Palmerston North
by Miriam Bell
Palmerston North
It’s all too easy to overlook the quiet attractions of provincial centres for the bright lights of bigger cities. In the case of Palmerston North, a city best known for student life, this has long been the case. Yet it is the business hub of the Manawatu region, poised for economic growth and blessed with abundant natural charms.
For investors, the city’s housing market has a reputation for being steady as she goes. Traditionally, it’s been a market for long-term investors interested in cash flow over capital gains. And, in recent years, Palmerston North’s market has remained flat while others have soared.
But these days it would be a mistake for investors to overlook ‘Palmy’. In a sign of the times, the city’s market is now busier than industry veterans can remember. At the same time, it offers investors some attributes that are rare in more fevered markets around the country.
GROWTH DRIVERS
Investor interest in the Palmerston North market has been hampered by regional economic factors in the past. Bar the tertiary education sector, it was assumed there was simply not that much going on in the wider economy.
Palmerston North City Council economic policy advisor Peter Crawford says successive major industry closures, along with fallout from the GFC impacted on regional economic growth for many years. That is changing now in his view.
“The region has been less affected by the decline in dairying due to strong returns in the sheep and beef sectors. Improving returns in agriculture has resulted in growth returning to many smaller rural communities. Population growth is now occurring in areas that were previously in decline.”
There has also been growth in the region’s forestry and manufacturing sectors, while the city’s education and research sectors are going from strength to strength. Crawford says Massey University is a key driver for the economy, particularly the research sector which includes Fonterra, AgResearch, Plant and Food and Landcare, and its future growth.
“For example, Massey University’s strengths are an important element in the development of Food HQ. Major capital expenditure is planned for Food HQ and its partner organisations and significant growth in staff numbers is projected. AgResearch is also currently transferring more staff to Palmerston North.”
Recruitment for cutting edge research facilities is one factor attracting more people to Palmerston North. But so too is the city’s affordable housing costs, compact layout and relaxed lifestyle options. Locals say that, given exorbitant housing costs and their run-on effect elsewhere in the country, these factors are enticing growing numbers of people to move to the city.
RISING PRICES
As interest in Palmerston North as a lifestyle destination has grown, so too has activity and growth in the housing market. The latest REINZ data shows that Palmerston North’s median price hit $325,500 in June 2016. This was up 8% on May’s median price of $302,500 and up 12% on June 2015’s median price of $290,500.
REINZ Manawatu region spokesperson Andy Stewart has worked in Palmerston North real estate for 28 years says he can’t recall a more buoyant market than the current one. He says there is huge demand for property across the board, but a big shortage of listings.
“In terms of inventory, about 130 to 150 houses are selling each month. But only 100 or so are coming on to the market a month. There are so few properties on the market that everything is selling and many properties are attracting multiple offers: there’s just not enough properties to meet demand.”
Quotable Values (QV) latest data has the city’s average current value at $315,930 and its year-on-year price growth at 8.4%. QV’s Palmerston North registered valuer Chris Price says values have been growing steadily, but the growth has been at a sustainable level.
“Palmerston North still has some room for price growth compared to other similar centres like Hastings, Napier and New Plymouth so we expect to see some continued growth over the long term but this would likely be at or near the steady level currently being experienced.”
There is investor interest in the current market due to the development of Palmerston North as a distribution hub for the central and southern North Island, he says. “But they don’t seem to be key players in the growth which is occurring. This is because the main drivers seem to be a lack of listings and the low cost of borrowing.”
INVESTOR ATTRACTIONS
While there has been a significant pick-up in price growth, the median price also demonstrates the city’s affordability. Increasing demand might be pushing prices up, but Manawatu Property Investors’ Association president Pauline Beissel thinks there are still opportunities for investors.
It’s a desirable place to live in, prices are affordable, and it is central to Hawkes Bay, Wellington, Taranaki, and Taupo which means it is well located for investors, she says. “There is a strong tenant pool. We are an education city where students require accommodation and there is good industry around us requiring housing.”
For investors seeking cash flow, Palmerston North is a financially viable option, Beissel adds. “For example, Auckland investors think they are getting good returns here. And they are comparatively. It’s just that for long time local investors they are not as good as they have been in the past.”
Recent Realestate.co.nz data for the Manawatu region suggests Palmerston North returns should indeed be attractive to investors. Based on its average asking price for the region, it calculates the Manawatu region’s theoretical average yield is 5%. This makes it New Zealand’s third best performing region for residential rental property investment.
Further, there has been no let-up in rental demand. Absolute Rentals Property Management director Wade Thompson says the rental market is also busier than usual. “Properties are not staying vacant for very long and they are going as long term tenancies. There are good, safe returns for landlords here.”
In his view, it’s a good time to purchase an investment property in Palmy if cash flow is the motivation. “With good property management, an investor can reap the rewards. An investor could get up to 6% yield on a property.”
RENTAL CONSIDERATIONS
Tales of overcrowded, devastated properties and raucous parties mean some investors might be wary of the student rental market the city is known for. But the reality is quite different. Strong demand for rentals extends far beyond students.
Stewart says another strong rental market driver is the fact the city is also a defence personnel hub. Linton and Ohakea training camps are both nearby and they equal about 1,100 people, who make up a solid part of the rental market.
“Students are a strong component of the market and always will be, but the days of students being able to dictate the rental market is over. They are more selective these days anyway, which means the standard of property has had to increase accordingly.”
This means the city’s rental market has levelled out. There is now a wider range of tenants but they want higher quality properties. There is one constant though: property type.
Apartments are not a part of the mix, there is very little call for smaller (one to two) bedroom houses and demand for five plus bedroom houses has dropped. It is three-bedroom houses, followed by four-bedroom houses that are now most in demand.
To maximise returns, Stewart recommends that would-be landlords buy three-bedroom houses and add value. There are a lot of good, solid three-bedroom, ex-state houses round, he says.
“If an investor brings them up to scratch in terms of new insulation requirements, which tenants want now, there is scope there to add value by doing that and putting in heating aids like double-glazing, for example. It makes the property more rentable and, down the track, more saleable.”
AREA OPTIONS
Pinning down where to buy in Palmerston North is not straightforward. This is because there are no stand-out good areas or bad areas for investors – in terms of either capital growth or rental returns. For example, Price says recent QV data indicates there are no suburbs which stand out above the rest in terms of appreciation.
Meanwhile, in Stewart’s view, the shortage of listings means investors simply can’t be too choosy when selecting suburbs to buy in. There are pockets of areas in suburbs which are not that good to buy in, he says.
“But even in suburbs often considered ‘bad’, like Highbury, there are some good parts. People are often told not to buy in Highbury, but there are some good streets in Highbury. There are good areas in all areas. With the limited choice available at the moment, it is necessary to do your due diligence thoroughly in order to get good deals in these areas.”
Thompson agrees that no one area of the city is better for investors. However, he picks Kelvin Grove as a good area for investor properties. “It has lots of newish, four-bed family houses with double garages. They are good, solid, low maintenance. They are very popular with tenants because they offer a relaxed lifestyle.”
Traditionally, Roslyn, Takaro, Awapuni, and Kelvin Grove have been considered good for returns. But Beissel says returns depend more on the property than the area. “No one is fussing over areas at the moment. They are grabbing what they can get. There are no rules at the moment! It’s just a very active market.”
In her view, Hokowhitu, Clover Lee, Summer Hill are desirable areas to buy in. She has been investing in the region for 32 years and says she will buy anywhere – but most of her investing has been in Hokowhitu. “It’s quite a nice area. So prices are more expensive but capital gains have been greater.”
LOOKING FORWARD
While Palmerston North property might currently be going gangbusters, on its own terms, the big question for investors is likely to be around the market’s future prospects. To this end, locals say it pays to remember the city offers stability and security.
Stewart says he doesn’t see any change to the market pattern for at least 12 months. “We are seeing price growth, but our prices are not skyrocketing at the rate of other cities. The Palmerston North market is more stable and its price growth more sustainable. We don’t have the highs and lows of others places. But Palmerston North is a reliable place to buy and invest.”
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