A Fresh look into the Crystal Ball
Of all the articles I have written over the last 4 years, the one on this topic written in 2015, is the most searched and commented on. I revised it in 2016 with some key points to look for in a rental but due to popular demand, this newsletter is dedicated to where the next hot rental areas are going to be.
A Few Key Principles
- Rental areas change very slowly. Its pretty much a house by house transformation, so the change usually takes years. 10-20
- Any property is a good rental today as there is a chronic shortage of houses that will only get worse with current government anti-landlord thinking. This shortage should be with us for at least 10 years
- All areas have good rental opportunities, but some areas will test your faith in humanity more than others.
- Schooling is an important aspect to any rental. Chances are you will be renting to a young family.
- Housing New Zealand houses tend to reduce an areas value, particularly if there are a number of them, as HNZ tend to have less interest in the tenant’s behaviour, and the houses tend to be utilitarian with little in the way of planting or improvements. HNZ hold them for years so there is little chance of new people owning the houses and having them improve the property. The best clue for spotting a HNZ house is the appearance . They are usually well-maintained houses (painted) but no planting around them.
Areas on the Rise
- Northern Tikipunga and Kamo East. The city is expanding to the north with the rezoning to residential of a few hundred hectares. This means the next building boom is going to be on the land between State Highway1 at Springs flat , across the north of town to Vinegar Hill road. The areas nearest to this growth area are Kamo East and northern Tikipunga. We already have the new suburb of Totora Parklands in the middle , with new houses selling for $600,000 to $680,000. This has to trickle down to the cheaper houses in the area. Don’t forget the supermarket and large shopping complex in Paramount Parade. Key streets for a bargain are: – Corks., Amber, Elm, Te Anau, Manapouri, Ascot, Escalona, El Viso, Eden, Gillingham and for the adventurous, the beginning of Charles and all of Lewis streets have to be worth a rethink. Both streets are improving house by house. Charles has a few dreaded HNZ houses at the end . ($340,000-$500,000)
- Riverside. This was my top pick in the 2015 article. It was above a dump and now its above a well-used and popular park that covers a dump. Many of the houses have upper harbour views. The area has risen in price already but its’ close location to town means it has more upside yet. ($400,000-$450,000).
- Morningside. Has been steadily rising in value for about 10 years now. Walking distance of town and some quaint older houses in the area. Faces north and is on a sunny slope. Has some ground water issues and most sections are steep, but still a popular rental area. Look for some good bargains on the fringes of Morningside moving into Otaika. ($350,000- $480,000).
- Raumanga Valley and Heights. You tend to get good value solid homes in this area as other parts of Raumanga can be rough. Select your streets and you will get a lot of house for your money. The schools are a bit rough but its right next to the polytechnic so plenty of renters. ($380,000-$480,000)
Consistently Stable and Good Areas .
- These are the most popular areas but are more expensive to buy. They have the greatest appeal to tenants. Good neighbourhoods, good shops, and good schools. Great buying but you will have to pay more and while you will get a slightly higher rent your percentage return on investment will be lower. Maunu, Kensington, Kamo West, Mairtown, Regent, Whau Valley, Parua Bay, ($550,000 – $700,000)
For the Mentally Strong and Risk Takers .
In an earlier newsletter/blog I wrote an article headed “Lessons from Colin”. In this article I discussed the merits of the real cheapie houses in terms of capital gain and income stream. These are the properties for the seasoned landlords who can handle the disappointment of being let down on a regular basis. You are looking at cheaper entry prices and good returns on investment, but you will get more tenant damage, arrears, and turnover.
These properties do very well now while there is a property shortage but will get harder to rent in 10 years or so when, and if, rental properties catch up with demand.
- Otangarei. Rough area but good solid ex state homes. Close to town. Will need to regularly monitor for Meth’s contamination but with the new standards coming soon, not as big a problem as it was. Great area to get a good return and as the “Lessons from Colin” article demonstrates rents and values go up just as anywhere else does. Warning! Don’t buy here thinking the area will eventually transform into Kensington North . Way too many state houses (200?) which will permanently hold the area back. It will always be the poorer part of town. ($200,000 – $300,000.)
- Raumanga South and Otaika. Close to both town and to Raukaka. Houses tend to be cheaply built so you will get more maintenance issues than Otangarei. Popular area for gangs so the combination of less structurally sound homes and more physical people means if I was going to buy in this price bracket I’d prefer Otangarei . However as the HNZ homes in the area are more spread out , it probably has a better chance of changing over time.
AREAS TO WATCH
- Vinegar Hill. This will be an area to watch. Its right on the border of the new city limits in the north so should get the full impact of the building boom that is affecting Kamo East area, however the houses were mass produced for the refinery expansion in the 1970’s and as a result they tend to be cheaply built and on cross lease sections. But ! the new houses are going to be right across the road on the other side of Vinegar Hill and the fully sold out Palms Retirement Village is on the other boundary. Together they put strong price pressure on this cluster of houses. On the counter are the poor overall quality of the homes combined with the specialist immersion school smack in the middle, both combining to anchor the area in the rough and ready category. Logic says that the upward pressures will overcome the downward pressures, but this will take some time to eventuate. If you are looking 10-20 years ahead then buy here but be ready to spend a bit more on maintenance. The prices are cheap. ($280,000-$350,000)
- Raukaka/ One Tree Point. This area has seen rapid growth over the last 10 years. The overall quality of the homes is good and the setting next to Bream Bay and the Harbour is spectacular. While there are many people looking for rentals, there are not as many as in Whangarei itself. Some properties in the area are taking a while to rent and rents compared to the value and quality of the homes are a bit low. This area is comparable to Papamoa about 20 years ago. Its growing fast and the population is growing equally fast. At some stage it will become more popular than it already is, and we will see a sudden rise in demand and rents. Buy here for the future. You will get a great home with a lower return for now, but it has to go bananas soon. ($550,000- $650,000)
OTHER INTERESTING STUFF
- House prices were stable in Whangarei with an average price of $531,418. This is a small drop on July, but based on our current high level of activity, a victim of the smaller number of higher priced sales and the large number of lower priced sales.
- The winter slow down I predicted at the beginning of the year didn’t happen and sales have been steady through out the winter months. Harcourts sales for August were exactly the same as August 2017 and that was during the boom.
- The only restriction to more sales per month is a lack of listings. If we had more listings we would have more sales.
- According to Realestate.co’s figures, Auckland has seen a sudden and significant rise in listings for August. Brace for it, that’s a new wave of Auckland buyers heading north in October.
- The pressure on rentals is building. Mostly due to not enough of them, and significantly affected by the number of first home buyers in the market. You hear the myth that First home buyers are neutral in the market, in that they leave a rental empty to buy a rental that was rented. Most of the rental buyer I have dealt with, are moving out of a parent’s home or out of a flat of other people. The rental problem is getting bigger by the day.
The Anti-money Laundering Legislation, that is now current for Lawyers, is proving to be a massive invasion of your privacy and will be putting significant increases on your selling costs. You will see its impact the next time you go to buy or sell a house. We are told this is to bring NZ into line with the rest of the world, but it seems that its format has snuck in without consideration of peoples rights to privacy. You now have to prove how you got the money to buy a house and more importantly how you got the money to buy the house you are going to sell. This legislation is very Police State and seems a massive overkill on a problem that most of us have only ever heard about through newspapers