Regional Review : Tauranga
Tauranga's housing market has several faces and an investor has to be careful where he or she buys, writes Graham Skellern.
Friday, June 13th 2014, 4:12PM
by The Landlord
Downtown Mount Maunganui, long regarded as one of the country's top holiday resorts, has once again become the shining light of the Tauranga residential property market.
Fuelled by a resurgence of interest from cashed-up Aucklanders and expatriates, properties of all shapes and sizes near the beach are now regularly selling for around $1 million.
Downtown Mount has always been the most expensive part of Tauranga city but its housing market took a hit during the global financial crisis (GFC) and in the aftermath took a little while to warm up.
However, house prices on average have climbed to 10 per cent over the last 18 months. The neighbouring coastal strip of Papamoa has had a similar rise but prices elsewhere in Tauranga have increased no more than 4 per cent.
Long time real estate agent, John O'Donnell, has seen many highs and lows when selling in the Mount and Papamoa markets but he's excited by this latest upsurge.
``I've never seen so many private mansions being built at the Mount,'' he says. ``People have had holiday homes for 20 years and they are being demolished and replaced by new million-dollar houses. Sections of 500 sq m are being filled by these modern homes.''
Older, established houses just back from the beach in streets such as Oceanview Rd and Muricata Ave are selling for between $800,000 and $1 million.
A small 60-year-old, two bedroom, brick house in Pitau Rd within walking distance of the downtown shopping centre recently sold for $600,000.
``The rest of Tauranga prices are reasonably stable but downtown Mount has gone crazy - it's like a mini-Auckland,'' O’Donnell says.
Near the water
He says many people who are near to or have reached retirement are leaving Auckland and heading for the Bay. They want to be near the water and enjoy a traffic-free lifestyle. The coastal strip, rather than the established suburbs of Matua and Otumoetai across the harbour, is where the action is.
``If they can't get into the top end of the Mount, then these people coming out of Auckland move further down the coast to Papamoa,'' Mr O'Donnell says. ``Let's face it, most New Zealanders don't have $200,000-$300,000 in the bank when they retire. They can sell their home in Auckland for $700,000 and buy a new home (through a land and house package) in Papamoa for $450,000. They can put away $250,000.
``These people like to buy new houses. They don't want to do lots of repairs and maintenance, and presentation is important when selling your home,'' he says.
Overall, the activity in the Tauranga market is steady – though there are the pockets of buoyancy. The market hasn't taken off like Auckland, which is surprising considering Tauranga has traditionally followed the trend set by the big northern city.
There was a degree of speculation, both in house building and investment, when Tauranga grew rapidly in the 1990s and early 2000s, but the GFC took the puff out of the growth. And many local residents were hit more than they expected by the collapse of the finance companies.
Property values, overall, have remained stubbornly sluggish and behind the national average. The average value of a property in Tauranga city in March, 2014, according to QV.co.nz, was $443,723 compared with $428,273 in March 2013 – a rise of 3.6 per cent. In the largely rural Western Bay of Plenty, the average value in March, 2014, was $409,493 compared with $404,747 – a rise of 1.2 per cent.
The number of sales is solid rather than exciting. There was a spike in March last year when 123 houses changed hands in Mount Maunganui and Papamoa, and 163 in the rest of the city. But the sales again settled into a steady business. In March this year, 101 houses sold in Mount/Papamoa compared with 110 the previous month, and 127 for the rest of the city compared with 119 the previous month.
Levelled off
``Sales had been going quite well up to Christmas but they have levelled off this year,'' real estate agent Neville Falconer says. ``People knew the interest rates were going to rise and the banks are careful who they lend to, but nothing really happened that would shock buyers.
``Listings were quite short at the start of the year and I think the market favours sellers more than it does buyers. There's a good supply of land and house packages starting from $450,000 especially at Papamoa and The Lakes in Pyes Pa, but existing homes have not really kicked on, price-wise,'' Falconer says.
The property investor will find that the Tauranga housing market has several faces. The investor will need to complete plenty of research and be very careful where he or she buys - or be left with a property showing negative gearing.
Investors in Tauranga have traditionally gone for capital gain rather than rental returns. They acknowledge that Tauranga is a fast growing city and readily accept a yield of 5/6 per cent from their property investment. Compare this with a rental return of 10 per cent in Dunedin.
The places to look in Tauranga are the new sections, or even the house and land packages, at The Lakes and Papamoa; the newer suburb of Bethlehem; the tightly-held areas of Matua, Otumoetai (particularly around Brookfield and Bellevue), Pillans Point and The Avenues; and of course Mount Maunganui.
Valuer Shayne Donovan-Grammer says the recession has shown that people have to invest in quality properties in a reasonable area. The property shouldn't have a negative feature such as being next to the highway, up a shared driveway with 10 others, or under a pylon.
He says some people have given up hope buying a home, through increased prices and mortgage restrictions, and have become long term tenants. They may pay a little extra in rent but their expectations have increased.
Good environment
``They want a bit more bling to the house, like decent carpet and living in a good environment,'' Donovan-Grammer says.
``Areas like Matua, Pillans, Otumoetai and The Avenues are good for security and close to good schools. Bethlehem and the Mount have a lot of momentum, and the new home market at Papamoa and The Lakes are going well.''
Lindsay Richards, secretary of the Tauranga Property Investors Association, has accumulated a portfolio of 17 properties over the past eight years – half are in Tauranga and the other half in Rotorua.
He prides himself on ensuring each property pays its own way, and he was named the regional landlord of the year. He carries out his own maintenance on the properties.
Mr Richards says house prices are starting to edge up in Tauranga and rents have gone up substantially – about 10 per cent over the past six to nine months.
``I'm feeling positive for the area because of the number of people moving here,” Richards says. “Land is available such as The Lakes and Papamoa, and there will be a steady growth in property values – I'm sure Tauranga will catch up with Auckland in terms of percentage increase.''
Says Richards: ``You've got to shop around to find a good renter in Tauranga. It's not easy but they are out there. I may look at 100 houses to find the one that does it for me. You've got to look for twists. Such as, getting a multi-room house with a sleep out and getting the extra rent to make a return on it.
``My philosophy is that you buy a property that at least breaks even on cash flow, and you don't have to sweat when prices are going up. The real dollar is in the capital gain when you sell.
``I've done the maths and property values double every 10 years. That's when you sell and make your money. It's the reason investors are prepared to put up with a lot of work and tenants. It's long term game,'' he says.
Richards' favourite investment area in Tauranga is Brookfield. ``The three bedroom houses there have good bones and are handy to the stuff you need – shops, schools and transport. There is a demand for renting there and you get instinctive about what the properties are worth,'' he says.
Supply and demand
Steve Warburton, owner of Prime Rentals in Tauranga, says the supply and demand for rental properties has balanced out – there were up to 500 properties on Trade Me and they have now reduced to the mid-300s. But three-bedroom houses in good areas were well sought after.
``People are looking for quality homes and are prepared to pay good money,'' Warburton says.
``But the houses need to be presented well because tenants' expectations have increased. They won't put up with any maintenance that has been ignored.''
He says a three-bedroom renter, in such popular areas as Matua, Brookfield, Otumoetai and The Avenues, has increased from $330 a week to $370 over the past year and many private landlords haven't increased the rents in line with the market value.
``The trick (for the landlord) is to increase the rent about $15 a week for every six months to make up the $40 or so,'' Warburton says.
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