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Southern beauty

Jenny Keogh uncovers the hotspots in Invercargill and finds the southernmost city has some challenges to face.

Monday, August 1st 2016, 10:00AM

by The Landlord

Southern beauty: Invercargill

Driven by Auckland’s halo effect, student population growth and low interest rates, Invercargill’s housing market is heating up.

Yet Invercargill has some big economic challenges to address with an ageing workforce and a need to diversify its industries. 

Since October last year, when the Reserve Bank introduced the 30% deposit limit on lending to property investors in Auckland, the Invercargill property market has picked up.

Core Logic’s June QV House Price index shows average Invercargill house prices jumped 4.8% in the past 12 months.

Rising volumes

The number of days to sell a property, however, has increased 13 days between April 2015 and April this year, according to statistics from the Real Estate Institute of New Zealand (REINZ). Sales volumes rose 62% compared with April 2015.

Southland Property Investors’ Association president Malcolm Tomas, who is also a real estate agent, says for the first time since the market peak in 2007-08, Mum and Dad investors are returning to buy multiple properties.

“There is more urgency with buyers, and we are striking buyers who have missed out on multiple offers,” Tomas says.

Low interest rates are making homes more affordable for the first-time buyer, and some buyers are using KiwiSaver to buy their first property. Houses priced under $250,000 were in high demand, he says.

Affordable options

The mean asking price for a home for sale in Southland was $262, 486 in May, according to Realestate.co.nz. This compares with a New Zealand average of $570, 971.

Rebecca Harris set up the property management firm ScoutMe in Invercargill about a year ago.

“When looking at investing, Invercargill offers very affordable investments that return some of the better yields in the country,” Harris says.

The average three-bedroom home in Invercargill rents for around $250 to $260 a week, with average gross yields of 8-9% and upward on units. In Southland $140,000 - $180,000 goes a long way and offers the ability to get great returns, she says.

Georgetown, Strathern, Kew and Appleby are typical rental areas as they offer higher yields. Quality homes in such popular areas as Richmond, Windsor, Hargest and Grasmere are often in shortage and attract great tenants, Harris says.

Tomas has a personal portfolio of properties in Invercargill. He says he has good tenants, some of whom are on benefits.

His properties are in Appleby, Richmond, Georgetown and Avondale, and have between a 10% and 14% yield range. “It’s still possible to go after 10% if you get the right property – spend a bit of money and get the extra rent,” he says.

“Most areas are pretty good –a lot of locals will turn up their noses at Appleby but some investors won’t go anywhere else.”

He cautions that methamphetamine testing, also known as ‘P’ testing, seems to be creeping into more contracts in Invercargill. “We are being advised to get rentals checked before tenants go in, and before they go out.”

The New Zealand Law Society (NZLS) has advised that meth labs are a growing problem in New Zealand, and that solicitors need to advise real estate purchasers to be cautious when buying property. Around 75% of exposed meth labs are rental properties, says NZLS.

Movement in the market

Homz rental division manager Paula New says she has noticed some long-term property owners are starting to sell up.

They have a variety of tenants, with a high percentage on the benefit. “Some are good payers; we have some who aren’t,” New says. They are in “constant dialogue” with the house owners, particularly with some of the more challenging tenancy situations.

It’s worth noting wooden houses in Invercargill aren’t as well regarded as the similar buildings in Auckland, she says. Generally they aren’t as well kept, and people prefer brick houses, given the difference in the weather.

Harris says the Southern Institute of Technology (SIT), which has a hugely successful zero-fees scheme, is attracting more international students each year, and this is putting pressure on the rental stock.

The students tend to be older couples in their late twenties, or thirties, and often one will work and the other study.

Tomas agrees SIT seems to be going from strength to strength, with a diverse international student population that is good for the town.

Facing challenges

Despite growth in the market there are some economic challenges in Invercargill.

Venture Southland business projects coordinator Rhiannon Suter says 59% of businesses are positive about the Southland economy, down from 16% the year before.

The drop in agricultural commodity prices has driven the downturn in business optimism.

Confidence in the sector has declined and the proportion experiencing increased sales has also declined. However, 70% of agricultural operators remain positive about their own businesses.

Businesses are also concerned about the quality of broadband and mobile infrastructure services in Southland, she says.

A Southland Regional Development Strategy (SRDS) has been undertaken, initiated by the mayoral forum.

It aims to bring in 10,000 more people to the region by 2025, as within a decade the number of people living in Southland is projected to be a smaller proportion of NZ’s population.

SRDS chair Tom Campbell says far more people are retiring than entering the workforce, so new migrants were needed.

The economy needs to diversify away from dairy and aluminium, he says.

“I liken the economy to a tripod, one leg is aluminium (which produces $1 billion in exports a year), one is dairy ($1 billion in exports), and the third is everything else (read meat, aquaculture, tourism). We need a fourth leg to stabilise and make the economy resilient,” Campbell says.

There are tremendous opportunities in tourism, particularly in commissionable products. “One of the problems is everything is free. We need to develop more things, and double the size of the tourism spend,” he says.

Accommodation needed

“The International students that come through the SIT are excellent seed stock for permanent jobs; many are highly qualified and have the right to continue to live in New Zealand. If we can capture them, then that will have a flow-on effect – they will need accommodation.”

Campbell argues the strategy is different from other regional strategies around the country because it is largely business-driven, instead of central Government orientated.

The strategy will go back to the mayoral forum for approval, and action plans will be developed for different agencies.

The council has funded $300,000 towards the strategy and local businesses have committed about $1 million of time. “We have a saying in Southland, God helps those who help themselves,” he says.

Tomas says he believes that while the interest rates are low the property market will tick along quite nicely in the future. “There are more people leaving the city to come to the regional centres, and as long as that keeps going, and foreigners relocate, we should develop.”

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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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