A place in the sun

Tuesday 28 May 2019

Investment in infrastructure and development in Northland means the future looks bright for Whangarei investors – thanks to a tight rental market but affordable prices, writes Miriam Bell.

After many years of doing it hard in the fall out from the Global Financial Crisis, Whangarei earned a place in the sun as a beneficiary of the halo emanating from Auckland’s recent boom. Following in the SuperCity’s footsteps, the country’s northernmost city has seen stellar price growth and a hot market from 2015 on.

But now the property cycle is coming to an end nationwide and Auckland’s market has been plateauing for some time. So where has this left Whangarei’s market? Well, still sitting pretty for investors as it turns out.

The city’s median house price may have gone up, but prices remain reasonably affordable, especially compared to Auckland. There is a shortage of rental property, but high demand and better returns on investment than in the major centres. On top of this, Whangarei is seeing some significant infrastructure and economic development going on. All of this adds up to an attractive proposition for many investors.

City on the rise

On the face of it, the latest data on the Whangarei market presents a subdued, but healthy picture. According to QV, price growth in the city dropped by 3.1% in the quarter to the end of March. But year-on-year prices grew by just over 5%. This has left its median value at $545,988, as compared to $517,302 at the same time last year.

In a similar vein, the most recent REINZ data has Whangarei’s median price at $515,000 in February. This is down by 2.8% on January’s median price of $530,000, but up by 14.4% on February 2018’s median price of $450,000. Going by the REINZ data, buyers do seem to have become more cautious: February saw 93 sales, which was down by 26.2% on the 126 seen in February 2018. Sales were, however, up by 20.8% on the 77 seen in January.

Harcourts Just Rentals Whangarei business development manager Renee Wilkinson says prices have gone up, making it harder for Whangarei first home buyers to get into the market. “For investors, this means there is less competition and more opportunities. And for Aucklanders it’s particularly attractive due to the more affordable prices.”

Despite this, open homes have been quieter of late, she says. “Whangarei’s market hasn’t yet declined since Auckland flattened out. But it does tend to follow Auckland so it’s likely to. That doesn’t matter for long term investors though. They are buying to hold and the market will rise again.”

In fact, while the market might be slowing, Whangarei’s economic development is on the rise – aided by a multi-million dollar commitment to improving Northland’s infrastructure. Road infrastructure works, including the Puhoi to Wellsford motorway extension, are underway and the Government is considering plans to upgrade rail infrastructure to link Northport to Auckland.

It is expected that this will encourage further growth in the region, particularly Whangarei, as it will put it within easier reach of Auckland. Growing numbers of people are moving to the city, which has seen its population grow to 58,800 (as at June 2018). They’re attracted by its affordability, its sub-tropical climate and proximity to beaches, and now the easier commute to Auckland.

Also boosting the city’s economy are several major development projects. One is the $25 million plus Hundertwasser Art Centre which is set for completion in January 2020. Another is the Northland Development Corporation’s plan to develop a $250million four-star convention centre and hotel.

IFindProperty Whangarei investment specialist Penny King says, on the back of this, the city’s port company is opening up to cruise ships and will have the capacity to host 60 cruise ships a year. “There’s also talk that Northport will increase its logistic capacity, as it has the land to do it, and they are doing a feasibility study on rail links.”

This is all driving ongoing employment, which will help to further boost tourism and is generally attracting more people to Whangarei, she says.

Rental market under pressure

It’s also increasing pressure on the already tight rental market. Traditionally, the big drivers of the city’s tenant pool have been Whangarei Hospital and the tertiary education sector, particularly NorthTec and a University of Auckland campus. Now there’s an influx of workers on the various infrastructure and development projects too.

Because Whangarei has long had a shortage of rental property, demand for rental accommodation now far exceeds supply – and the situation is not likely to abate anytime soon. For investors, that’s not a bad equation.

Northland Property Investors’ Association president Mike Tasker says it means rents go up regularly. “You could easily put the rent up every six months or so. And the rental market is not slowing down. Every time one of my properties becomes vacant, someone is ready to move in the next day.”

The latest rental market data backs this up. Trade Me Property has the median weekly rent in Whangarei up 15.8% year-on-year to $440 in February. Breaking that down further, the median weekly rent for small houses (one to two bedrooms) was up by 6.7% year-on-year to $320 in February and for medium houses (three to four bedrooms) it was up by 9.1% to $480.

While the rental market is strong, yields are not as high as they are in some regional markets. Realestate.co.nz puts the city’s average yield over the past three months at 3.73%. Locals put them higher though.

Wilkinson says that yields are currently sitting around 5% and it is possible to find properties yielding 7% or over. “Overall costs tend to be lower than in many places, which means returns on investment tend to be better, especially in comparison to Auckland.”

Whangarei investor Tim Edgecombe, who has three rentals (with five income streams) around Whangarei, agrees. Of the three, his Raumanga rental has a yield of 12.5%-13% on cost; his Kensington rental’s yield on cost is around 11-12%; and his Maungatapere rental has a yield on cost of 9.4%.

He says that while his properties have seen great capital gains of late, he actually bought for yields as he believes Whangarei’s rental market is steady and provides good returns.

When it comes to rental market niches, Airbnb is not considered a big player – although there might be short-term letting opportunities for those with holiday properties in popular beachside locations. But the city does have one shorter-term niche market.

Traditionally, that has been fully-furnished, short-term lets for medical staff and interns on shorter contracts at the hospital. This can be done on a rent-by-room basis and often requires hands-on management. With medical staff, the property needs to be close to the hospital and higher-end.

But Tasker says these days that niche has expanded out to include other temporary tenant groups, like students. “A friend has a property which he rents room by room, week by week to workers on roading projects. It is always full and he is now looking for another property to do the same with.”

Weighing up prospects

All those we spoke to were optimistic about the prospects for the Whangarei property market going forward, despite an expectation it will see some sort of cyclical slowing.

They all emphasised though that it is critical for investors to do solid, comprehensive research on the area they are interested in buying in. That’s because some suburbs stand out for capital gains, while others produce far better returns but can come with risks.

According to REINZ, over the past two years, the best performing suburbs in terms of median price growth were Riverside (up by 44.6% to $535,000 in 2018), Ngunguru (up by 44.5%  $745,000), Avenues (up by 44.1% to $430,000), Parahaki (up by 40.3% to $526,000) and Woodhill (up by 34.5% to  $470,000). The only suburb to see a drop in median price was Regent with a -7% change.

For our local experts, Kamo West was a popular pick. Wilkinson says investors like it because it is sought after by families wanting to live in the Hurupaki School zone and has consistently good capital gains.

“Taking into account the education options in the area, I would look centrally and within walking distance of the local shops. The Avenues, Woodhill, Kensington are good for capital gains but not returns, while Kamo is good all round.

“In contrast, Otangarei has great returns but it’s not good on capital gain and often has more problematic tenants. So if an investor is up for the risk, it’s a decent option. But if not, other areas are a safer bet.”

In Tasker’s view, it all comes down to what an investor is looking for. His picks are Kamo and Maunu for capital gains. Or Raumanga and Tikipunga, where you can still get a three-bedroom property for around  $230,000.

Edgecombe recommends looking in Tikipunga, Kensington, Avenues, the better part of Raumanga/Otaika, or near the hospital. “All middle-priced, mid-range quality, good yielding suburbs. The better ones, the CBD Northwards, will probably have better capital gain. However, Morningside has done very well.”

It was widely agreed there’s plenty of scope for adding value to properties through renovation, or by relocating houses, and there’s a good amount of sections big enough for sub-division around.

King adds it is worth keeping an eye on how the Council changes its zoning rules in the near future. Some rural changes have been enacted already making them easier to subdivide, but consultation on potential urban changes is still taking place, she says.

“The Council recognises that we need more housing and it is poised to make provisions around higher density housing to enable that. So there will be opportunities in that space. It will be a growth area when the urban zoning changes go through. It all adds to the general feel that the place is on the up. And it is great to be a part of that.”

Northland hot spots

The widespread increase in prices nationwide has seen some investors looking further into the “winterless north” for potential deals. Here’s some evidence of the solid growth in a number of areas around Northland recently.

CoreLogic has the top five value growth areas over the past year as Pukenui in the Far North (values up 14.0%), Hihi in the Far North (up 13.1%), Ruawai in the Kaipara District (up 12.0%), Maungaturoto in the Kaipara District (up 11.5%), and Mangonui in the Far North (up 10.7%).

Meanwhile, REINZ puts Northland’s best performing suburb in terms of median price as Haruru, which is near Waitangi. It was up by 70.2% over the last two years to $628,000 in 2018.

It was followed by Ruawai, near Dargaville (up 42.7% to $270,000), Kawakawa in the Bay of Islands (up 42.1% to $270,000), Ahipara near Kaitaia (up 41.2% to $394,000) and Opua in the Bay of Islands (up 34.7% to $670,000).

However, Whangarei investor Julie Gordon says areas like Kaitaia and Kaikohe may have good yields, but investors need to be very careful about tenant selection.

“There is a growing need for accommodation for avocado and berry farm workers in the north, though. Also, it’s worth knowing that the Far North District Council doesn’t require development contributions from developers - because they want to encourage developments and ratepayers.”

Edgecombe, who lives in Kerikeri, says many Northland speculators are from out of town. “We’d go to open homes and half the buyers would be from Auckland. It might be cheaper now but when the music stops, the yields drop, it’s not easy to get out and all the associated costs have to be taken into account.”

Comments from our readers

On 28 May 2019 at 10:25 pm WellyLL said:
Nothing fundamental has changed about the prospects for Whangarei. The population of Whangarei relies heavily on government transfers. That is what makes it a steady albeit modest investment. Generally the housing stock is diverse, but predominately basic. The vibe of the place is not generally considered to be an attractive desirable location for retirement or services. It is a place you go to escape hopelessness in other places.. There is a feeling of a lack of disposable income about the town. Recently Whangarei suffers (or benefits) from the Auckland Halo effect - the displacement of people, and investment capital to more affordable housing. However, apart from general displacement there are no other strong drivers working in favour of it. Yes there is money to be made, but you'd have already have to had bought back in 2011 or so to realise the gains. Those gains are not guaranteed to continue flowing unless somehow Whangarei's stars change...and even with Shane Jone's support I cannot see it happening in my life time.

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