Shortage driving Hamilton values

There's a shortage of both rental and sales stock in Hamilton.

A prospective tenant was so desperate to secure a Hamilton rental recently that she offered to up the letting fee by $1,000. Her bribe was declined, but the scenario illustrates just how severe the shortage of rentals is in Hamilton.

On Trade Me Property, houses for rent only number around 300, compared to the usual 1000-odd rentals typically available at this time of year.

Ray White Hamilton City managing director Fraser Coombes says Ray White currently has about 1% vacancy across their rental portfolio. “If we had an extra 100 or 200 properties then we’d be able to fill them easily.”

The shortage can be put down to older landlords selling up stock and established landlords investing in their existing rentals, rather than buying new stock, says Glasshouse Property Management’s Jeremy Baker.

“That is driving the lack of availability in the market. The supply of new rental stock is quite constrained.”

Auckland investors are making an appearance in the market again, but with sales supply extremely low opportunities with decent returns are difficult to secure, says Baker.

Focused Property Management’s director Alan Jones says the severe shortage is driving up rents.

“There’s no lack of applicants and in some cases it’s driving the rent value up. People are in fact making offers of more rent. Prospective tenants are looking at how they can add value for the property owner to secure the property for themselves.

“It’s a good opportunity for investors to get a good return on their property.”

Investing back into your portfolio

Investing in your existing portfolio is the best return on investment in Hamilton currently, says Jones.  He recently managed a renovation of a client’s rundown Chartwell property, which was bought a couple of years ago for $620,000.

The three-bedroom plus sleepout property in its untidy state had a rental appraisal of $400 a week. After replacing the bathroom, insulating, repainting, replacing electrical fittings, re-carpeting and tidying up the exterior at a total cost of $17,000, the property now rents at $500 per week.

Jones says increasing yield through upgrading current rentals is a key strategy to consider:

“Now is a good time to look at current dwellings and put a bit of a time in while sale stock is low. Look at adding a minor dwelling, or converting a two bed to a three bed, convert a garage to a sleepout or subdivide if possible. All of these strategies can and will improve the cashflow of a rental.”

Baker agrees it’s difficult to buy anything “off the shelf” with a good yield, but says there are renovation project opportunities out there for investors. He recently upgraded a number of rentals in his grandmother’s portfolio, which he manages.

“We’ve gone in and given the properties a really good cosmetic makeover and managed to get the rents up $100 per week. That is partly because they were under-rented to the old long-term tenants and partly because we renovated them.”

New investors can take advantage of the trend of older investors selling up older stock that they find unprofitable because it might be under-rented, says Baker. An investor can then put a bit of work in to bring the rental up to standard and get the yield up.

Established local investor Daryl Fisher has been doing this type of upgrade on his older units in the CBD. For a $20,000 upgrade spend per unit, Fisher is getting a capital value increase of $80,000 and the rents are jumping $100 a week.

Fisher is aiming to upgrade his entire portfolio “so that  we don’t have to touch them in the next 10 years". Despite low inventory (Fisher says the current 600 listings for sale is three times lower than that of a ‘flat’ market) there are buying opportunities for investors who want to roll up their sleeves.

When searching for properties on realestate.co.nz recently, Fisher says “out of the 600-odd in Hamilton available there were 200 of them came up as having the word ‘do-up’ in them”. His gut feeling is there will be 5 and 10% capital gains for this year, due to the shortage.

Spots to watch

Fisher says buying opportunities are best in lower-cost suburbs: “I’m liking Glenview, Nawton, Melville and round the hospital because it’s very popular. Glenview because of the Peacockes Road [development].”

Jones prefers similar areas “I’d say over in Frankton, Nawton and Dinsdale you’re getting good returns and good opportunities there.” 

Coombes says you can currently expect around 5.2% return in Hamilton, depending on the suburb. He recommends Nawton and Melville as good investment locations with a lower purchase price and better return.

Hamilton City Council’s Unitary Plan aims to have 50% infill housing in central locations. Coombes recommends looking at this opportunity - “two to three bed townhouses are doing really well”.

The proposed Peacockes subdivision is another area to keep an eye on, says Coombes, as there will be several thousand sections there, as well as the port development at Ruakura. He also suggests investors look at north areas around Flagstaff that “have really taken off”.

“It really is a growing city, the roading and infrastructure is there, job growth and population growth are strong so it’s an attractive place to invest.”