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Regional Review : Invercargill

While the rest of New Zealand sweats, Invercargill is on the verge of real growth locals say. Amy Hamilton-Chadwick investigates

Monday, July 14th 2014, 10:32AM

by The Landlord

Civic Theatre at Night

How affordable is property in Invercargill? When you talk to the locals, they all use the same word: "Ridiculous". It's one of the last places in New Zealand where you can still buy property which transfers to positive cashflow from day one. But it's not only the prices that make Invercargill an attractive proposition for investors.

Confidence in the local economy is beginning to grow as more residents and visitors arrive in the city.

Changing the guard
Southland is poised on the brink of real growth, says Venture Southland CEO Paul Casson. The population is increasing and so is the number of international students and migrant workers. Perhaps most importantly, the city's population is aging, and as this cohort retires a greater number of jobs will be available for younger workers.

This 'changing of the guard' means that opportunities for career advancement are likely to draw in more residents, and Casson believes this is causing some internal migration from Dunedin. As new employees bring their families to the city, demand for rental property is likely to grow. The Southland Institute of Technology (known locally as 'the polytech') has had a considerable impact on Invercargill's recent growth. Its zero-fees scheme has made it affordable for both local and international students, and student numbers continue to climb.

And though the weather has a reputation for being cold and rainy, it’s better than you might think, says Paula New, rental division manager for Hoamz to Rent Invercargill. The city doesn’t have hot summers, but nor are its winters too cold, and she points out that the city hasn’t had the extremes of weather that have recently battered some parts of the county. New says the city experiences a pleasant flow of weather that never bothers the locals.

Parallels
Student accommodation has been in short supply, and SIT is building its own apartments and dorms. Still, Casson sees parallels  with Dunedin and believes investment in student accommodation has strong potential. Some international students may also remain in the city if they have a job opportunity. The low cost of living and proximity to outstanding areas of natural beauty are strong drawcards for many overseas visitors. While residential and commercial development has been limited, the Invercargill City Council is undertaking a $12 million upgrade of the central city which will include artwork, bridges, green spaces, new street lighting and signage. Casson and others hope the city will attract a greater diversity of industry and commercial enterprises on which to grow the local economy.

Sustainability, low prices
It is Invercargill's bright future that makes it a great place to invest, Avinash Varghese, CEO of Pride Real Estate, says. Varghese is also a co-founder of Innovate Invercargill, a non-profit agency that aims to promote employment and industry in the city. Varghese moved to Invercargill from Mumbai as a teenager – it was a huge change to relocate from a city of 12 million people to one with just 50,000.

He says life is so easy in Invercargill; he loves the quiet atmosphere, low crime rate and high-quality lifestyle. He and his family own 10 rental properties in the city.
"You can buy a cheap house in lots of places in Southland," he says, "but many investors overlook the sustainability of the area.
“If you only look at price and return, you could find that the vacancy rate is a lot higher and it's hard to sell. Invercargill has the population and the sustainability to give you good returns and provide a high quality long-term investment."

Invercargill prices also give you the chance to buy a bargain.

"Every property on the market is up for negotiation, usually for $10,000 to $15,000 cheaper than the asking price,” Varghese says. “Buy one on a 15-year loan and it will go fast; it's easy to have a debtfree property."

The Roost Home Loan Affordability Report released in May found that it now takes 62.0% of one median income to pay the mortgage on a median priced house in New Zealand. In Auckland Central it takes 93.6% of one median income to pay the mortgage; in Invercargill it's just 31.5%.

"The buying power here is just really good," says Doug Russell of The Professionals Invercargill. "There are some great new homes round Mahora Crescent that have four bedrooms, two bathrooms and an en suite, for under $280,000. I don't know how they can build it for that!"

What to buy
Invercargill investors, with few exceptions, buy brick or rough-cast houses with aluminium joinery. Wooden houses and window frames just don't stand up to the local weather, Russell says, so the brick and aluminium style is low maintenance for investors. (Wood-boring insects can also be a problem, says Varghese, who has all his properties sprayed for borer annually at around $120 each.)

Three- and four-bedroom properties are the most popular type of rental, a garage is essential, and a fully-fenced property can help secure a long-term tenant. Properties need to be well insulated and have a heat pump; tenants are able to be selective, and they want to be warm and dry.

Wayne Ellis, branch manager of Harcourts Invercargill, says that for a three-bedroom home investors typically pay between  $100,000 and $150,000; for a fourth bedroom it's $150,000 to $200,000.

Casson recently spotted a block of 10 two-bedroom flats with an asking price of $610,000 (excluding GST); "$61,000 each? That's amazing. Get the right place, do it up, manage it well and you're onto a winner."

With property so affordable, residents with steady jobs tend to own their own houses. Many tenants are beneficiaries or students, and for this reason it's best to shop below a rent ceiling of $250 to $280. Happily, tenants tend to be problem-free.

Anita Cooper, owner/manager of Coopsvilles Property Management, says she has never yet had a tenant who has trashed a house, and most are long-term tenants who pay their rent on time and are “lovely” to deal with.

While average rents tend to hover around the $200 to $250 mark, Cooper says she is able to increase rents when a property is vacated, provided the property is well-maintained.

Amenities
As far as areas go, "There's nowhere in Invercargill I'd rule out," Ellis says. "It just comes down to being near amenities." While the north part of the city has traditionally been the most desirable area, investors may find more to like in South Invercargill where the prices are slightly lower and tenant demand is strong.

“I live south, and I buy south – but I buy in the better suburbs in the south," Rose Cardoso, immediate past President of the Southland Property Investors' Association, says. “There are pockets I buy in: I like Newfield, and Georgetown is also good."

While the quality of education in Invercargill is very high, Russell adds that the James Hargest College zone is particularly popular with families of older children, and family homes in this school zone are always easy to rent.

Value: Only one way to go
Rents in Invercargill have been static for the past 12 months, says New, but she forecasts a slight lift in rents over the next year, possibly driven by rising interest rates starting to bite for investors. She says that despite June being one of the quietest months of the year for the property management business, “we’re always busy, we’re always gaining new managements, the growth is there. Investors are buying and we are seeing a more focused change this year. I definitely feel positive about Invercargill’s future.”

Property values in Invercargill have been flat since around the start of the global financial crisis in 2007. The lack of movement isn't universal; Cooper has seen some examples of strong capital gains in the past 15 years but says it depends very much on the individual property. Overall though, the values have been flat. Locals feel it is only a matter of time before prices begin to increase.
The increasing buoyancy and business confidence in Southland is making investors feel hopeful.

Casson says Southland is positioned where Auckland was 20 years ago. He believes that by learning from Auckland (not only copying its successes but avoiding its mistakes), the region can grow into a thriving hub of industry.

Meanwhile the market is a “real sit-and-hold kind of market," Cardoso says. "It costs you nothing to hold because you don't have to keep putting money in, and things are going well. We're forever the optimists, and history tells us it's only a matter of time – the housing market will pick up."

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Lender Flt 1yr 2yr 3yr
ANZ 5.19 4.15 ▼4.04 4.49
ANZ Special - 3.65 ▼3.54 3.99
ASB Bank 5.20 4.15 4.09 4.39
ASB Bank Special - 3.65 3.59 3.89
BNZ - Classic - 3.65 ▼3.49 3.99
BNZ - Mortgage One 5.90 - - -
BNZ - Rapid Repay 5.35 - - -
BNZ - Std, FlyBuys 5.30 4.45 4.35 4.55
BNZ - TotalMoney 5.30 - - -
China Construction Bank 5.50 4.70 4.80 4.95
China Construction Bank Special - 3.19 3.19 3.19
Lender Flt 1yr 2yr 3yr
Credit Union Auckland 5.95 - - -
Credit Union Baywide 6.15 4.95 4.95 -
Credit Union North 6.45 - - -
Credit Union South 6.45 - - -
Finance Direct - - - -
First Credit Union 5.85 - - -
Heartland 6.70 7.00 7.25 7.85
Heartland Bank - Online - - - -
Heretaunga Building Society 5.75 4.80 4.95 -
Housing NZ Corp 5.19 ▼4.15 ▼4.09 ▼4.39
HSBC Premier 5.24 3.35 3.35 3.35
Lender Flt 1yr 2yr 3yr
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 5.65 3.85 3.95 3.89
Kiwibank 5.80 4.30 4.34 4.74
Kiwibank - Capped - - - -
Kiwibank - Offset 5.15 - - -
Kiwibank Special - 3.55 3.59 3.99
Liberty 5.69 - - -
Napier Building Society - - - -
Nelson Building Society 5.70 4.69 4.79 -
Resimac 5.30 4.86 4.14 4.19
Lender Flt 1yr 2yr 3yr
RESIMAC Special - - - -
SBS Bank 5.29 4.85 5.05 5.49
SBS Bank Special - 3.69 3.69 ▼3.89
Sovereign 5.30 4.15 4.29 4.55
Sovereign Special - 3.65 3.75 4.05
The Co-operative Bank - Owner Occ 5.15 3.65 3.59 3.99
The Co-operative Bank - Standard 5.15 4.15 4.09 4.49
TSB Bank 6.09 4.65 4.59 4.85
TSB Special 5.29 3.85 3.79 4.05
Wairarapa Building Society 5.70 4.85 4.99 -
Westpac 5.34 4.15 4.09 4.49
Lender Flt 1yr 2yr 3yr
Westpac - Offset 5.34 - - -
Westpac Special - 3.65 ▼3.54 3.99
Median 5.35 4.15 4.09 4.19

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