Shore attractions

Monday 27 August 2018

Auckland’s North Shore has the lifestyle X factor and a strong rental market but it is best suited to experienced investors who are willing to be creative, writes Miriam Bell.

By The Landlord

It’s a part of Auckland best known for its kilometres of attractive, white sand beaches situated on the sparkling waters of the Waitemata. This characterisation probably harks back to the North Shore’s origins as a coastal holiday destination for those from Auckland’s “mainland”.

But the area has seen rapid urban development since the advent of the Harbour Bridge in the late 1950s. In fact, prior to its amalgamation into the Super City, North Shore City was the most densely populated city in the country. That’s because – although those golden beaches still play a big part in Shore life – most of the area is now urban or suburban in character.

It’s far from homogenised though. There’s the genteel urban village charms of Devonport and Birkenhead, the bustling commercial hubs of Takapuna and Albany, the traditionally blue collar suburbs of Beach Haven and Glenfield, and the fast growing sprawl of new housing developments running up to Orewa.

This diversity offers up a wide range of property options to those interested and combined with the lifestyle factors and solid, stable economic drivers, it makes the Shore a very attractive destination to live and work. For investors though, it is an area that requires solid research to find a good deal, along with creativity and work to maximise the value of an investment property.

High level prices

One major reason for this is that property prices on the North Shore skyrocketed in the Auckland market’s boom period in 2015 and 2016. That has left the Shore’s median price at over a million dollars.

According to the latest QV data, the average value of a Shore property in June 2018 was $1,224,965. Further, Bayley’s most recent Shore suburb breakdown shows that of six districts only one had a median sell price of less than one million.

But the period of rapid capital gain is now over. QV records value growth of 1.8% in the year ending June 2018 while, over the past quarter, values dropped by 0.9%. It appears that prices have stabilised yet they remain steady at a high level.

Ironbridge Real Estate principal Adam Smith says the Shore market has been consolidating. “The environment may be harder for investors, but for experienced investors with a bit of equity there are more opportunities to buy well now.”

Entry prices might be higher, but there is better long-term value on the Shore than in either South or West Auckland – because it’s a place where people want to live, he says.

“There is the lifestyle factor, there are the beaches, there are work opportunities and there is lots to do. Investors don’t dominate the market so there are no areas which are all rental city. That means it offers more consistency in terms of capital gain and rental increases.”

Barfoot & Thompson Takapuna branch manager Nicky Rhodes agrees, and adds the fact that there are reliably good schools all over the Shore and proximity to the CBD to the list of attractions.

“But you do need to do your homework if you are buying on the Shore. Remember that low bargains, like a two bedroom house for $400,000, are not there anymore. Prices have dropped off a bit but not that much, so be realistic.”

For iFindProperty’s Stephen Hart, the Shore remains an attractive investment opportunity. That’s because of the lifestyle attractions of the area combined with the development of better commuting options – namely the ongoing motorway expansion up north and the promise of a second harbour crossing.

“The Shore has existed in a bit of a state of splendid isolation for many years. But that is changing with better access to the CBD and other parts of Auckland. Now there is the development of business and retail hubs on the Shore itself. New opportunities are opening up and the great schools and beaches remain. I think that all makes long-term capital gain a sure bet.”

That may be the case, but North Shore investor Ginny Douglas fell into investing on the Shore by default: she lives there. While she owns several rental properties and does some trading, she thinks it is a relatively tough environment for investors.

“There were good equity gains in recent years, but they aren’t great right now (although I think values will hold) and neither are yields. It is changing a bit with flatter prices and rents inching up. But the Shore best suits experienced investors who have good cash flow and equity, or people who have very strong incomes to top up their rental properties until rents go up a bit.”

Economic powerhouse

What does make the Shore attractive for investors is its desirability as a place to live and, increasingly, work. That appeal makes for a particularly strong rental market with a deep and varied tenant pool.

The economic drivers powering the rental market are diverse but still growing. Takapuna, long the business heart of the Shore, is going through a period of revitalisation and development. One of its major players is new wave business park Smales Farm which hosts Vodafone, Air New Zealand and Sovereign.

At the same time, commercial newcomer Albany is expanding rapidly as a retail hub. It has the Westfield supermall, which is New Zealand’s biggest shopping centre, a Mitre 10 MEGA centre and North Harbour Stadium.

Some of the Shore’s economic stalwarts are Chelsea Sugar Works, which is in Birkenhead; The Warehouse Group, which has its headquarters in Northcote; and the Wairau industrial and shopping park.

Meanwhile, North Shore Hospital is a big employer, both AUT and Massey University have Shore campuses, and Devonport is the base of the New Zealand Navy.

There is also a great deal of residential development taking place. Apartments are being built in Takapuna, house and land package developments are spreading up to Orewa and out to Long Bay and construction of 400 KiwiBuild dwellings in Northcote is underway.

Additionally, Rhodes says there are growing numbers of businesses moving to the Shore because it’s cheaper and easier to access than Auckland’s CBD. “It is more central than people think – despite the Harbour Bridge, which is a psychological barrier for some people. And it offers the option of living and working in the same area: that’s a selling point for business.”

Rental creativity

All of this contributes to a reliably strong rental market. According to Rhodes, there is high tenant demand for dwellings and most tenants like to stay for the longer term.

That has been the case for Douglas who says one of the big attractions of investing on the Shore is that there is a great calibre of tenant. “The Shore is a very desirable place to live. Schools are great and families want to get their kids into good school zones. High rental demand and less risky tenants make it a very appealing proposition.”

Average rents on the Shore are reasonably high. Barfoot & Thompson’s May data has the average weekly rent for a one bedroom property at $393; a two bedroom at $476; a three bedroom at $593; a four bedroom at $735; and a five plus bedroom at $925. Devonport had the highest average weekly rent at $758 while Birkdale had the lowest at $515.

Despite the relatively high weekly rents, the increase in property prices means that yields on the Shore are not great. Barfoot & Thompson’s May data has yields ranging from 3.43% in Beach Haven down to 1.92% in Murrays Bay. The five highest yielding suburbs are Beach Haven, Glenfield (3.42%), Birkdale (3.39%), Albany (3.28%) and Mairangi Bay (3.18%).

Douglas says Shore yields are not as appealing as they once were and that there is no suburb that is particularly good. “Unless you are into negative gearing, if you want to have long-term rental properties on the Shore, you need to have quite creative strategies to maximise your investment and to get better yields.

“That’s the challenge: to be creative. So you need to do things like rent-by-room, turn a property into an Airbnb dwelling or add a minor dwelling on to the property to boost your cash flow. But there is solid rental demand all across the Shore and at all levels.”

Also, after a long static period, rents are starting to get better on the Shore. According to MBIE’s tenancy bond database, the mean rent has seen a steady increase in value to an average of $585 per week over the year to May 2018. That’s up 4% when compared to the same period the year before.

Smith says they are starting to see more “accidental landlords” on the Shore. For this reason, there is currently a bit more stock in the rental pool. But ongoing high demand means that, as long as a property is not overpriced, it will rent very well, he says.

“When buying rental properties, investors need to consider things like insulation and Healthy Homes requirements. Tenants want these more now. That means more compliance costs. But putting in a heat pump means that you will get a better class of tenant, for example. So it does pay to take such things into account.”

Picking suburbs

When buying property on the Shore, the local experts provided consistent advice. School zones are important for families so investors wanting to attract that type of tenant need to take that into account. In a similar vein, proximity to public transport options – bus routes, park and ride, even ferries – is critical too.

But when it comes to pinpointing investor-appealing suburbs, both Rhodes and Smith believe it depends on the individual investor’s strategy, goals and numbers.

Rhodes says there has been huge capital growth in Sunnynook and Hillcrest, while there is lots of potential in Takapuna. Birkdale is her pick for an attractive investment option at the moment though. “It’s just starting to move and there are lots of gorgeous, old bungalows with scope for renovation,” she says.

“You have to look carefully for the stock that you could add value to – so old, but structurally sound stock. Such properties are definitely out there but you have to look hard. There is still scope to do that value-adding work though. You just need to ensure you do thorough research.”

For Smith, the solid investment suburbs are Birkdale, Beach Haven, Glenfield, Torbay, and Albany. Some suburbs have better capital growth, but most properties on the Shore should see capital growth in the long run if you buy well, he says.

“I think Birkdale is good for investors. You can get a decent three bedroom property for up to about $800,000 there. It won’t be flash but there will be value-adding potential. You could spend about $20,000 on a basic reno and tidy-up and you might add $50 to $100 more rent per week. That’s a pretty good result.”

But he adds that investors need to ensure they don’t buy a house with deferred maintenance issues so they need to be aware of what they are buying and do their due diligence.

Some of the cheaper Shore suburbs have started to gentrify and they present opportunities in terms of trading or adding value to boost rental returns, Douglas says.

“These are places that have traditionally been lower socio-economic areas and still have properties that need doing up. Suburbs like Beach Haven and Birkdale which were a bit rough now have lots of young families and are becoming very different areas.”

Her personal suburb picks are middle of the road, she says. “So I like Glenfield, Sunnynook and Hillcrest. They are quite central and in good school zones. They appeal to families and so there is a solid tenant pool.”

But Hart’s picks are slightly different. The Shore’s East Coast Bay suburbs tend to be more highly priced but he thinks a number have potential for solid growth. Browns Bay and Torbay are both lovely spots with access to good retail options and employment opportunities, he says.

“For wealthy migrants from places like the UK and South Africa they are destination suburbs. That’s good for people interested in capital gain because these people are willing to pay and that keeps prices strong.”

Meanwhile, it is worth noting that the Unitary Plan has opened up many areas of the Shore for development. In Takapuna, that’s translating into apartment developments. But there are many properties around the Shore that are ripe for development.

Rhodes says there are definitely opportunities for investors who want to develop. “I’ve even done it myself: we knocked down our big old house and replaced it with a few townhouses. So that’s an attractive option and there is always high demand there for properties that allow it.”

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