Not a Shore thing
Auckland's North Shore provides opportunities for existing investors, but it's different for those just starting out.
Tuesday, March 1st 2016, 12:00AM
by Diana Clement
For those who have investment properties in the North Shore and Hibiscus Coast, the recent acceleration of property values is positive and provides new opportunities for further investment, but it's a different story for those trying to climb onto the ladder.
In the past year the North Shore has made some of the biggest capital gains seen in New Zealand. But needles in haystacks come to mind when the subject of finding a property with a great rental yield is raised.
Over the past 20 years prices have risen as fast on the North Shore as in Auckland City, according to QV, but the question for investors on the Shore is the numbers and how to make them stack up. This is particularly challenging when 21 of the Shore’s 38 suburbs are now million dollar babies, according to QV.co.nz’s latest E-Valuer quarterly report released in January.
Yet investors are still buying, real estate agents say. Canny investors can even find half decent yields on properties. The reality, however, is those who do buy have looked long and hard and are willing to put in the hard yards to squeeze out cash flow.
Like all markets, the Shore isn’t homogenous. The coastal suburbs from Devonport in the south to Long Bay in the north and water/cliff front property in other parts, command high prices and correspondingly low yields in most cases.
Inland, the workmanlike suburbs from Unsworth Heights to Glenfield, Birkenhead, and most of Birkdale and Beach Haven sport more traditional three-bedroom rental homes. The top investor suburbs with the greatest number of rental houses according to QV are the most affordable suburbs including Birkdale, Beach Haven, the western side of Glenfield and Torbay. The Whangaparaoa/Hibiscus Coast market is more affordable and, as it is less centrally located, hasn’t gone as nuts as the rest of the city.
Vast swathes of new home and land package developments in the north from Albany to Millwater, Orewa and as far east as Gulf Harbour are emerging from the ground, but mainly servicing owner occupiers QV national spokesperson Andrea Rush says. Meanwhile, apartments springing up in Albany are providing first home buyers on a budget a foot on the property ladder.
Price wise, the bottom end of the market in the North Shore and Hibiscus Coast areas is typically an apartment in Albany.
Albany is erupting with apartment developments currently. Prices start at $212,800 in the as yet unbuilt development at 256 Oteha Valley Road. Construction has begun on the 55-apartment Apollo Square Apartments in Rosedale with completion due by March. Prices start from $438,216.
Not all apartment buildings currently on the market will end up being built, Bayleys North Shore regional general manager Hayden Stanaway says. The developers need sufficient interest before the first turf is turned. Prices at the lower end are affordable nonetheless and many of the proposed Albany apartments have decent sized footprints of 50 to 60 square metres.
Very few apartments outside of Albany sell for under $400,000, which makes it hard for investors to make ends meet.
Buyers looking at existing stock need to be wary of Shore apartments built in the leaky home era. At the time of writing Ray White was selling a three-bedroom apartment at 11/15 Andersons Road Albany advertised openly as being leaky and with a listing price of $270,000.
The lowest priced apartment that wasn’t advertised as leaky or yet-to-be-built was a 42m2 one bedroom apartment with balcony on top of shops in Rosedale Road for $290,000 on offer through Harcourts.
At the bottom end of the standalone home market prices start from $495,000 for a property at 83 Nautilus Drive in Gulf Harbour. The lowest priced pre-leaky home era homes on offer were in Stanmore Bay at Matai and Langton roads priced at $550,000 and $595,000 respectively.
Investors looking for that illusive yield really do need to find properties with a twist, or look at some of the areas such as Whangaparaoa where prices aren’t as stratospheric.
Even in the Hibiscus Coast yield-based investors are finding it pretty difficult to make the numbers work on traditional three-bedroom properties, Barfoot & Thompson Whangaparaoa branch manager Mark Holliday says. Holliday says yield-focused investors make a beeline for home and income properties or those which can be converted to add a second income.
But beware. A lot of second dwellings have been added to holiday homes in the area over the years and not all are legal and consented.
Another twist that can come with an acceptable yield is plaster clad homes. Investors know they will need to reclad or rebuild at some stage, Stanaway says, but are reaping the yields in the meantime. Such properties may be $200,000 to $300,000 cheaper than surrounding houses.
The prices of home and income properties on the Shore will be eye watering for anyone other than a local buyer. As New Zealand Property Investor went to print, the lowest price on offer on Realestate.co.nz for a home and income on the North Shore was $1.1m for a property in Lorikeet Place, Unsworth Heights, offered by Lochore’s.
But the numbers can stack up. One example is an eight-year-old purpose built brick and tile three-bedroom, two-bathroom home and income in Ferry Road, Arkles Bay, returning just over $1,000 a week, which was sold in the low $900,000s in 2015 by Barfoot & Thompson.
Another sold by Holliday’s Barfoot branch was a home and income in Gledstane Road, Stanmore Bay, which fetched $545,000 in the middle of 2015, and pays around $850 a week in rent. The property needed renovation.
A third, but less popular market with a twist currently on the Whangaparaoa Peninsular, is sub-dividable sections. But not all investors/developers can make the numbers work, Holliday says.
Those looking for capital gain and increased yield will find a do-up is the ticket. Stanaway cites the example of a recent sale at Centorian Drive Hillcrest – the property was yielding 3.5 per cent at purchase, but a do-up adds around $30 to $50 a week rent.
Investor Mark Trafford, who runs Maintain to Profit, which project manages renovations, has seen investors identifying do-ups in the Birkenhead/Birkdale area as being potentially cash flow positive. Typically the investors renovate the properties to revalue them and release capital, Trafford says.
“In Birkenhead or Birkdale they can still buy something that needs to be done up. We also have a few people who have bought two bedroom properties, knocked out the kitchen and made them into three bedrooms,” Trafford says. “That gives them the extra yield.”
The northern end of the Shore is changing beyond recognition. Just a few short years ago much of Silverdale, inland Orewa, and Gulf Harbour, were little more than scrappy farmland. Today some of the most extensive development in greater Auckland is taking place there.
A basic starter home at Millwater will set investors back a cool $1 million. And 602sqm at 11 Bridget Court, the cheapest bare land available at Silverdale will cost $550,000.
It’s difficult to keep buying and build up a large portfolio based on capital gain alone if you haven’t got the cash flow. None-the-less many of the investors buying now on the Shore are focussed on capital gain alone, agents say. These include offshore buyers, some of whom are looking for a safe haven for their capital.
The Shore has proven very popular in recent years with overseas buyers, in particular those from mainland China. But few estate agents will be drawn on the effect of these non-resident buyers, who shouldn’t be mistaken for local residents of Asian descent. According to the Asia New Zealand Foundation one in every four Shore residents is from an Asian ethnicity.
It would appear, however, that demand from non-resident Chinese tailed off at the end of last year thanks to economic and regulatory factors in China and regulatory measures introduced here that require offshore buyers to have an Inland Revenue Department number and New Zealand bank account. As a result, auctions on the Shore aren’t the frenetic events they were in the middle of 2015.
Investor Ginny Douglas, who attends Shore auctions weekly, says she noticed the auction rooms becoming quieter from October 2015. Likewise, Auckland Property Investors’ Association members Jacek Baranowski and Jolene Bagby were attempting to sell a subdivided property just after the rules changed and found that auction wasn’t the best strategy.
Before October, Mark Trafford says, it was very difficult for local investors to compete and many were turning to other centres such as Hamilton to buy rental property. “The good traders are still in the market, but the skitterish ones aren’t,” Trafford says.
Baranowski says he and Bagby are currently holding off buying more investment properties and are concentrating on trades because they believe we are nearly at the end of the investment cycle. The couple has noticed that demand for lower end properties in Whangaparaoa has softened.
The Shore’s bare numbers aren’t pretty. The September quarter figures published by QV in January reflect what is being seen in the market currently Rush says. Median rents range from $440 in Albany, pulled down by apartments, to $610 in Rothesay/Murrays/Mairangi Bays, where the median E-Valuer price is $1.213million. The 2.6 per cent yield on that equation won’t pay the bills.
Shore yields range from 2.1 per cent to 3.4 per cent. The lowest yield on the Shore of 2.1 per cent was taken by Devonport where the median E-Valuer price is $1.3975m and the median rent $570.
Slightly better news for investors is rents have increased in all parts of the Shore excluding Gulf Harbour, North Harbour/Pine Hill, and Torbay.
Median E-Valuer prices range from $713,000 in Gulf Harbour to Devonport’s $1.3975m.
Trafford says his last investment purchase was in 2012. The property he bought for $660,000 paying $900 a week in rent would cost around $1.2m now, which makes it unaffordable from a cash flow perspective.
Investors’ best chance to find decent yields, Rush says, is by going to student townhouse type accommodation close to the Albany or Akoranga campuses or home and income type properties in the most affordable suburbs which are Beach Haven and Birkdale, or Glenfield West.
“These suburbs have the highest average yield on the Shore, of 3.4% which is low but you could up this by having multiple incomes on a property such as a downstairs flat, self-contained studio or minor dwelling,” Rush says.
Investors looking for capital gain have fared better in the 12 months to September 2015 with some of the highest capital gains in the country, especially in Forrest Hill, Sunnynook and Hillcrest.
“These suburbs are highly popular particularly with Chinese buyers due to the fact they are in zone for Westlake Boys High School. This school is the North Shore equivalent to ‘Grammar Zone’ in Epsom,” Rush says. Rangitoto College and Takapuna Grammar School are also popular for renters who want to get their children in, he says.
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