Manawatu big on yields
Manawatu is on the move – and property investors could be excused for finding the pace a little too hot to handle.
Monday, August 22nd 2005, 9:55AM
The region’s economy is humming, capital gains are being made on residential property for the first time in many years and housing stocks are lean, say market watchers.
Rental yields are averaging about 10%, but 12 to 14% yields are not uncommon on older style properties, says Harcourts Wakelin general manager Rohan Teaz.
The yield on newer houses is about 8%, he says.
The Real Estate Institute says the median sale price in the Manawatu in May rose $5000 on the previous month to $160,000, compared to $127,000 in May 2004. Sales turnover was also up in May at 502 house transactions, compared to 467 in May last year, says the institute.
Teaz says the Manawatu market has changed in the last two years.
“The market has always been very strong and very steady, but we haven’t had any real rises in the market.
In the last two years there has been capital growth, which was really needed. We don’t go through the highs and lows of Auckland and Wellington.”
In 2000 the average sale period was 42 days. Today its 23, he says.
Palmerston North is the Manawatu’s main city but the market in satellite communities is also strong, Teaz says.
In Feilding, about 15 minutes drive from the city, 30 to 40 houses have been trading a month. The average price for a three-bedroom house is about $20,000 behind Palmerston North.
“We are still very busy and very short of properties. Good solid homes are selling very quickly.”
Manawatu Property Investors’ Association president Lance Morrison reckons selling time is more like 28 days, up from 20 in December.
He attributes the strength of the market to population increases and the fact the Manawatu is not dependent on any one sector.
The region has a strong primary production industry sector, a big university in Massey, two military bases, and a lively business economy.
New building consents increased 16% in 2004, Morrison says. According to latest Manawatu economic agency figures, the region’s 15-plus population grew by 3000, or 4%, in 2004. The region’s resident population is 106,400.
There were 2863 property sales in the year to December 2004.
Morrison says demand for housing has also been fuelled by fewer people living in one house.
“The average in Palmerston North is 2.6 people per house. Student flats used to have five people in a house, now they want to live two to a house. And students won’t live in the type of squalor they were living in 10 to 15 years ago. They want higher quality flats, heated and quiet for study.”
Teaz says the weekly rental on an average two-bedroom unit in Palmerston North is between $140 and $170. Three-bedroom homes command weekly rents of between $200 and $300, with executive properties in the $300 to $500 range.
Property management specialists Property Brokers confirm demand for rental properties is constant in Palmerston North.
The company’s property manager Lesley Burrows says the average three-bedroom home in the city commands about $235 a week, “but with that must come garaging, fencing and it has to be reasonably tidy”.
“Our wave of investors in the last two years has been what we consider to be younger investors. They’ve purchased reasonably tidy properties, quite modern with rentals of $235 through to $300 a week. But generally the market is $235 to $260. Anything $300 to $340 is difficult to move.”
Teaz says there are few areas of Palmerston North that are considered undesirable. The city has a fairly even spread of suburb quality. The upmarket areas are near the city hospital and Hokowhitu, he says.
Morrison says it was farming performance that shunted Palmerston North into the country’s No. 2 position for regional economic performance in the last quarter of last year.
Permits for 659 new farm buildings had been issued since 1998, compared to 13 for new commercial buildings, 123 retail and hospitality, 64 offices and 123 factories, he says.
The Manawatu Economic Monitor says the regional economy grew 4.1% in 2004.
Employment rose 8%, with all industries other than primary production and education, health and community, increasing jobs. The highest numbers of new jobs were in transport/storage, construction, business services and tourism.
Unemployment fell by 17% to 2000.
Morrison and Teaz say there has been an influx of new property buyers to the Manawatu. Morrison has seen a lot of Aucklanders and Australians buying investment properties, along with overseas Kiwis preparing for their return.
Morrison says Palmerston North is a good place to invest – “if you haven’t got very high expectations” of capital gain.
“You don’t get huge spikes here, people don’t invest here for short-term capital gain, they’re in for the long term. They can rely on the rental market remaining pretty static and on inflation over the long period giving them a reasonable return.
“I can still get better growth yields here than I see coming through from anywhere else. You can still buy at 7% easily and I see the occasional one coming through at 11%.” There have been good capital gains on residential property in satellite communities, Feilding, Ohakea and Sanson, Morrison says.
“In the other smaller communities such as Woodville, Dannevirke, Shannon, and Pahiatua there have been very high yields. There are no expectations of much capital gain there, there are a lot of low-cost properties, a lot of beneficiaries, and now with their rent being paid direct to the landlord, investors are pretty comfortable.” The outlook for the region is bright.
Economic planning agency Vision Manawatu has identified bio-industry, education and “smart business” as three key growth areas.
Morrison says 400 new army recruits are coming to the region, and in 2002 the Government announced that all air force operations would be consolidated at Manawatu’s air force base at Ohakea. The timeframe for this is still unclear.
“The feeling is that the education sector is going pretty well though we haven’t got the overseas student numbers that we used to have because of the dollar. The military is still coming and still growing, that’s a real plus. In primary industry everything is going pretty well, and that all feeds to us,” he says.
“Most people are predicting we will get a fair increase in population, which means an increase in commerce. People are leaving Auckland for the Manawatu. Salaries in Palmerston North are not much lower, so people coming down will take a small salary decrease for a very high increase in standard of living and a very high decrease in their cost of living.”
Full employment translates to lots of ability to borrow for housing, Morrison says.
Two-thirds of the whole New Zealand population live within 400km of Palmerston North, he says.
Big distribution centres are migrating to the Manawatu because it is central and easy to get around. Coca Cola, and clothing and homeware direct mail company Ezi Buy have based their national distribution operations in the region.
The impact of all this growth on infrastructure requirements and therefore rates is negligible to the property investor, Morrison says.
“A 5% increase in rates is not much of an impact on total investment. If rates are spent on attracting commerce, demand increases and away you go.
“We have no natural resources, so it all has to be about commerce.”
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