The lure of the regions

Regional markets are beckoning investors as the Reserve Bank’s new LVRs start to hit home, but experts say there are risks that need to be considered.

Friday, November 4th 2016, 9:00AM

by Miriam Bell

According to realestate.co.nz’s October data, demand for Auckland property has fallen while demand for property in regional markets has soared.

And QV’s October data shows it is no longer the recent hotspots of Hamilton and Tauranga that are attracting attention.

QV valuers in both cities said the frenzied activity seen in those markets earlier this year has subsided to more subdued levels.

Instead buyer focus appears to have shifted further afield.

Realestate.co.nz CEO Brendon Skipper cited Palmerston North, which has long had a reputation for affordability, as the market of the moment.

QV national spokesperson Andrea Rush said investors shut out of more expensive markets were turning their sights to more affordable markets in relatively close proximity to North Island main centres.

Such markets included the Western Bay of Plenty, Whangarei, Rotorua and the Waikato District – all of which continue to see very strong value growth, she said.

Regional markets can offer investors not only more affordable prices, but much better rental yields.

However, as landlords.co.nz has reported in the past, there are risks that come with investing in regional markets – and investors need to be aware of them.

Property Ventures director Mark Honeybone said it is crucial to establish what the state of the town’s economy is.

“If industries are shutting up and the commercial centre is not thriving it doesn’t bode well for the future. Before investing, you need to know if a town is going to be healthy and doing well down the track.”

To that end, it is necessary to find out what an area’s economic drivers are, whether there are plans for commercial and infrastructure investment going ahead, and what the council has planned.

Researching the town’s rental market thoroughly is also crucial, he said.

“But finding out what the average rent for the area is is only part of it.

“You want to know how easy it is to fill vacancies, what the tenants in the area are like and where they are employed, whether the rental market is driven by seasonal workers, and if gangs are a problem.”

There are a number of other issues which investors can easily overlook when it comes to investing in regional markets.

Honeybone said regional locations might be cheaper, but the expenses associated with rental properties will largely be the same as in major centres.

It was quite possible that an investor with a small property in a regional town could end up paying rates similar to those they would on a $1 million+ property in Auckland, he said.

“That could have a significant effect on yields. Investors must take into account such factors in the overall yield picture before jumping into a purchase.”

Honeybone, who has himself invested in regional markets in the past, said such investments can pay off.

“Just make sure you do comprehensive due diligence on a regional market before you commit to an investment and verify that those who you are talking to are trustworthy sources.”

Some commentators take a harsher view of regional markets.

Yesterday ANZ chief executive David Hisco said investors should be careful if buying in locations where properties were cheaper.

While BNZ chief economist Tony Alexander recently issued a staunch warning to investors to exercise caution when buying in the regions.

He said this was because many regional markets do not have strong population projections which means their future growth prospects are likely to be limited.

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