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Food for thought

With its spectacular scenery and strong agricultural heritage, mid and south Canterbury have much more to offer than just an enviable lifestyle. Stephen Dickens looks at investment opportunities in the region.

Friday, January 6th 2017, 12:00AM

by The Landlord

The mid and South Canterbury market benefits from the region's strong primary sector

Since the region was settled in the 1850s, agriculture has been the cornerstone of mid and south Canterbury's economy. Considered to be the food basket of New Zealand, the region has been built on its strong primary sector. Agriculture is diverse, including dairy, sheep and deer farming, forestry, and cropping operations; half of New Zealand’s grain seed and fodder crop land is in Canterbury.

Timaru has the largest cold storage capacity of any port in New Zealand and boasts the second largest fishing fleet in the country. Light manufacturing industries associated with the export and import trade process pack and distribute meat, dairy and other agricultural products. Combined, these industries are responsible for the region's consistent economic growth.

Ashburton market softens

Ashburton District in mid Canterbury is about an hour's drive south of Christchurch and extends from the Pacific Ocean to the Southern Alps, and from the Rangitata River to the Rakaia River, and includes the towns of Methven, Mount Somers, and Rakaia. Ashburton town has a population of about 19,850, with the region as a whole having 33,200, and it is one of the fastest growing rural districts in New Zealand.

Like in many other regional areas the housing market has softened following the introduction of 60% loan-to-value ratios (LVRS) for investors, which appear to have wiped out investor interest in the market.
Ray White Ashburton’s principal Jill Quaid says the impact of the new LVRs has been huge in Ashburton, with prices in the lower bracket not selling due to investors’ difficulty in securing finance, paired with less than exemplary yields. As a result, they are less willing to sell up and move into a higher value bracket.
“You take one whole link out of the chain and it’s not good.”

Despite the flat market, stock levels are reasonably high for this time of year and there is a good supply of rentals.

Quaid says following a buoyant couple of years where rents increased significantly, the rents began dropping earlier this year and rentals priced too highly are failing to find occupants.

A number of businesses have had redundancies this year and as a result, the usual vacancies around June July due to seasonal workers departing, has been more pronounced this year.
“Rents are too high,” says Quaid, “They just need to have a bit of an adjustment.”

But it isn’t all bad news – Ashburton enjoys slow but steady capital gains and “is a good place to live and bring up your kids,” says Quaid.

Plans to expand

In Ashburton's CBD there are plans for a $40 million precinct development, including a four-star hotel, retail and hospitality facilities, commercial spaces, a 142-space car park and a medical centre. Called the Eastfield Precinct, the proposed project will include 22 two-bedroom and three-bedroom apartments, which will be for sale, along with 55 serviced apartments.

The development is a mixture of old buildings and empty lots where properties were demolished after the Canterbury earthquakes.

The precinct is one of the sites under consideration by the Ashburton District Council for their new civic administration and library buildings.

The council is also looking into building a second bridge across the Ashburton River, aimed at reducing traffic congestion and providing alternative access. Although construction is not due to commence until 2025/26, a Notice of Requirement for land designation has been confirmed and the council has begun purchasing properties which sit within the area that has been designated for the new route.

Ashburton Stats

The average house price in the district is $350,641 (October 2016), up 4.8% from a year ago. Allenton, a suburb of Ashburton, had the most sales (40) between June and August this year and also the highest median sale value at $375,250 – a 7% increase on the same period a year ago. The lowest median sale price in the Ashburton District over the same period was in Mayfield at $206,000.

A two-bedroom house in the Ashburton District has a median rental value of $300 on an average house value of $282,000, a 5.5% gross yield. A three-bedroom home is valued at $350 for a $339,000 property (5.4% gross yield), while a four-bedroom home has an average $360 rental value on a value of $471,000, a 4% gross yield.

Development in Timaru

The Timaru District in South Canterbury includes the towns of Geraldine, Pleasant Point and Temuka, and has a combined total population of 46,700, with the urban area of Timaru township having an estimated 28,000 individuals.

Timaru is an agricultural service town and port for the South Canterbury regional economy. It has been built on the lava flows of the extinct Mt Horrible volcano and the volcanic rock is used for the construction of the distinct local 'bluestone' buildings in the region.

Now that the island’s main highway, State Highway 1, no longer flows down its main street, Timaru residents have been able to reclaim the town’s Edwardian heart. The town's CBD is slowly being revamped and redeveloped and there is a move toward studio and apartment-style living in the CBD.

Local developer Bayhill Developments has filed a resource consent for a 2529 square metre $42 million multi-use development on the site of a 102-year-old hotel ion the CBD.

Plans include a six-floor office building incorporating hospitality tenancies on the ground floor and commercial tenants on the floors above and a seven-floor apartment building with 32 single, double and three bedroom apartments and penthouse suites. The project also includes plans for a 68-room hotel.

Another large residential development was recently given the green light by Timaru District Council. The 90-home residential subdivision will include lots ranging from 450 square metres to 1740 square metres.

Aoraki Development chief executive Nigel Davenport said in a Timaru Herald report that the proposal for the site was “further evidence the heart of the district is beating pretty strongly”.
“It was another example of confidence shown by individuals and businesses in the district, and underpinned by a clear demand for housing.”

Timaru District Mayor Damon Odey said the district had been “starved” in the past because there was a lack of land available for these developments. There were now good quality options becoming available, including properties in Hunter Hills, Gleniti Estate, and Pacific Heights. “It was amazing to see how many new homes had gone up over the past 12 months,” he said in the report.

The growth of residential subdivisions across the district comes as house prices in the district increase. The average house price in October was $333,399, up from $323,296 in July.

Kerry Beveridge, a Timaru investor and president of the South Canterbury Property Investors' Association bought an empty hostel on Timaru's main street a year ago and now runs it as a boarding house.

“I bought it because it was for sale with a GV of $590,000 and I bought it for $260,000. It's bringing in $120 to $160 a room but I have the additional costs of wifi, power, furniture, staff etc.”

Beveridge says there is no particular area in Timaru that is a standout for potential investors. “I don't really invest in a particular area. I really look at any house and see if I can get it to cover its costs and if it does, put an offer in at that price.”

Timaru by numbers

A two-bedroom house in the Timaru urban area has an average rental value of $280, based on a median value of $262,000 – a 5.6% gross yield. In rural Timaru, Geraldine and Temuka, the same home has a rental value of $250, on a house worth $251,000; 5.2% gross yield. In Timaru township, a three-bedroom home goes for $320 based on a median value of $315,000, with a gross yield of 5.3%; in rural Timaru the same is $310 for a $307,000 value – 5.3%.

“Timaru is a large town that is growing slowly,” Beveridge says. “I feel there is a good varied base of employment with farming and the local port helping with jobs.

“I think with the lower buy-in price the risk is lower than other places but the capital gain is also lower. I invest for cashflow.”

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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
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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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