Ashburton: Offering a Kiwi slice of life

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The Ashburton District is a diverse area, offering both established employment opportunities and future potential for growth. With a steady property market and picturesque surroundings, there are many attractive carrots to entice investors, writes Madeleine Milicich

Tuesday, September 14th 2010, 12:19PM 1 Comment

by The Landlord

Backdrop
Lying amidst the picturesque Canterbury Plains and bounded by the Southern Alps to the west and the Pacific Ocean to the east, the Ashburton District is thriving, underpinned by a strong local economy.

The region produces 50% of New Zealand's grain and 60% of the country's small seed production, although this is only part of the story.

The Ashburton District is also world famous, having starred in the Lord of the Rings movies and many film-makers are taking more of an interest in the area as a filming location.

Its main centre, Ashburton, is home to 14,592 people (2006 Census), is a thriving hub of activity and is at the forefront of New Zealand's agricultural and pastoral industries.

It is also half way between the Lyttleton and Timaru Ports and the South Island main trunk railway passes through the town, so has good railway links which keeps it open to the rest of the country in terms of accessibility.

Ashburton features many specialist industries, such as a world-class kite design and manufacturer, a spinning-wheel manufacturer who exports to 40 countries, plus Guardian Print, one of the main printers of commercial newsprint in the South Island.

Two other major employers in the region are the freezing works, PPCS and CMP.

There is a seasonal variant to work in Ashburton, as the farming and agricultural industries rely on more workers at certain parts of the year.

Ashburton has a slice of everything New Zealand has to offer, being within driving distance to the South Island's top ski fields and tourist destinations such as Methven and Queenstown as well as being a stone's throw from the coast.

Property market
The Ashburton property market remains stable and traditionally does not see the pronounced peaks and troughs compared to other parts of the country.

"Ashburton traditionally runs behind national trends. The town is fortunate enough to have ridden the good part of the cycle longer than other areas, but is now starting to catch up," says Hamish Niles, real estate agent with Ashburton Property Brokers.

Indeed, the town is currently reflecting the nation-wide trends of slowing due to uncertainty around tax changes affecting property investment and pending interest rate rises.

Jonno Ingerson, research director for Quotable Value says Ashburton's median sales price rose to a peak in 2007 and has been more or less stable since then, differing from many other areas which saw a significant drop in values throughout 2008 and then a recovery last year.

QV records the median sales price for the first quarter of this year at $262,000, compared to $261,250 the same time last year.

Property finder and investor Julianne Taylor says currently the more stagnant part of the market is in the upper range, from $270,000-plus, with properties tending to sit on the market longer, while "the cheapies are moving - provided they're in good condition". That is, properties up to the $200,000 to $210,000 range.

Trevor Hurley, from McGregor Real Estate says there is a good supply of properties priced in the $180,000 to $230,000 range which represent good buying.

The market has seen mainly home buyers active recently, although there are still investors out scouting for deals.

Taylor says traditionally Ashburton hasn't seen many houses for under $200,000 and now that there are, home buyers are particularly active.

"House prices have come back and have become more affordable."

She says conditions are perfect for first home buyers because, with so many listings on the market and uncertainty surrounding property investment, the pressure to buy, buy, buy is off.

"First home buyers are cautious, but more are coming in now than before. They're looking around and know they've got more time and more choice [than previously]."

Harcourts Ashburton sales agent Tony Sands says new listings coming onto the market have dropped, but remain steady.

"New listings aren't coming to the market as readily as they were a couple of months ago, but there is still a decent amount coming through."

Listings still far out-weigh buyers though.

If properties are priced right, Taylor says they are moving quite quickly. Although there are some properties currently listed that have been on the market for well over three months, but Taylor says that's because they're around $40,000 over-priced.

"There are many unrealistic vendors out there, but it's like anywhere. But in Ashburton, many are prepared to just sit and wait until they get what they're asking for."

Niles has noticed some properties have been selling for $20,000 to $30,000 below asking prices of late, so there are motivated vendors in the market.

There are a lot of red brick, solid, low maintenance homes coming onto the market and are always in demand from tenants because they like living in them.

Mortgagee sales are not prominent in town, although there have been the odd few. Most working in the Ashburton property market put this down to the town's conservative nature, in that they're less likely to get into financial trouble and over-commit themselves.

Returns
Ashburton is not traditionally a high capital growth area, but is more of a slow and steady type of market with good tenant demand and mid-range type properties.

Gross yield achievable in the current market is around the 8% to 9% mark, according to Taylor.

Cash flow is also starting to creep back into the market again and is better now than it has been for a while. Taylor says it's a hard market to find cash flow in, but it is possible.

"There are deals around but they're not thick and fast on the ground."

Some properties offering good returns may be in less desirable areas, such as parts of Netherby and Tinwald.

Taylor says if you're not fussy about location, there are some excellent deals but she doesn't recommend them for "newbie" landlords, "they're more suitable for hardened landlords, those who have experience taking a few knocks".

Kerry Christian, property developer and owner of How2, says "Ashburton is rocking and rolling" in terms of investor potential.

Christian does a lot of subdivision in town and his benchmark for a deal is $60 a week cash flow, after all expenses - and that is achievable in Ashburton.

He says a house valued at $200,000 can be sold at $142,000 and will rent for $260 per week.

Christchurch-based investor Rachel Chamberlain says there is lots of subdivision potential in town and houses on big sections.

She believes now is a good time to buy subdividible property, create extra cash flow through adding an extra bedroom or turning a garage into a sleepout and wait three-or-so years for the market to right itself before subdividing.

Chamberlain says you can make $80,000 to $100,000 profit in Ashburton once a subdivided section with an extra dwelling is sold. It's all about being creative in the current market.

The typical cost of a subdividible section is around the $200,000 to $250,000 range, with a three-bedroom home and hobby room or garage that can be converted. Section sizes are usually around 1,200 to 1,600 square metres.

Christian says Ashburton is one of the four easiest places to subdivide in the country (the others being Rotorua, Hawera and Fielding).

An example of a deal Taylor did recently was purchasing a subdividible property for $206,000 and then spent $15,000 on renovations. The old three-bedroom villa had an extra two bedrooms in a little side building out the back, so once renovated it turned into a five-bedroom property and rents for $310 per week. She admits it's probably a little under-rented, but has huge potential once it's subdivided.

Tenants
The rental market is ticking over, says Raewyn French, property manager at Ashburton Property Brokers, although this time of year normally sees enquiry starting to drop, as most tenants like to be settled for the winter months.

The market fluctuates seasonally, as do most other areas, although May and June are particularly quiet because some of the seasonal work, particularly in the sheep and beef industries, comes to an end.

There are a proportion of seasonal workers that come into town, often from the Pacific Islands, but French says on average tenancies range from 18 to 24 months, although many people stay for years in the same property.

But she points out that if the house is cold, tenants will usually move out by the next winter. Houses with no or poor heating just don't rent.

Taylor adds that although occupants tend to be fluid because of seasonal work, tenancies don't as many tenants have relatives coming from the Pacific Islands to stay for a certain period and then leave again. But she says she's never had problems with tenants.

French says if prices are right, houses are not sitting around for long. She says once tenants hand in their three weeks' notice to vacate, the company fills eight out of 10 properties within that time.

Taylor, who manages her own properties as well as others for friends, has had rentals in Ashburton for the past seven years and the longest she's ever had to wait to tenant a property is four weeks.

Average rents in town for a three-bedroom, brick and tile home with double garage and decent heating ranges from $260 to $280 per week.

Two-bedroom units tend to go around the $190 to $210 per week mark.

There is a shortage of higher quality homes, around the $320 to $390 per week price mark and those that do come onto the market are rented almost immediately.

French says in terms of tenant quality, it's like anywhere and you need to screen them well. Overall, tenants are pretty good although you do need to be careful with selection processes.

Some employers in town like the CMP Freezing Works make arrangements for landlords to be paid rent direct from the tenant's pay. This type of arrangement is open to private landlords, not just those rented through property managers.

Lay of the land
Ashburton is split into two main parts: east of the railway and west of the railway. All areas have lower and upper bracket properties and it's more particular streets landlords need to avoid rather than entire areas.

Taylor says David Cresent is well-known as being bad news, as well as Orr Street, Collins Street and Beattie Cresent.

Allington and the west side of town are considered more desirable and there are investment properties in those areas, although because house prices are slightly higher, returns aren't as good. But on the flip-side, capital growth is stronger.

The majority of demand from tenants is from the east, in the likes of Hampstead.

Taylor says tenants like living in the east side and demand is always good.

French says there is a current shortage of houses in Hampstead, a working-class type of area. She says it's a good place to invest because of demand, even though it's not necessarily the best part of town.

Looking to the future
The council is encouraging more residential building activity within the town limits and is in the process of changing building and subdivision laws to accommodate.

There's also a newly developed business park and an industrial park is in the making in the hopes of attracting even more business to the area.

Niles says the prospects for Ashburton should be "a good carrot to attract investors".

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