by The Landlord
Rotorua can be a hot place to live. Located on a volcanic plateau, the area has undergone continual geological activity for thousands of years. Known as a spa city and a major tourist resort, the area has two distinct assets – geothermal wonders and lakes – both attributable to volcanic activity. But more than just the Rotorua landscape has been erupting over recent times. Like the rest of New Zealand the local sales market has exploded.
“Though we were well behind the rest of the country in taking off, Rotorua has wound up over the past 18 months,” said local Real Estate Institute of New Zealand (REINZ) spokesman, Ian McDowell. “Compared to centres such as Tauranga, Hamilton and Auckland, we were late starters.”
McDowell said that while things have slowed down at the higher and lower ends of the market, it’s still full steam ahead for Rotorua.
“We had a lot of out-of-town investors picking up cheap investments for around $80,000 and getting a good return on their money with rents between $150-$180 a week. Those properties have since risen considerably. In areas such as Fordlands, which remains somewhat in the doldrums, houses that were selling for $30,000 are now selling for around $100,000. “There are still are lot of buyers out there, but they have become more selective,” said McDowell.
“Twelve months ago the median price for Rotorua was $175,000. REINZ statistics show that figure climbed to $210,000 this March. The comparable figure for March 2005 was $166,000.
“The average sale price is around $237,00, showing a 17.3% increase in 12 months. In March 2005 the average sale price was $202,000.
“Ngongotaha, which traditionally lagged behind, has risen considerably,” he said.
Figures released by the REINZ reveal 181 house sales in March with properties on the market for 34 days. The average number of monthly house sales for the 2005 calendar year was 174.
“The lakes shot up early. Tarawera and Okareka were by far the most popular with the market led by out-of-town buyers,” said McDowell. “But over the last six months this has quietened.
“And despite concern about pollution in Lake Rotoiti, properties are still selling, although not at the high prices of Tarawera and Okareka.”
The demand for lifestyle properties has abated, but values are still good.
“Sales volumes of dairy farms, which also shot up, have now plateaued. This is due to two factors – an uncertainty among farmers about pay-outs and a traditional lull in dairy sales at this period.”
Rotorua has experienced a lot of internal activity. “People are moving within the city. They’ve sold existing homes in areas such Lynmore to build new. Sub-divisions have sold well,” said McDowell. “Baxendale, for instance, in the Pukehangi/Springfield area, sold out within 24 hours.”
Sub-division success is corroborated by Bayleys Rotorua manager, Beth Millard, who cites her company’s marketing of upmarket developments such as Lynmore Lake Vista Estate and Parkland Estates. “All three stages of Lynmore Lake Vista sold at auction,” said Millard. “Parklands was unique as it offered sizeable lifestyle estates in the heart of urban Rotorua. Many sold within 12 days of market launch generating $11,967,111 in sales.”
Rotorua Property Investors’ Association president Mark Williams describes Rotorua as a very buoyant market. “There was a big rise last year and though it’s flattened out of late it’s certainly not declining. It’s always a good time to invest in the market as there’ll always be a demand because of Rotorua’s transient population. Industries such as Scion (New Zealand Forest Research Institute Ltd) as well as the polytech bring people to the city. The lakes are always popular and a source of income during holiday periods. We get inquiries all over the spectrum,” said Williams.
Member of the REINZ Property Management, Richard Evans, said the explosion in the market has seen some house sale prices rise 50%, but rents just 12%-15%.
“Investors trying to get higher rents are not entirely successful. Some have been sitting on empty houses for months. Those who have not taken independent advice and asked the right questions are getting badly burned. A $185,000 house has a return of 4.5%. Generally speaking, advertised rental properties are those which are hard to rent. Properties with a fair market value, and have what people are looking for, are no trouble to rent. Those who enter the market with their eyes wide open are doing okay, but it can be a different for first-timers, especially if they haven’t researched carefully.
“We had a complaint from one owner whose house had not been tenanted for three months. He’d purchased the property off Trade Me and been told by the owner that it would fetch a figure way beyond what market was willing to pay. There are others like that.
“Some rentals in desirable areas such as Lynmore and Springfield have increased. A good, regular three-bedroom home has risen between 10%-15%. Three years ago it would have returned $220 per week, now it’s returning up to $250. There’s demand for tidy modest family homes and rentals for these have increased. Anything beyond $350,000 in the Rotorua market is stagnant and harder to rent. We don’t have the big corporate market here.”
“But we are seeing a new wave of investors. They’re coming from some of the prosperous groups; they’ve researched thoroughly and tend to comply with the core requirements of what they’ve learned.
“With some house values up 50% and rents up 12% you don’t need to be a rocket scientist to realise that you have to accept a lower return and invest for the long term. Our advice is to buy for capital gain as you won’t get the return on your investment through the rental market. An investment should be regarded as a 10-year project.”
Evans said forestry, tourism and hospital boards were the major drawcards for out-of-town workers. English academies also created a demand for rentals. “Working on contract here is very common. People don’t want to sell their own homes so they rent.”
A statement released by the Rotorua Chamber of Commerce in February said that despite the level of discussion and some indications around the fact that the New Zealand economy was slowing, it was of interest that the majority of Rotorua businesses expected to employ the same amount or more workers over the coming year.
“This is a very positive indicator for business in our city,” said CEO, Roger Gordon. “Rotorua businesses and consumers are more optimistic than their national peers.”
The growth in supply of new residential sections and sub-divisions was identified by a number of local businessmen as one of the factors for Rotorua having such a buoyant view of the future. Nearly 400 sections in various areas throughout the Rotorua region were quoted in a recent report. The steady but sure growth in property values in Rotorua versus the boom bust cycles of some other areas was regarded as another positive.
“Challenges with infrastructure being experienced by neighbouring cities, such as traffic congestion, is influencing a consideration of Rotorua as a better life style option,” said Gordon.
While many local business people are positive about the level of development that is planned for Rotorua, both residential and commercial, concern has been expressed over the Rotorua District Council’s proposed introduction of new development contributions which could impact detrimentally on the local market.
Darryl Aston, Bayleys Rotorua special projects manager, said the proposed contributions had the potential to burden developers and would need to be thought through carefully.
Meanwhile, the level of development that is planned for Rotorua, both residential and commercial, is creating optimism among local contractors, and should have considerable flow on to all sectors of business in the city.
Reproduced from the NZ Property Magazine, June 2006
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