Late Cycle Growth in Kapiti Coast & Horowhenua
Friday 30 November 2018
In the south west of the North Island, property prices and rents are experiencing late-cycle growth, writes Joanna Jefferies.
The Kapiti Coast and Horowhenua regions are sandwiched between Wellington and Palmerston North on the west coast of the North Island. In Kapiti the drawcard is the seaside living, quaint towns and remote lifestyle with easy access to Wellington; and in Horowhenua the focus is more on farming, small town living and the rural lifestyle.
Both areas are experiencing growth late in the property cycle, as the high prices and shortages in Wellington and Palmerston North push city goers further afield to find more affordable accommodation. As such, a shortage of listings is now the story for both regions, particularly in the larger towns, such as Levin, Kapiti and Paraparaumu.
There are two major infrastructure developments that have had and are still having a positive impact on real estate prices in the Kapiti Coast – they are the completed Expressway which cuts down the commute time to Wellington; and Transmission Gully, due to be completed in 2020.
The Expressway initially caused a spike in prices overnight when it was announced, says Paraparaumu Professionals’ Stu Dunn. This was because Wellingtonians who wished to enjoy the seaside area and could now commute easily into work, flocked to buy houses in the area.
“In Waikanae there were beach baches that could almost be knocked down with RVs of $350,000, selling for $720,000 in the auction room.”
Additionally many of the workers building the expressway grew to enjoy the Kapiti Coast location and moved there, causing a severe shortage of rentals at the time, says Dunn.
But there are still some who are waiting for the commute to shorten further and the Transmission Gully project will enable that. Currently to get out of Wellington the road goes to a single lane at Plimmerton, causing huge traffic snarl-ups.
When Transmission Gully is completed, the motorway will bypass the small towns and connect with the Expressway, alleviating the heavy traffic and further reducing the commute time.
Dunn says some investors are taking advantage of the benefits the new infrastructure will bring, ahead of its completion.
“We are starting to see people who are quite clever buying a house, saying ‘I might not need it now but I’m looking at the future – if I sit on it for now, once Transmission Gully is completed there’s going to be another spike in demand, because things will be even quicker’.”
If short commute times aren’t a drawcard for Wellingtonians looking to buy, then affordable prices are. The average median sale price in Kapiti Coast sits at around $530,000, while in Wellington Central it sits at $712,000.
But the area’s values are on the rise and have been since 2015 when the growth cycle began. Values have increased 48% since then and Dunn says the median sale price in Kapiti has increased around $50,000 in the past year alone .
In August in Kapiti there were 103 sales, the median sale price was $577,000 and the number of days to sell was 38.
“If we look over the past 12 months, the median sale price was $525,000 – so it has gone up, but the average days on the market was 35.”
Dunn says that while it takes only a few more days on average to move a property, the price achieved has significantly increased.
In Raumati the time to sell has increased five days over the past year too, to 44 days, while the median sale price has increased around $10,000.
Because it is still a rising market, albeit not at the heights of several years ago, there are still investor opportunities under the $500,000 mark to do up and sell. Dunn says he had one investor couple who recently bought a do-up for $300,000 which they sold for $430,000 after a renovation.
“They’ve now gone on and the next purchase price is $515,000 and they’ll probably sell it for $600,000. From there they might divide off and buy a two-in-one.”
Tenant Demand on the Coast
Rents in Kapiti Coast relate directly to the proximity of the rental property to Wellington, says Quinovic Kapiti-Mana’s Bernard Parker and they tend to “taper off as you get towards Horowhenua”.
Parker says rents are increasing slightly because of the advancement of infrastructure projects such as Transmission Gully and the recent air service that has been re-instated.
Parker says an air service from Paraparaumu to Auckland was re-introduced in September this year and so far the bookings are very solid. This is another string in the bow of an area that is becoming more and more accessible.
“There’s a huge amount of business confidence in Kapiti,” says Parker. “It’s all to do with the infrastructure being put in place.”
Parker says once Transmission Gully is completed “There’s room for development north of Paraparaumu” and locally there’s demand for more three and four bedroom homes.
In around a year the NZ Police call centre will move to Paraparaumu, bringing 150 employees to the area, which will further increase tenant demand.
Parker has monitored the number of rentals available on Trade Me Property for several years and says four years ago it was normal to have 150 – 165 properties available for rent on the Kapiti Coast. It reduced to 48 at Christmas last year and it now sits at around 75 – 80.
“That reflects to some extent the number of short term rentals - it’s not something that helps the rental market. It would be nice if some of these short term rentals became long term rentals.”
Red Hot in Levin
Property Brokers Levin’s Rohan Teaz says property listings that just wouldn’t sell for years are now flying off the shelves due to the shortage of supply.
“We are really short of listings,” says Teaz. “If a listing comes in it goes out that week really – we thought we’d slow down a bit but it’s not the case yet.”
The predominant industries in Levin are farming and local retail and migration to the area has reduced listings from 100 several years ago down to 25, says Teaz, who says he can’t see demand dropping this year if listings don’t increase.
“I’d like to see more properties come on the market, but it’s hard to put your house on the market when there’s not much to buy – it’s a catch-22.”
Investors can expect between 6 – 10% yield, says Teaz; an average three-bedroom rental has a purchase price of $280,000 and is rented out for $320 per week.
Investor Claire Alderton who has eight properties in the Kapiti Coast says she isn’t currently looking to buy in that area due to the high prices and says some investors are looking further north for affordable properties.
Levin presents opportunities at a lower price point says Alderton, who runs a property management company called Rent Kapiti, but she warns that some tenants in Levin present problems for landlords.
“Levin is still a really tough market for the quality of tenants,” says Alderton, however she recommends one spot in particular to investors looking to buy there: “The north west corner is the more well-to-do area – stay away from the south east.”
In contrast, Teaz says there’s no good or bad areas in Levin, but the northern side heading towards Palmerston North is very popular. He recommends rental properties in walking distance to town and says the shortage of rental properties (his office currently only has three on their books) means opportunities for investors are numerous.
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