here.”