Invercargill: Last of the affordable real estate
Our southernmost region offers property at bargain prices, as well as burgeoning primary industry likely to support future growth, reports Kristine Walsh
Monday, April 2nd 2007, 12:00AM
by The Landlord
“Investment of the week” beckons the advertisement headline in The Southland Times’ real estate guide.The “investment” in question is a three-bedroom, roughcast-over-brick Invercargill home, close to schools, immaculate inside and out and, unsurprisingly, with a very happy tenant in place. The price? $129,500. Really.
And this real estate guide is not circa 2002 – it is from February of this year.
For that kind of money this little sweetie is not likely to be in one of the flasher areas of Invercargill but it is still in a good location and has attracted a great tenant.
And there is plenty more on offer.
The adjacent advertisement shows off a four-bedroom character home in the suburb of Richmond, again in the brick construction that is suited to Invercargill’s chillier climes, again immaculately presented.
Buyers are being asked to fork out $215,000 for this one. By cripes it’s a bargain.
Before the thunder of investors’ feet as they charge to Invercargill becomes deafening, however, it pays to remember that being located at the bottom of the South Island means this city of some 50,000 souls is a long way down. And it does get mighty chilly. And for that four-bedroom house an investor is unlikely to be able to charge much more than $250 rental a week.
Tenancy Services’ latest rent survey (to January 2007) showed three-bedroom houses in Invercargill were going for a top weekly rental of $205, while a five-bedroom house could fetch close to $300.
But rents are on the rise. By early February, before the students had hit town, Southland Real Estate had seven two-bedroom houses on its books, with rents ranging from $90 per week to $250. Rents for three-bedroom houses ranged from $130 to $250 a week.
And the city is showing strength in both population and economic growth, which could be good news for canny investors.
Even better, the Southland Institute of Technology last year announced that its innovative Zero Fees Scheme would be extended to 2010, creating a growth in full-time student numbers from last year’s 4600 to an expected 6000 in three years’ time.
Admittedly, many of those students will be locals – but many won’t. And they will all need somewhere to live. The Southern Institute of Technology’s scheme, excellent economic conditions and the resulting demand for skilled workers in many sectors are among the factors credited with Southland’s growth in economy and population.
Investors from Invercargill, around New Zealand and Australia are always keeping a close eye on the local market, says David McKillop, president of the Southland Property Investors’ Association and a commercial property specialist for Harcourts Southland.
“We see a very good demand for both residential and commercial investment properties to the extent that there is a shortage of properties available,” McKillop says.
He cites the recent sale of a modern commercial building in which the four national tenants were giving a return on capital rates of 7.7 to 8.4%.
Though acknowledging that rental returns for residential properties had not been strong over the last five years, he was convinced of the value of investing in bricks and mortar.
He should know. The 52-year-old was just a high school student when he began working in his father’s real estate firm and by the time he was in his early 20s he had already invested in his first property.
Today, his personal portfolio incorporates both residential and commercial investments, but he says it is the latter that most engages his interest.
“Residential will always be safe to the extent that it never becomes totally empty,” he says. “But if you want to get ahead in this world you need to take risks and if you want that volume of turnover you have got to go commercial.”
Recent house sales revealed that homes in Invercargill were, in suburbs like Richmond and Clifton, going in some cases for under $90,000. In chintzier suburbs like Rosedale, Gladstone and Otatara, however, buyers were often paying more than $300,000. And in January of this year the local market reached a new high, with Invercargill’s first million dollar-plus home going up for sale.
Investors in commercial property could pay anything from $300,000 to over $1million for a quality, city-centre building.
While those prices sound modest, they represent a healthy increase in values.
When releasing its latest rateable values, in 2005, Invercargill City Council noted that since 2002, properties in the northern parts of the city showed average increases of around 80%, while those in the southern suburbs were closer to 100%.
In the commercial arena, returns were varied from suburb to suburb and were dependant on factors including building quality, traffic exposure and the type of surrounding development. A pedestrian count completed by the New Zealand Property Institute found that the most obvious changes were increased pedestrian flows in Esk Street, outside The Warehouse and around the public library.
Meanwhile, the industrial sector was thriving, with new development in the Bond Street area, west of the city centre and within cooee of The Warehouse and Farmers developments.
Invercargill City Council is taking a proactive approach to growth, in January announcing that it planned to rezone land at Awarua to industrial status in an effort to attract more businesses.
Council is keen to make provisions that would attract new types of industry to Southland to help diversify the economy, says environmental and planning director Bill Watt.
Studies had shown that, of those setting up industry and enterprise, more than half were “scared” of going through the consent process under the Resource Management Act, Watt says.
“This plan change will help to set clear parameters for industries going through the resource consent process, therefore making Invercargill more attractive to new industries.”
The area proposed for rezoning covers 364ha in Awarua, land “ideal for a large scale industrial development”.
The strategy has already had some success for the council. Four years ago it rezoned land in Awarua and as a result Talleys was attracted to Invercargill, building a plant on the rezoned site.
The plan change is yet to go before Council for consideration.
December statistics from Quotable Value New Zealand show that Invercargill’s annual increase in property values was sitting at a healthy 14.7% – not as radical as growth recorded in areas like Taranaki and Gisborne, but still well ahead of the single figures recorded around most of the country.
“The trend across the country continues to show steady growth in property values. Although the level of increase has been easing, a number of areas have seen a slight increase this month, typical of the real estate market through spring and early summer months,” says QV spokeswoman Glenda Whitehead. “Supply and demand in most areas appears to be relatively evenly weighted.”
In terms of the market, the Real Estate Institute of New Zealand says Invercargill joined the rest of New Zealand in exceeding expectations in 2006, a resilient market “shunning an anticipated seasonal downturn traditionally associated with the holiday break”.
Sales volume in Invercargill in December reached 138, up on the 132 houses sold in December the year before. The median price attained on those sales was $164,000, showing healthy growth on the $139,500 recorded in December 2005, and well up on 2004’s $123,500, 2003’s $103,625 and the $77,500 recorded in 2002.
Interest in Invercargill investment properties is strong among investors and locals alike and there is no shortage of quality tenants, says Des Flowers, property investment manager for real estate company L J Hooker Invercargill.
“Quotable Value has the average house sale price in Invercargill now at $172,337 and capital gain running at 12.9% per annum,” Flowers says. “In addition, in 2006, residential rents rose 13.3%, so reasonably maintained properties are currently winners in both rent increase and capital gain.”
Investors had become a regular feature of the market with many prepared to buy properties sight unseen, and some amassing sizeable portfolios, Flowers says.
“These investors include buy-and-holders, traders and renovators. They are locals and out-of-towners alike, including many from New Zealand’s larger cities, Australia and further afield.”
Average and cheaper suburbs were of most interest to the majority of investors, with a more recent upsurge of interest in above-average suburbs, with rent in these areas rising significantly in the last year, he added.
“There would appear to be more professional-class people arriving in town looking for property to rent, and certainly a notable upsurge in migrants appearing, with a settlement support office opened in Invercargill recently.”
According to Flowers, the attraction of Invercargill – for investors, at least initially – was high yields and the ability to buy positive cash flow properties.
“As time has gone on, the underlying economic fundamentals of the market seem to have remained sound with a tight local labour market, significant community money being poured into infrastructure development, and the latest census indicating population growth,” he says.
“This has contributed to residential investors making longer commitments to the local market, and increasing interest from commercial and industrial investors.”
And he hints that there could be bigger things to come for Southland’s biggest city.
“Perhaps the biggest wildcard right now is the gas and oil exploration getting under way in the province,” he says.
Spotlight on Invercargill
The city of Invercargill is rooted in New Zealand’s second-largest region, Southland, which has a land area of nearly 33,000 square kilometres. It is also the country’s southern-most region and ranges from the extremely mountainous, rainforest-covered areas of Fiordland, to the plains of Southland at the southern tip of the South Island.
The region comprises Invercargill City, Gore District and Southland District (which includes Stewart Island) and has a network of 30 small rural townships including Riverton, Tuatapere, Te Anau, Otautau, Winton, Edendale, Lumsden and Oban (Stewart Island), along with the port town of Bluff.
The larger part of Te Waipounamu, a world heritage site, lies in Southland and includes four national parks – Fiordland, Mt Aspiring, Mt Cook and Westland.
Invercargill has an international airport, and is also the gateway to Stewart Island, via Southern Air.
Despite the challenges of its climate the City of Invercargill promotes itself as being a “warm”, friendly city.
“Invercargill is favourably placed on the Southern Scenic Route and is the gateway to some of New Zealand’s most beautiful scenery and destinations; including the Southland heartland, Stewart Island, Fiordland and the Catlins,” says Venture Southland Tourism.
“It offers a combination of cultural attractions, a rejuvenated city life and outstanding nature reserves and parks.”
Tourism is increasingly becoming an economic lifeline for many New Zealand cities and, with its unique geographic location, that is especially so for Southland and its major city, Invercargill.
And that industry has recently got a shot in the arm with Southland’s Milford Sound and Mitre Peak topping the Automobile Association’s list of 101 “must-do” experiences.
Mitre Peak and Milford Sound received a final ranking of nine out of 10 after the AA’s five-month tourism campaign, which saw tens of thousands of New Zealanders vote for their favourite domestic holiday experiences.
The city proper has in recent years benefited from an upgrade in the central business district that, while modern, pays homage to the heritage buildings in the city centre.
And it is a city that is thriving. In the period 1997-2005 the number of businesses operating in Invercargill increased from 3276 to 3890 and the population now tops 51,300 – a slight increase on that recorded in 2001.
In 2005, employment in Southland was 42,973 full-time employees and the largest occupational group was in agriculture, with 16.3% of the region’s employment.
The median income in 2004 was $21,476, slightly below the national average of $21,944.
Agriculture, fishing and tourism remain the most important industries in Southland and important manufacturing industries include the aluminium smelter at Tiwai Point and the paper mill at Mataura. Forestry is also becoming a big player in the economic game, with Southland being one of the country’s fastest-growing forestry regions. And, given the region’s geography, the transport industry is vital, supplying just under a quarter of the region’s employment.
Government projections say that in Southland, employment opportunities in the primary industries are expected to continue growing, while skilled and semi-skilled workers in a number of non-primary industries are also expected to be in demand.
Affordability
Though home affordability is declining, Southland – with the city of Invercargill at its core – remains the most affordable region in the country, says Professor Bob Hargreaves, director of Massey University’s Property Foundation.
With the index at 51.4% of the national average of 100%, affordability in Southland remained streets ahead of even its closest rivals, Manawatu-Wanganui (70.3%) and Otago, on 78.4%.
Across the country, annual home affordability declined by 7.3%, with increases in house prices of 10% – well ahead of a 6% increase in the average weekly wage – and increases in the weighted average interest rates on home loans of 3.4%.
Those factors were felt in Southland, too, where an annual decline in affordability of 18.1% was recorded for the year to December 2006.
Invercargill prices reflect strong growth
House prices have exactly doubled in the past decade and, in the last year, provincial cities including Invercargill led the way.
The Real Estate Institute’s annual review of prices shows that nationally, the median price has gone from $165,000 dollars in 1997 to $330,000 in December last year.
The biggest increases in house prices for the last year were in cities in the provinces – Invercargill coming second only to Wanganui.
Wanganui’s 22% increase means the median there rose from $148,000 in December 2005 to $181,000 at the end of last year.
Meanwhile, Invercargill’s median price increased by 17.5%, from $139,500 in 2005 to $164,000 in 2006.
Invercargill median house prices:
December 2006 – $164,000
December 2005 – $139,500
December 2004 – $123,500
December 2003 – $103,625
December 2002 – $77,500
Source: Real Estate Institute
Recent listings
Residential:
· $159,900 – Three-bedroom, double-bay wooden villa, walking distance to amenities, with large living areas, Fisher fire, double garage and easy-care section.
· $229,500 – “Appealing” three-bedroom roughcast-over-brick character home in Windsor. Tasteful interior, heat pump, garage and workshop.
· $233,000-$243,000 – Choice of three newly built two-bedroom brick townhouses in popular area, all featuring quality fittings, stylish design and internal access garaging.
· $379,500 – “Exquisite” home in exclusive location, featuring three bedrooms, office, two living areas, new kitchen, central heating and heat pump. Stylish décor and “amazing” gardens.
Commercial:
· $369,000 – Recently renovated central city building with two lease spaces, upstairs vacant, downstairs leased at $30,000 per annum. Upstairs to lease at $10-$12,000 per annum.
· $435,000 – Vacant two-storey, 520m2 office building in heart of the professional area. Includes car parking.
· $1.3 million – Modern 960m2 building set on1741m2 on a prime corner. Plenty of car parks, three tenants. Currently returning $108,338 per annum.
ENDNOTE
The Southland Property Investors’ Association has around 100 members from throughout Southland, though most are based in Invercargill. It meets every month from February until November.
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