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Top of the South: Sunny side up

The 'top of the South' is a regular competitor for the most sunshine hours in New Zealand each year and Stephen Dickens finds that for investors, rental property offerings look equally as bright.

Monday, May 2nd 2016, 12:00AM

by The Landlord

Nelson

The Nelson, Tasman and Marlborough region is well known for the 'big five' industries of tourism, horticulture, forestry, seafood and pastoral farming. A lot of seasonal workers come and go, particularly in the viticulture and horticulture sectors, and demand for seasonal rental properties is high.

In Marlborough demand for rentals usually exceeds supply, particularly at the beginning of the year. “This year is the tightest we have experienced,” Mariette Knudsen, senior property manager at Mark Stevenson First National in Blenheim, says.

“There is a significant demand for accommodation for seasonal workers and many older large homes have been converted to meet their needs. There are also a number of purpose built residences coming into use. These can be rented for up to $130 weekly per person but usually include housekeeping and gardening services.

“I know of one motel that closes its doors to the public for the duration of the pruning season, all motel furniture is removed and replaced with single beds and bunks. This apparently works well for the owners as it takes up the slack of the quieter winter months.”

Brian Kerr, secretary of the Marlborough Property Investors' Association, says the Marlborough region is progressing very well. “The viticulture industry has been in a growth phase for the last 24 months,” he says. “This means prices of land for viticulture are back on the rise – back to high prices seen just before the crash of 2008.

“The flow-on from a busy grape industry is more workers who require accommodation – so more demand through all layers of the rental market with rents increasing steadily.”

Witherlea and Renwick – the latter being eight kilometres from Blenheim – are sought after particularly by families because the schools in both areas have an excellent reputation. “Redwoodtown and Springlands are popular because of the shopping centres that include supermarkets and a variety of shops and cafes, also doctors' rooms and pharmacies, all with easy access and excellent parking,” Knudsen says.

Kerr says he has seen significant rises in house prices in the Marlborough region. “It seems there is strong demand from local and national investors, first home buyers and people changing houses,” he says. “Many houses are up with multi offers and going above asking price.”

For Kerr, the long term future is very bright for Marlborough. “The grape and fishing industries are mature and reasonably stable although the GFC of 2008-2013 certainly slowed the market up,” he says. “I think the price increases are a market correction for Marlborough as I think house prices have been undervalued for the last eight years. I suspect there will be further increases coming.”

Nelson booms

Nelson is sandwiched between Tasman and Marlborough districts and at only 445 square kilometres is the baby of the three regions, but in size only. Extending from Marybank to the northeast and Saxton to the southwest, Nelson has a population of about 46,437, compared with about 49,500 in Tasman and about 45,300 in Marlborough. Saxton borders Richmond, which, although in the Tasman District, has become attached to Nelson's southern suburbs and is now considered an outlying suburb of Nelson city.

It is also the region's fastest-growing area.

Juliet Robinson, of Quinovic Nelson, says central Nelson and Richmond are the two most sought after areas for rentals in the city. “There is limited supply at present and this is allowing us to achieve premium rents for properties as the weighting of supply is outstripped by the demand,” she says.

Glenn Morris, secretary of the Nelson Property Investors' Association, agrees. “Richmond demand and supply remains as one of the country's hot spots for rentals,” he says. “As the choice of rentals drops in the city applicants will become less picky and prices will do what they will do.

“There is a good long term prospect for Nelson with steady above average population growth. As the percentage of rentals increases we will see an increasing range of central and local government input into how the industry operates. This will take some getting used to and might cause some pain along the way for some people.”

Morris retired last year but a former property that was part of his management portfolio – two, two-bedroom attached units – recently sold. Both were tenanted and each had separate car parking.
“There were two good tenants who would be staying on,” he says. “Two older flats in good condition close to the city centre. Log fire in one and I think heat pump in the other.”

Morris says they were always easy to let and well sound insulated from each other. The asking price was $349,000, total rent per week $530 per week, giving a gross return of 7.8% on asking price. “It sold in a flash,” he says. “Might have gone for 8%.

“It is just an ordinary run of the mill property – nothing special or anything,” he says. “Sure, the owner is keen to sell but not I think [he’s] desperate or distressed financially. He will be selling at the market price. Regardless of what spin agents might want to put on comments on the market while talking in riddles, this property and its sale should for most investors tell everything they need to know.

“Some people are still sitting on the sidelines moaning about not being able to find anything in Nelson,” he says. “I recently got a 4.4% interest only loan over a residential so what are people moaning about?”

Rental demand

Darryl Marshall, salesperson at Haven Realty and a local REINZ committee member, says Nelson south is experiencing significant growth with rental demand high. “Richmond and its immediate environs are experiencing incredible levels of new building growth,” Marshall says.

“This is due to larger areas of flat centrally located land becoming available for subdivision development. This in turn provides another dimension of rental properties by those who are building new homes either renting their previous home or marketing it for sale presenting another raft of opportunities for investors.

“Investors traditionally favour three to four bedroom, two bathrooms, garaging close to school complexes and amenities in Stoke, Richmond locations, whereas central city will support two bedroom investment for professional/retirement tenants.”

Godfrey Watson, owner of Champion Property Management, says the Richmond area in general has had a “very good level” of demand for some time but says prices can be higher so rental returns are not quite as good as Nelson.

“Stoke is an area popular with renters and provides a good balance between price and rent achieved,” Watson says. “Being located between Nelson and Richmond adds to the appeal. The Nelson market in particular is seasonal with strong demand from November through to March and then slowing through the winter months. The number of properties available in winter can peak at almost three times the number of properties available in Richmond during these slower winter months.”

Watson says Tahunanui and Toi Toi remain popular with renters in Nelson. “Toi Toi tends to be largely lower socio economic renters. House prices are lower here and returns tend to be a little better. The Wood on the other side of the city is also popular with renters. Properties here tend to be better quality and command higher rents accordingly.”

The city centre tends to attract and has such a broader blend of tenant applications as professionals, students and sharers, Marshall says. “Generally, families (some being expat) are favouring Stoke, Atawhai, Richmond. Also a high new presence of tenants is relocating from other major cities. Seasonal workers tend to generically be more Motueka, Riwaka areas where the work is and are normally short term rentals or can at times have accommodation provided on site.”

Growth on the horizon

Nelson's population is projected to grow 10% over the next five years and the current rate of building consents issued by the council indicates housing supply is likely to be insufficient to meet future demand.

The Nelson council says that over the next 30 years Stoke is expected to be home to three quarters of Nelson's population growth and half its new housing. With this in mind, the Government recently approved nine special housing areas in Nelson, which provides provision for an additional 400 homes. The largest development site is a 14 hectare block in Nelson south, which has provision for 200 homes. It is hoped another large block near Richmond – with potential for a further 200 homes – will be added to the programme.

Marshall said planned new land development would suggest that Richmond would continue to be in high demand, therefore supporting its growth. “New national compliance issues are going to favour modern properties and the city surrounds have a higher percentage of older properties in contrast to Atawhai, Wakatu, Stoke and Richmond,” he says.

Aside from Richmond, Robinson says another area to consider investing in is Tahuna. “In my opinion, Tahuna is improving in the rental stakes and some new housing developments have lifted the quality of homes in the area,” she says.

“A supermarket is planned for Tahuna which will add value to the area and possibly see the commencement of more apartments builds. The historical nature of properties in Tahuna are older and they are in need of some refurbishment. These can be picked up for a good price around the $320,000 to $350,000 mark and with some improvements can attract a rent of between $365 and $385.”

Going central

Watson says ‘The Wood’ is a good area to purchase with a view to long term investment. “Being close to the city the area is in demand with tenants and commands good rents but properties are pricier,” he says. “The occasional property comes up with potential to redevelop but a lot of it has already been done. Stoke presents some good potential although there are one or two pockets to avoid but overall it provides a good balance between property price and achievable rent.”

“I believe that any rental property close to town will always be a secure investment,” says Robinson. “Several of our experienced investors have recently purchased three bedroomed homes built of Summerhill stone, within a three to five minute walk to town. Both intend to make improvements within a strict budget which include carpet replacement, interior painting and minor up date of kitchens and in one case the erection of a high fence to provide privacy. These improvements have resulted in an increase of rents of $30 to $50 weekly providing the investors with a reasonable rental return,” she says.

Rural rentals

Marshall says investors may also consider rural areas to invest in. “Due to shortage in rental properties over the summer stronger consideration is given to more rural and other locations in the Tasman region e.g. Mapua, Ruby Bay, Moutere area, and Wakefield,” he says. “Highest demand remains for three-bedroom houses tidily presented in the $350 to $450 market. We are starting to see an increase in demand for properties with two bathrooms.

Kerr says in Marlborough an investor can opt to rent in the seasonal worker group. “This brings in more rent week to week but can involve more work, and may not be for the full year,” he says. “A number of investors are also purchasing properties to rent in the Airbnb market. This has also reduced the number of homes available in the general rental market and is helping lift rents. Airbnb is a growing market in Marlborough.”

Future looks sunny

In Marlborough, a three-bedroom home in Blenheim with a median value of $305,000 and median rent of $340 has a gross yield of 4.2%. In rural areas, the same size home has a value of $371,000 and a rent of $300, with a gross yield of 5.8%.

In Richmond, in the Tasman district, a three-bedroom house with a median value of $420,000 and rent of $400 yields 5%; the same size home in rural Tasman valued at $367,000 and rented at $330 yields 4.7%. In Nelson city a three-bedroom home with a value of $403,000 and rented at $377 has a gross yield of 4.9%. In Stoke and Tahunanui the same size house with a median value of $394,000 and rented at $380 realises a yield of 4.9%.

The median price across the region rose $33,900 (+9%) compared to January 2015 – a new record high – with prices rising 23% in Richmond, 14% in Nelson and 13% in Motueka. Compared to January the median price rose $23,000 (+6%) with prices rising 19% in Richmond, 11% in Nelson and 7% in Motueka.

According to Watson the long term outlook for the region looks bright. “Lots of sunshine and some of the lowest crime figures in the country help,” he says. “On the downside the area is renowned for its sunshine wages but there are a lot of positives in the economy at the moment particularly around pip fruit exports and tourism. Spending in the local economy has also been some of the highest figures in the country in recent times.”

Brian Kerr says he loves the lifestyle the region offers: “National parks on your doorstep and the Marlborough Sounds – it is simply one of the nicest places to live.”

Subscribe to NZ Property Investor magazine here to get great stories like this delivered to your mailbox every month.

If you have investment properties in the “Top of the South” region, contact our advertisers if you need any of the following things:

Property Managers

Bolitho Property Management : 03 544 1782   
Champion Property Management: 03 545 1622     
Haven Property Management  : 03 548 3440    
Quinovic Property Management: 0800 QUINOVIC                 

Plumbers

Andy Bennett Plumbing: 03 548 7454 or andybennett@xtra.co.nz

Property Maintenance

Manor Property Services: 0800 677 005               

Surveyors and Planners

Jones & Stanger Limited: 03 548 2833        

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Lender Flt 1yr 2yr 3yr
ANZ 5.19 4.05 3.95 4.49
ANZ Special - 3.55 3.45 3.99
ASB Bank 5.20 4.05 3.95 4.39
ASB Bank Special - 3.55 3.45 3.89
BNZ - Classic - 3.55 3.45 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 3.99 4.49 -
Heartland 6.70 7.00 7.25 7.85
Heartland Bank - Online - - - -
Heretaunga Building Society 5.75 4.80 4.95 -
HSBC Premier 5.24 3.35 3.35 3.35
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 5.15 3.18 3.18 3.20
Kainga Ora 5.18 4.04 3.95 4.39
Kiwibank 5.80 ▼4.14 ▲4.30 4.64
Kiwibank - Capped - - - -
Kiwibank - Offset 5.15 - - -
Kiwibank Special - ▼3.39 ▲3.55 3.89
Liberty 5.69 - - -
Napier Building Society - - - -
Nelson Building Society 5.70 4.25 4.15 -
Pepper Money Near Prime 5.64 - 5.44 5.44
Lender Flt 1yr 2yr 3yr
Pepper Money Prime 5.18 - 4.98 4.98
Pepper Money Specialist 7.59 - 7.39 7.39
Resimac 4.50 4.86 3.89 3.94
RESIMAC Special - - - -
SBS Bank 5.29 4.85 5.05 5.49
SBS Bank Special - ▼3.55 3.39 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 3.49 3.59 3.89
The Co-operative Bank - Standard 5.15 3.99 4.09 4.39
TSB Bank 6.09 4.35 4.25 4.69
Lender Flt 1yr 2yr 3yr
TSB Special 5.29 3.55 3.45 3.89
Wairarapa Building Society 5.70 4.85 4.99 -
Westpac 5.34 4.15 4.09 4.49
Westpac - Offset 5.34 - - -
Westpac Special - 3.55 3.45 3.99
Median 5.34 4.04 4.09 4.39

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