Gisborne grows up
Friday 30 August 2019
Tairawhiti Gisborne is experiencing growth late in the cycle, and there are still accessible opportunities for investors, writes Joanna Jefferies.
Gisborne will celebrate the 250th anniversary of the arrival of Captain James Cook in October, which locals hope will bring global attention to their thriving coastal town.
With a population of 37,000, the Tairawhiti (Gisborne’s Maori name, which means “the coast upon which the sun shines across the water”) Gisborne region found on the east coast of the North Island is known for its surfing, vineyards, forestry, horticulture and a growing tourism industry.
Mayor Meng Foon is a fluent speaker of te reo Maori and was appointed race relations commissioner last month. The town’s population is 43% Maori and celebrating diversity is key to the town’s ethos, due to its significant place in New Zealand’s history.
The Government recognised the potential of the region when it contributed $150 million from the Provincial Growth Fund (PGF) to assist growth in some of the larger sectors.
That original contribution was increased by another $30 million last month, when the Government pledged investment in Gisborne’s forestry and timber sector.
From the fund $19.5 million will be spent developing the Tairawhiti's Wood Cluster Centre of Excellence – a wood research, training and innovation hub, with the expectation that the hub will create 30 or more full-time jobs.
"Forestry is a significant economic driver in Tairawhiti and we want to make sure the region is able to take full advantage of the opportunities the sector provides," said Regional Economic Development Minister Shane Jones.
The rest of the $30 million injection will be split between the Matai Medical Research Institute and Aotearoa Social Enterprise Trust.
While Gisborne has experienced excellent growth in property values over the past five years, the growth has been steadier than in some of the larger centres that skyrocketed and peaked in 2017.
According to CoreLogic data, three-bedroom median house values in Gisborne increased 54.3% in the past five years, of which 14.9% growth occurred in the past 12 months.
The median value for three-bedroom houses now sits at $322,550 with a median rent of $385 per week.
But the affordability of property in the area and reasonable yields has drawn people to the area and created a rental shortage, says Home Rental Services’ Graham Faulkner.
“We’ll never know [how much the population has increased] because the Census was such a shambles, but I would put it between 4,000 and 5,000 over the past two years.”
Faulkner says the rental shortage has an upside for landlords.
“Because of the shortage we’re able to pick and choose. Even the areas where we had trouble getting tenants in the past, we can now select quite good quality tenants for even those rougher parts of the town.”
The quality of rentals in Gisborne has increased dramatically over the past six to eight years, says Faulkner, partly due to compliance with new standards and partly due to landlords renovating older properties to attract better quality tenants and rents.
Strong yields are attracting investors from outside of the region.
However, he warns that Gisborne is reliant on key sectors that are vulnerable to global economic conditions.
“This massive downturn in the logging industry – that could have a massive long-term effect on Gisborne or it might be relatively short term. Because we are dependent on export markets from what is produced here, be it horticulture, cropping, forestry or farming, an international downturn can impact on us very markedly.”
Correspondingly Faulkner says the area doesn’t get the “boom-busts” prevalent in other areas of New Zealand.
“Prices being paid right now still seem to me to be realistic, there’s no boom going on, there’s just extra interest in properties.”
However, LJ Hooker Gisborne director George Searle says there is very strong buyer demand currently, particularly because those moving from Auckland for jobs in the region are willing to pay more and this is pushing up prices.
“Yesterday we had a couple of auctions, on one of them we had six people registered and the other had five, and both sold over reserve without stopping. There’s real demand for properties in the $250,000 to $450,000 range.”
Searle says the supply wasn’t as restricted up until April, but once a potential capital gains tax was taken off the table and interest rates decreased, buyers flooded back into the market.
“If you look from May forward, there’s been a real restriction on properties coming to the market. There’s simply not enough people listing their homes. It’s partly seasonal … But certainly there’s an issue where people are wanting to upgrade and they’re not actually able to find the property that they want.”
The other local phenomenon that has impacted on supply is first home buyers accessing their KiwiSaver deposit, says Searle. Because the price points are accessible in Gisborne, it means that those who first started contributing when the scheme began, are now able to purchase locally.
Strong jobs growth and an affordable lifestyle means some Auckland businesses, particularly in the IT sector, are moving their operations and staff down to Gisborne, says Bronwyn Kay property manager Sarah Comber, and this has resulted in pressure on rental supply and rent increases.
“What we are seeing is a readjustment of what has been previously charged. We are all reviewing the rents because we need to make sure they are at where the market actually is.”
CoreLogic data shows median rent for three-bedroom homes in Gisborne increased 13.2% in the 12 months to June to reach $385. This puts average yield at a healthy 6.2%.
Comber says aspiring investors who were looking at buying in the past and were put off by low yields and the costs of upgrading homes to meet new standards, are now reconsidering entering the market.
“Now that the rent that we’re charging is $100 more a week, they’re thinking ‘We can recoup this’.”
Suburbs to watch
Comber says although there are still houses at price points under $300,000 investors are tending to look at a slightly higher price range to secure a better quality property and tenant.
“The return is the same if not better, but they are getting a better tenant that is going to look after their investment.”
Searle’s pick of suburbs to invest in are: Elgin, Kaiti and Te Hapara.
“Those are three areas where you’ll get something for a reasonably competitive price and you’ll get good tenants.”
Faulkner always recommends investors look at Mangapapa and Te Hapara.
“Properties there are investor-type properties … Tacked onto that would be the area known as inner-Kaiti. The word Kaiti can often give people the shivers … It is an unfair generalisation to say that the whole of Kaiti should be avoided, but it’s an area where you need to pick and choose. The yields can be exceptionally good.”
Faulkner and Searle predict Gisborne property on the whole will likely increase in value over the next year, but at a steady rate.
Comber agrees. “I can’t see the prices staying under $300,000 for long. Between $300,000 and $400,000 you’re getting a market rent of over $500 per week in some of these areas.”
She adds that investors should consider CBD properties for the long-term potential to convert them into commercial property.
To that end, she thinks investors need to take a long-term view.
“Savvy investors are not just looking at what Gisborne is now, but what it will be in 10 years.”
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