Sweet Smell of Good Buys in Rotorua
For the past decade Rotorua has flown under the radar because, frankly, there was little going on. In the last 18 months things have started changing. Strategically located in the centre of the North Island, Rotorua’s considerable untapped potential is starting to emerge.
Monday, July 20th 2015, 12:00AM
by The Landlord
In May the government led Toi Moana Bay of Plenty Regional Growth Study identified a number of opportunities for the area. A key vision of the study is establishing Rotorua as a globally recognised destination for health and wellness. Just days after the study was released that goal was boosted with an announcement from Prime Minster John Key that the government would invest $350,000 towards a multi-million dollar spa development on the Rotorua lakefront.
The spa and hotel facility will be the first stage of a multi-million dollar redevelopment of 11 hectares of prime lakefront property close to the CBD. The spa complex, due to open in 2017, is forecast to cost $10 million and to provide between $36 million and $48 million in economic benefits annually.
In the past 18 months, Rotorua has also received $300,000 towards the Tarawera Ultramarathon, $225,000 for Skyline Gravity Park, and $420,000 for the international mountain biking event Crankworx.
Economy on the rebound
Rotorua Chamber of Commerce chief executive Darrin Walsh says the news is all good for Rotorua.
“Late last year there were a lot of announcements around proposed developments; announcements are one thing but now they are all happening,” Walsh said. “Business confidence in Rotorua is strong and increasing with businesses investing, employing and growing.
“Our council are on to it. They are focussed on three areas that are seen as key to strengthening the economy – geothermal, engaging with Maori and a direct air link to Queenstown. Exactly the same things identified in the Bay of Plenty Regional Growth Study.”
Rotorua Lakes Council Mayor Steve Chadwick believes the change Rotorua called for is really starting to happen and the rest of the country is beginning to notice.
The development levy was abolished a year ago and there is significantly more development happening in the city now. “I thought it would be quicker” Chadwick says, “but nothing is quick enough when you are a mayor in a hurry.”
She says heart is returning to the city and the community is gaining confidence and a sense of pride. Ten years of net migration loss was recovered in just one year with a net migration gain to March 2015. Immigrants are also choosing to settle in Rotorua leading to the need for an extra citizenship ceremony.
The council is actively seeking to facilitate businesses wishing to relocate to Rotorua with Maori TV being one of their hotter targets.
They are also working with Air NZ developing a joint business case for direct flights between Rotorua and Queenstown.
City make-over
After an exhilarating day of adventure what do visitors find when they come into the city? As of recently, plenty; thanks to a determination by council and locals to revitalise the central city and ensure it does justice to the natural attractions surrounding it.
The dining precinct “Eat Streat” was completed in March 2014. It comprises a block of eateries and features a covered central walkway with retractable roofing allowing for year-round alfresco dining. Geothermal heating underlay keeps the area warm during winter.
Another new initiative is the creation of a “Green Corridor”. Due for completion in early July, the Green Corridor will provide a safe cycling path from Government Gardens on the East, through the inner city, and across Kuirau Park to Lake Road on the west. It will also link up with other cycleways across the district.
Healthy level of development
Developer Ray Cook, of R & B Consultants in Rotorua, says the company currently has a number of projects on the go. Two are nearing completion – a three-storey office block for accountancy firm Glenn Hawkins and Associates, which specialises in providing services for Māori enterprises plus a new two-storey building for Department of Corrections. Another two-storey building for ACC is underway and will be Rotorua's first inner city building to support a Wood First policy espoused by Lakes Council. The construction incorporates the use of innovative new engineered wood products such as cross-laminated timber panels and laminated veneer lumber.
They have also commenced work on a new Countdown supermarket on Fairy Springs Rd and that development produced a raft of others through relocations. Cook says Rotorua is undersold and more needs to be done to attract corporates to the city.
“A structural engineer from Auckland was on one of our sites and said what a great place Rotorua was,” Cook says. “I suggested he relocate and just leave a small shop front in Auckland. His response was, ‘Good point, I’ll think about it!’”
The $100k gap
Rotorua Property Investors Association president Debbie van den Broek has been investing in Rotorua for 18 years. Now she also helps others invest there through her role as a property finder for I Find Property. Van den Broek says there are opportunities everywhere. She can not understand why but Rotorua prices are $100,000 lower than the equivalent properties in Tauranga or Taupo. “Rotorua has 21 conference venues, Tauranga has one!” she says bemused. “Rotorua is the Queenstown of the north with an average daily visitor number of 8,500 people, yet our property prices match the likes of Levin and Patea.”
Demand for rentals outstripping supply
Richard Evans, director of Rotorua Rentals, says demand from tenants for housing in Rotorua is phenomenal. They have only one vacant house on their books, currently being tidied up before it is available for rent. Evans says people are coming into Rotorua from all over. Disillusioned Kiwis returning from Australia, corporates and small businesses able to base themselves away from Auckland, plus Housing New Zealand tenants who he believes are being “encouraged” to vacate expensive Auckland houses and relocate to the provinces.
Pam Jones, of Pam Jones Property Management, says she cannot get enough stock. “There are tenants waiting for three or four-bedroom good quality houses,” Jones says. As a result of the high demand it has been possible to increase rents as well. “There has been an influx of families coming back to Rotorua from Australia. There is a lot more positivity in the city.”
Bargain hunters circling
Landlords are also coming in to the market but so far there has been little uplift in prices and bargains are to be had. Evans says that after three consecutive periods where rateable values have decreased investors now believe the market has bottomed out.
Evans does not buy in to the hand-wringing by government that high Auckland house prices are a bad thing. “The higher prices are benefitting vendors who are then reinvesting that money and consequently able to improve their quality of life” he says.
REINZ spokesman for Rotorua and principal of McDowell Real Estate, Ian McDowell, says activity is picking up. “It started in the last few months of 2014. For the first time in six years buyers from out of town are coming into Rotorua,” McDowell says. He adds that there has been a pick-up in sales in the $300,000-$450,000 range.
While sale prices remain relatively flat rentals have been increasing; Evans claims average rents across the properties he manages are $40 per week higher this year than last.
There are a few areas where he says that while yield is lower the opportunity for capital gain is greater. “Lynmore, Springfield and Kawaha Point are good areas for capital gain. People are happy to pay higher rents and they look after the property”
Yields in these areas are lower but figures upwards of 7% are definitely possible.
Harcourts agent Hielke Oppers says investors from Auckland, Tauranga and Hamilton are eyeing up the Rotorua market. “Many people coming from Auckland are buying high-end properties, including lakefront,” Oppers says.
“For $600,000 price tags they can get a quality lakefront property in Holdens Bay yet they can’t afford to buy in Auckland.”
Oppers says houses in the $350,000 to $400,000 range are cheap to these outsiders and investors are happy to spend this much. “The lower priced properties are also shifting easier” he says. “There is a 40% increase in sales from the prior year. When you get high sales for four months in a row it is more than just a glitch.”
Gang-lands changing to family-friendly lands
Both Pohutukawa Drive and Fordlands are slowly shedding their gang-linked notoriety with community led initiatives bringing a family focus to the areas. A new child-care centre has opened in Pohutukawa Drive and in Fordlands a community group is seeking to take control of their streets calling for abandoned properties to be demolished and community gardens established.
Houses in these areas routinely sell for under $100,000 and double-digit yields up to 13% are the norm.
Van den Broek also owns property in Pohutakawa Drive, one of the areas of which investors are often warned to steer clear. She has owned one house there for 18 years and never had a vacant day. Purchased for $70,000 and now making $255 per week in rent it boasts a yield that would make Auckland investors’ eyes water.
Van den Broek’s advice to out-of-town investors though is to steer away from the worse areas and employ a good property manager.
Niche market
With Rotorua being New Zealand’s number one tourist destination another opportunity for canny investors is the holiday-home market. Investors are purchasing Rotorua homes near popular lakes or attractions to use in their own holidays or to retire to down the track. They can demand very good short-term rentals and be managed by local Rotorua companies.
Van den Broek says holiday-homes can be a great investment in Rotorua. “They demand good rentals plus the owners can make use of them for their own holidays.” She has a one-bedroom furnished cottage that makes over $40,000 per year.
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