Bountiful pickings in fruit bowl for canny investors
The housing market in Hawke’s Bay may be flat but smart investors are reaping a good harvest writes Jenny Keown.
Monday, June 29th 2015, 12:00AM
by The Landlord
HAWKE’S BAY HAS BECOME synonymous with a great climate, awardwinning wines, art deco, extensive cycle tracks and abundant fresh fruit on locals’ doorsteps. City dwellers with an eye on property will also hold up the province as an area where considerably cheaper housing can be bought compared with the main cities, and a great lifestyle enjoyed. The Bay is particularly popular with families, with a range of great schools, and outdoor amenities.
For the seasoned property investor, there appears to be opportunity in certain areas. For the "mum and dad" investor, however, the jury is out about the worth of investing in housing, especially for capital gain. Hawke’s Bay property investors’ association president Graham Duff says the housing market remains flat, and economic and job growth is stagnant, with no real signs of a substantial pick-up. Signs of a healthier economy were encouraging, however, with Kiwibank establishing a service centre in Hastings and the launch of a research and development facility of power electronics company, ABB, at the Hawke’s Bay Airport business park, he says.
HOLDING PATTERN
Andrew Chambers, of valuation company PropertyIQ, says mum-and-dad investors are in a holding pattern, partly driven by the lack of housing turnover and quality housing on the market.
He is sceptical about the school of thought that the high Auckland property prices will eventually filter down to provinces. “Watties has just gone through rationalisation and the Ruataniwha Dam project is still up in the air,” Chambers says. If the dam goes ahead, it will change the face of Hawke’s Bay, and bring substantial employment opportunties, he says. The Real Estate Institute of New Zealand’s March report says the number of first-home buyers has lifted, predominantly in open home activity.
Chambers says he hasn’t seen the lift in activity despite big pushes by the banks, including the local HBS Building Society to attract first-home buyers with low interest rates.
HEALTHIER ECONOMY
However, rents have picked up from about $100 to $110 a room in the past few months – an indication of a healthier economy. There is opportunity for investors in the Hastings suburb of Flaxmere, which has a low socio-economic population, Chambers says. Investors can achieve yields of
between 9% -12% but face high turnover of tenants and, often, high expenses related to property damage.
Graeme Fowler, a property investor of 25 years, has bought 29 properties in Hawke’s Bay in the past year, including 21 buy-andholds, nine trades and a property in Havelock North in which to live. Most properties were in Flaxmere, weatherboard houses built between the 1960s and 1970s, in what are considered to be good streets around Diaz Dr. About six of the properties were in the Napier suburb of Maraeniu, and a property bought to trade in Napier South. “I bought all the properties at good discounts, and the trades had to be bought well to make a profit and the buy-and-holds were bought well so they could be refinanced after revaluing them,” Fowler says.
WALKING DISTANCE
Maraenui, a lower socio-economic suburb, comprises a mix of owner-occupied and state housing. Napier South is an attractive innercity suburb; many villas have been renovated. It is within walking distance of town and Marine Parade and is zoned for good schools. “Hawke’s Bay is great as the yields are high compared with most other locations in New Zealand,” Fowler says. “The average yield I got last year was about 12% which means I could Rents are increasing faster than values so yields in Hawkes Bay can be excellent. Hawke's Bay is prime wine-growing country.
Hawkes Bay is seen by many as a great place for young families to live. Hawke's Bay is also a popular tourist spot.
REGIONAL REVIEW: HAWKES BAY cover the mortgage, rates, insurance and property management on a 20-year loan.” In Auckland, it is not easy to achieve more than a 6.7% yield, which means people either have to have a high income and spare cash to top up mortgages or go interest only, he says. Fowler believes a common trap for outside investors is not knowing the market well, and paying more than they need to. “However, as long as the tenants pay off the mortgage over time, it’s not too important unless they want to gain equity when they purchase.” Havelock North based Sam Murdoch, in partnership with his parents, has bought two houses in Flaxmere and one in Hastings in the past year.
Murdoch, 24, belongs to an informal group run by Graeme Fowler, which usually meets once a month to discuss property investment and hear from people in the industry.
CASH FLOW POSITIVE
When looking to buy a property, he makes sure it will be cash flow positive, and built after 1960. He crunches numbers using a calculator he built specifically for property investment, www.propertyhive.co.nz. For example, in December last year, he bought a four-bedroom house in Portsmouth Rd, Flaxmere, for $142,000, with a government valuation of $190,000 at the time. He rents it out for $310 a week.
Property Brokers real estate agent Jason Whitaker, who covers Hastings and Havelock North, says hardened investors tend to buy rentals in Flaxmere, with their expectations of returns from 10%, and up to 13% in the less desirable streets, while mum-and-dad investors prefer the established Hastings suburbs of Parkvale and Frimley, with the perception they are much safer propositions. Parkvale is on the doorstep of Havelock North and close to such good schools as Karamu High School, which is zoned. Frimley is perceived to be one of the best suburbs in Hastings and is near the
hospital and good schools. Investors generally get yields of up to 7.5% in these areas, with a reasonable threebedroom home returning around $350 a week.
House sales begin at $250,000. Havelock North, a picturesque suburb known as the "village" by locals, has three private schools and is considered to be one of the most desirable places to live in Hawke’s Bay. Rental opportunties are usually lower-cost housing in the lower flats in the western area. Yields typically range from between 7%-8%, with rentals ranging from $300 to $350, and prices ranging from $200,00 to $300,000, Whitaker says.
SMALLER POLL
Given the village is mainly owner-occupied, there is a smaller pool of renters to draw from – a potential drawback to investing in this area, he says. Property IQ’s Andrew Chambers believes yields in the Hastings have remained fairly static since 2010, ranging from 7%-9%.
As an example, he cited a two-bedroom, five unit block of flats in Heretaunga St, bought in April 2014 for $550,000, and returning a yield of 8.1% This is compared with a three-bedroom house, also on Heretaunga St, with two semi-detached houses, bought in 2010, which returned a yield of 7.93%.
With its art-deco heritage, arts scene, Ahuriri restaurant and café strip, beach access, and choice of good schools – Napier is seen by many as a desirable place to live. Martin Easthope, of Quinovic in Napier, says they are seeing more people come in to the Bay, mainly younger to middle-aged tenants.
The Hawke’s Bay Expressway now runs from Napier Airport to Flaxmere, and this allows employees and owners from largebased businesss in Hastings to live in Napier and commute with ease. Quinovic has overseas investors, mainly ex-pat Kiwis, with rentals in Napier.
MAINTENANCE FREE
The Napier suburbs of Taradale and Greenmeadows tend to be the most sought after, with good access in to Napier and over to Hastings. The properties are clean, mainentance free, and on fully fenced sections with easy to care gardens, Easthope says. “The problem is that the property values
have risen, impacting yields”. Tamatea, situated further in towards town, is potentially a good investment option with lower entry-level house prices, compared with Taradale, and the rents are reasonable. A tidy three-bedroom home on a fenced section will get $320 to $330 in rent per week, Easthope says.
Opportunities in Bay View, which is sometimes overlooked, are good, he says. Properties have low turnover of tenants and and the average rents are pretty good, and even better on the beach front.
GOOD TENANTS
Property IQ’s Andrew Chambers says Clive, the township between Hastings and Napier, attracts good tenants. A property in Ferry Rd, Clive was bought last year for $385,000 with a yield of 6.4%. Matthew Harris and Simon Griggs launched Napier-based accounting firm Property Tax Returns in February last year, after identifying an opportunity to provide specialist advice for investors with one or two properties to traders, dealers and developers who have multiple properties. When questioned about what it has been like to start the business in a flat housing market, Harris says the market is flat in terms of capital gain potential.
Smart investors, who they work with, are doing their calculations, however, and ensuring that the properties they purchase have a positive yield, and that they make gains regardless of market behaviour.
For more information on investing in Hawkes Bay contact Martin Easthope at Quinovic
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