Tauranga growth slow & steady

Monday 2 October 2017

While the market has softened in Tauranga, there are plenty of drivers for future growth, writes Louise Richardson.

By The Landlord

After an interesting few years, in which time Tauranga (now officially New Zealand’s 5th largest city) and its environs, basked in the glow of the Auckland property market’s halo effect, the market appears to be heading back to ‘normal’ - but not especially quickly.

The eye-watering sale price increases seen since 2015 have slowed but they’re still there. The median price for the whole of Tauranga this June was $660,000, compared with $639,000 in June 2016.

Mount Maunganui/Papamoa Ward saw a drop-off, from REINZ’s median price of $697,500 in June 2016, to $670,000 in May 2017.

Elsewhere in Tauranga, Otumoetai/Pyes Pa Ward enjoyed a modest median sale price rise from $670,000 to $680,000 during the same period, while Te Papa/Welcome Bay Ward, which covers the Tauranga CBD also rose, from a median price of $525,000 to $540,000 in May.

There were substantially fewer properties on the market, with 221 sales in June, while at the same time last year there were 317.

Local agents report that despite still relatively-strong price growth, fewer investors are actively buying homes to let. Part of this may well be due to the upcoming general election, but the Reserve Bank’s now one-year-old LVR rules have undoubtedly had a big impact on investor sentiment.

Drivers for Further Growth

None of this should paint a depressing picture – in fact, far from it. Tauranga continues to be one of the country’s fastest-growing cities with significant projected population increases on the cards.

Now at around 134,400 residents (June 2016), forward planning is being based on a potential population of 164,085, by 2033, bringing with it the need to accommodate around 45,000 new households. By 2063, Tauranga’s population is expected to number almost 200,000.

Meanwhile, local businesses are purring along nicely. Tourism remains steady, with regular visits by enormous cruise ships; the port and kiwifruit industry are thriving; and the new Waikato University-led tertiary campus, currently under construction in Tauranga CBD, will enhance the area’s popularity further and potentially bring significant new demand for rental housing.

While a large and growing number of Tauranga residents are retirees, their requirements in terms of medical care and rest homes and villages provide on-going, wide-ranging job opportunities both now, and in the future. Access to Papamoa has improved with the new Tauranga Eastern Link and this area is growing in popularity with young families, taking advantage of new schools.

Rental demand Steady

It’s true that the rental market is quiet right now and Trade Me figures show that the median rent dropped from $475 in May this year to $460 a month later, in June. This modest fall comes after four years of steady annual increases and has hit houses rather than units, which stayed the same, and apartments and townhouses where rents rose.

Local property managers and estate agents certainly aren’t pushing the panic button at this stage, saying that there’s still demand for quality, contemporary, family-friendly properties and citing the traditional winter lull – which hadn’t occurred during the previous ‘crazy’ three years as a possible reason for the slowdown.

“In terms of enquiries, business is down at least 50% for us since this time last year,” says property manager Chris Jenkins from Connect Realty.

“There’s a noticeable drop-off in the $480-plus per week market – in areas like Papamoa but there’s always demand for three-bedroom homes almost everywhere and rents for those haven’t fallen drastically. And anything under $400 per week will generally go quickly but it’s true, some of the others are sticking around for a while.”

She says that if the landlord is realistic and maybe even drops the price by $10 per week that can sometimes make all the difference.

Karen Johnson from Karen Johnson Property Management says she still has plenty of enquiries but the fact that there’s more choice means rentals aren’t being snapped up on first viewing.

“Three, four and even five-bedroom homes are always popular and there’s also demand for one-bedders from people who can’t get into a council flat, for example - and with the new campus coming, there’s loads of potential for investors who are prepared to have student tenants.”

However, she says most of her landlords aren’t in it for the yields. “That’s never been the way in Tauranga, it’s all about capital gains, so if you want to get into the market now and you’re prepared to stay with your investment for 10 or 12 years, you’ll make on it in the end.”

A new normal

All evidence points to a mild softening of the market. David Hume, QV registered valuer says the market is normalising.

“A normal market is where buyers are able to do the proper research in a chosen area without the sense of ‘panic’ caused by continual prices increases. There is still a lot of enquiry from Auckland buyers, although not as prominent in the investor market now as the LVR rules have restricted investors’ buying power.

“Also, with a stabilising market in Auckland, investors are now able to find opportunities a bit closer to home. I guess each one of the three [Tauranga] wards has its investor-type housing stock but currently, value growth for this type of property has flattened out.”

Reflecting on areas of town that still have investor potential, he suggests Brookfield, Greerton, Arataki and Merivale, which have all seen strong growth over the past two years.

Local agent Mat Barnes from Harcourts Advantage Realty agrees, and says that Brookfield, Judea and Merivale are worth looking at, with the latter being a bit rough by Tauranga standards but central, so still very rentable.

He says investors are still active but are being very picky. “I heard a story recently about an investor who didn’t buy a particular house because the bedrooms faced the drive and she was worried about privacy – yet she wasn’t even going to be living there, herself!”

Barnes says that to his knowledge, yields in the current market are generally not going north of 5%. “The investors I worry about are those who are looking for capital gains and can’t sit and hold, because I don’t think prices will be going up again for a while and they could be stuck.”

A firm believer in the 10-year cycle, he says that the recent boom began in 2007 so the current situation fits the pattern perfectly.

“Spring will be a very interesting time in the Tauranga market this year because nobody knows if buyers will actually be on the scene. The Mount is a different thing because it’s usually more retirees than anything else there and people still want to purchase.”

Lindsay Richards has been investing in the Bay of Plenty for over 15 years with and he too believes in the 10-year cycle.

“It’s close to the top now and I don’t want to see it going higher. In terms of my rentals I’m happy to sit tight. They’re cash flow positive and the gains will come when I sell them.”

Two years ago Richards happened upon a three-bedroom property in Te Puke. “It was a pig sty. Really disgusting. If I told you all about it you’d be put off your dinner!” Nevertheless, he bought it for $186,000, spent $20,000 fixing it up and rented it within weeks for $360.

“Te Puke is effectively a Tauranga suburb now, especially with the new Eastern Link and it’s really taking off there. Believe it or not, Trade Me’s property value on it is now $330,000 so it’s been a real winner. Better still, it’s on a 1100m2 section so we’re putting another dwelling on.”

He says that others are catching on to this area so there are probably few, if any amazing bargains but it’s still a good place to buy property. “I’m currently looking again, and luckily the LVR rules don’t affect me but I’m taking my time. There’s no big hurry.”

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