Rents Firming in Gisborne
After a stagnant few years, Gisborne is finding life a beach
Monday, January 5th 2015, 12:27PM
by Amy Hamilton-Chadwick
On January 1, 2015, Gisborne will be one of the first cities in the world to see the first morning light of the new year. More than 20,000 people will flock to the annual Rhythm and Vines music festival to enjoy the beaches, the scenery, the wine and the laid-back summer atmosphere.
For residents of Gisborne it’s a year-round holiday, says Bronwyn Kay, sole owner of Bronwyn Kay Agency Ltd. “It’s five minutes to everywhere, with great cafes and entertainment, and a 45-minute plane ride to either Auckland or Wellington,” Kay says. “Gisborne has a relaxed, almost holiday-style lifestyle.”
Some of NZ’s highest yields
Local investors love Gisborne’s affordable and solidly-built properties, which provide some of New Zealand’s highest rental yields. In June, 2014, Bayleys reported that a three-bedroom, one-bathroom ex-State house, on a 673m2 section, sold to a Nelson investor for $71,000. The property had a tenant in place who had been there for a decade, and was paying $200 a week in rent, generating a massive 14.6% yield.
While that is an outlier, Kay says yields of between eight and 11% are common, drawing in a large number of both local investors and outsiders from New Zealand and overseas.
“Young people offshore are buying multiple properties because they love the returns,” Kay says. “They’re often from mining towns in Australia, and some are from the UK or even Dubai. They’re hoping to be freehold within five years.”
Graeme Faulkner, managing director of Home Rental Services, has recently seen some good examples of Gisborne’s fantastic yields. A block of seven two-bedroom units sold in late 2014 for around $500,000. With a bit of renovation, says Faulkner, they are likely to rent for $210 a week – even assuming you spent $10,000 renovating each flat, that’s a gross yield of 13.4%.
In November he sold a solid two-bedroom unit for $94,000 that was renting for $210 a week, a yield of 11.6%. Faulkner admitted that he was extremely tempted to buy it himself; “you just couldn’t miss.”
Spring surge
Overall, Gisborne has a large population of lifetime tenants. Faulkner estimates that as many as 40% of residents rent, and around 35% of houses are rentals.
However, for the past three or four years rents have been flat, or even declining, as property managers were forced to trim rents when properties sat vacant.
But since September, 2014, there has been an upsurge in tenant demand, according to Kay and Faulkner.
“There’s been a major turnaround in the supply and demand of rentals, and it’s now in favour of owners,” Faulkner says. “For three years we’ve had a slight oversupply, and in some cases rents dropped back quite significantly. But now everyone has far fewer properties on their lists than [mid-2014] – not even half of our usual number of listings.”
The most noticeable increase in demand has come at the upper end of the market, Faulkner says, and Kay has noticed the same thing. “The higher end properties would once upon a time have rented for $360 to $400 a week, and for a long time nobody could afford it,” she says. “Now people coming from the bigger cities expect to pay more.”
Kay attributes the jump in demand to Aucklanders moving to Gisborne, aiming to escape high house prices and enjoy the beach lifestyle. Faulkner says he’s seen several locals returning from a stint living in Australia. Either way, rents have firmed up for the first time in many years, and local property managers are optimistic that 2015 will see them remain steady.
What to buy
There seems to be general agreement on Gisborne’s three best suburbs for investors – Mangapapa, Te Hapara and Inner Kaiti.
“There are really good houses in those areas,” Faulkner says. “I’d look for a three-bedroom family home. A good ex-state house in an area like Te Hapara will sell for around $240,000 to $280,000, and rent for $280 to $300 a week or a little higher. Also, low-maintenance two-bedroom units in reasonable areas have been fabulous buying and yields have been great. You can sometimes buy two together and you might only pay just over the price of a three-bedroom house.”
Kay looks for houses that appeal to professional tenants, which can generate rents of $360 to $450 a week; the upper end of the Gisborne range. She owns one low-maintenance high-quality property which rents to professionals, and two smaller two- and three-bedroom homes. All were cash flow positive from day one.
Graeme Black, valuer and director at Valuation and Property Services, says the market for three-bedroom family homes has strong supply and only moderate demand, which has led to some great bargains to be had. Properties that were selling for $450,000 before the global financial crisis can now be bought for close to $300,000.
“If you know what you’re getting that may not be such a bad investment,” Black says. “You can get a very good home for $300,000.”
There is one trap for the unwary outside investor, Black says. While most cities follow a simple pattern where prices decrease as you radiate outward from the central suburbs, Gisborne is less predictable.
“You get a pocket of 10 homes that are reasonable, and a pocket of 10 somewhere else, and in between there’s nothing flash. You’ve got to be aware of where you are because you can think a house looks nice but 150 metres down the road it’s not a nice area.”
Out-of-town investors should talk to local experts before buying, he advises, and beware of looking simply at Gisborne sales data to provide a picture of the city’s market. In fact, small changes can throw out the averages in both directions. A mortgagee sale of serveral hotel units saw the average prices plummet; but even a modest increase in the number of jobs – as few as 30, says Black – would start to lift prices.
Capital growth elusive
Local resident and property investor Caryn Radburn has a strong strategy for cashing in on Gisborne’s affordable real estate. She and her partner purchased nine rental properties in 2008 and 2009, and have taken a proactive approach to maintenance that includes kitchen and bathroom renovations.
“We aim to maintain and hold,” she says. “I put in offers on 100 properties before we bought our first one, because I knew I had to stick to my plan – it’s not worth the stress if I have to keep paying. They need to cover their costs, and you need to really run your numbers and make them real, factoring in the maintenance.”
By the time they retire, the nine properties will all be mortgage-free and low-maintenance, providing strong cashflow. Capital growth, though, is not something on which Radburn is banking.
Investors have seen the values of their properties tend to reduce, rather than increase, over the past seven years. Black uses one of his own rentals as an example: Its council ratings valuation has dropped from $198,000 to $137,000 since 2008. He’s owned the property for many years and it provides strong cashflow, so he says it’s not all doom and gloom, but investors shouldn’t buy with an expectation of rising values.
“There’s not a lot of confidence in buying property,” Black says. “The population is tending to decline, and to drive a property market you have to have some growth. I’m not saying there aren’t good investments to be had out there, but you’ve got to be careful and be prudent about what you buy.”
He says the steadily declining property values do provide one advantage for investors: They can now afford to buy in the city’s best suburbs. The extra advantage to that strategy is the ability to attract higher-quality tenants. While there are plenty of excellent tenants in the city, it has its fair share of difficult characters, and Black has found rent arrears have occasionally been a problem with his own investment properties.
Black isn’t optimistic about seeing price increases in 2015: “There’s got to be something that generates employment, otherwise prices will stay flat.”
Going for growth
The Gisborne District Council has plenty of plans to help generate economic growth, according to Chief Executive Judy Campbell. Cycleways and trails will make the city more liveable; $20 million is earmarked for community projects; and the Tairawhiti Navigations Project is developing sustainable tourism business opportunities based around the 250th sestercentennial of Cook’s landing in 2019.
“A promising outlook already has seen Eastland Port secure contracts as a newly-established cruise port,” Campbell says, “with 39 ships booked to dock over the next three summer seasons, each with an estimated visitor spend of over $5 million per season.”
An economic development agency, Activate Tairawhiti, has also been established recently, and Gisborne aims to become “the best region for new development”, Campbell says.
If these measures succeed in raising Gisborne’s population and boosting its employment prospects and economic outlook, there’s no doubt that property investors who buy in 2015 will be sitting pretty in the long term. Until then, they are able to enjoy almost unparalleled cash flow in a beautiful beachside location.
STATSHOT: GISBORNE
• The Gisborne region had a population of around 44,000 people at the last Census, a drop of 1.3% on the 2006 Census.
• The city’s main industries are agriculture (especially horticulture and viticulture), fishing and forestry.
• Single-parent families make up 27.8% of families in Gisborne, compared with 17.8% of families across New Zealand as a whole.
• Owner-occupied or family trust-owned private residences make up 59.2% of the households in Gisborne, compared with 64.8% across New Zealand – a higher proportion of households in Gisborne rent than elsewhere.
• Close to half (48.9%) of all people in Gisborne identified as Maori in the 2013 Census, much higher than the national rate of 14.9%.
Sources: Statistics NZ, Gisborne District Council.
Looking for property in Gisborne? Try Sue at Costello Real Estate ; www.buygisborne.co.nz
Looking for property managment in Gisborne? Try Bronwyn at Bronwyn Kay Agency ; www.bronwynkay.com
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