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Buoyant in the South

If you’re looking for a stable market with a positive long-term outlook, it’s worth considering Mid and South Canterbury, writes Joanna Jefferies.

Monday, July 29th 2019, 6:00AM

The Mid and South Canterbury markets are underpinned by a strong agricultural sector, and increasingly tourism, particularly in Timaru, which is a stop off on the way to the popular tourist destinations of Central Otago.

And now that the impacts of a change in government and the threat of mycoplasma bovis are both dying down, the economy is strong, unemployment is at 2.3% – far lower than the national average, and the property market is buoyant.

However, it can’t be compared to the markets of larger cities that experienced a “boom” in the last cycle – rather it’s “steady as she goes” says Harcourts Timaru agent Julian Blanchard.

“Timaru tends to operate in a bubble in terms of real estate and the economy – so while the rest of the country seems to be booming and moving along at about 10-15% property growth, Timaru just sort of ticks along at 3-4%.”

Timaru is the most significant town in South Canterbury, with a population of 43,000 and a port with the largest cold storage facility in New Zealand, while Ashburton is the largest in Mid Canterbury, with a population of 34,000.

The two regions encompass a vast range of tourism drawcards from the snow at Twizel to the water sports at Lake Hood.

Both towns rely heavily on agribusiness, while Timaru has a polytechnic and therefore also attracts a student population.

But Ashburton similarly operates outside of the country’s boom and bust cycle, according to Ray White Ashburton agent Jill Quaid.

“Long term Mid Canterbury is an excellent place to invest – we’re stable. We’re not reliant on tenant students – we’re reliant on families, who stay for a long time.”

Opportunities in South Canterbury

According to Blanchard, some of the older rental stock has been sold to first home buyers in Timaru due to the higher than average prices those buyers are willing to pay for properties.

However he recommends investors look at units as a niche investment, as there is a trend for the ageing population to downsize, freeing up capital for their retirement.

“We are seeing more and more investors buying units on cross lease titles. While they may not get the same [higher] level of rental income, the tenants are much more stable.”

Alternatively, another growing niche is high end properties that serve the considerable number of professionals who have one or two year contracts in Timaru and expect an executive standard of accommodation.

“They’re not looking to buy property in Timaru but they’re looking for something to rent for 12 to 24 months while they’re in town … Timaru incomes aren’t particularly high, so $500-$600 rentals are pretty few and far between.”

Additionally, Blanchard says sections are in short supply, so infill housing developments are common.

South Canterbury Property Investors’ Association president and investor Kerry Beveridge says Waimate, only half an hour south of Timaru, is “having a bit of a boom at the moment”.

There’s been investment in the main street and the local dairy factory is looking to increase its staff by a few hundred employees, which means rental accommodation is in demand. 

Across the Timaru district, there’s currently around 50 properties on the market and the median rental is around $360 per week, while the median house value is $382,250. It means the market isn’t too tight, but it’s certainly buoyant.

“Some places are staying on the market a little bit longer and prices are reduced, but there’s definitely people looking for rentals that aren’t finding something they’re after,” says Beveridge.

Beveridge is currently in the market for boarding accommodation – a niche market he specialises in. He says in South Canterbury multi-income properties are better for cashflow and he currently has two offers on large, older properties.

He has a lot of confidence in the stability of the local market for the year ahead.

“To be honest I think things will be relatively steady – Timaru doesn’t get the highs and lows of some of the other regions, I think we’re 9% average growth over decades – things just tick along quietly with no massive fanfare.”

Blanchard agrees, “Farmers are the ones who drive the market here, so as long as the farmers and the agricultural market are ticking along well, then the market will go very well”.

Mid Canterbury market

Ashburton is a reasonably affluent district, due to a strong farming backbone. Large commercial operations including AFFCO, Talleys, and Small Feeds all help keep the unemployment rate at a negligible level.

The town is now becoming more diverse with an influx of 2,000 Filipino workers in recent years, who support the local dairy industry.

Additionally the council recently announced it will become a settlement town for refugee families.

Quaid says because of the growing population and solid employment, there are a lack of quality three-bedroom homes on the market.

“We have a lack of good three-bedroom homes. People who are wanting to rent will always want to live in a clean, warm, well-insulated home. They’ll make a move for that.”

She says they’re relatively affordable and investors can expect yields between 5% and 8%.

“There’s one that I know of [on the market for] $315,000-$320,000, it’s three bedrooms, fully insulated, compliant log burner and heat pump, and four-car garaging. You’d get $350 to $360 easy, you’d only have it on the market for a couple of weeks and it would be rented.”

She says for investors looking to buy, she would rate the suburbs in order of desirability from highest to lowest: Allenton, Tinwald, Hampstead, and Netherby.

“In Allenton you’ll get a lower return per week, but a higher capital gain long term, probably.”

She says investors generally aim for 7% or 8% yield, but “you’re probably down to around 5% in Allenton”.

Bayleys Mid and South Canterbury manager Jock Fulton says two-bedroom townhouses are in demand by the ageing population “so that’s a strategy some investors are looking towards”.

Correspondingly, there are many small-scale developments happening in the town to cater to this niche.

“The demand for those properties is high, particularly if it’s near the township or the hospital,” says Fulton.

Fulton says the recent dropping of a capital gains tax and the lowering of the OCR will hopefully support the market through this year.

“We expect those [impacts] to have a positive effect on the market – not that we expect those things to enhance it greatly, but certainly to ensure that the steadiness of the market is retained.”

Quaid agreed that the outlook is likely to be stable.

“People have got their head around the Healthy Homes Standards. The capital gains tax was a huge cloud over us. I’m hoping that now those clouds are gone, people will start to come out and re-invest in rental properties because we do need them.

“Long-term Mid Canterbury is an excellent place to invest – we’re stable. We’re not reliant on tenant students – we’re reliant on families, who stay for a long time.”

Tags: Markets rental market rents

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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 - - -
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 5.15 3.18 3.18 3.20
Kiwibank 5.80 4.30 4.24 4.74
Kiwibank - Capped - - - -
Kiwibank - Offset 5.15 - - -
Kiwibank Special - 3.55 3.49 3.99
Liberty 5.69 - - -
Napier Building Society - - - -
Nelson Building Society 5.70 4.69 4.79 -
Resimac 4.50 4.86 3.89 3.94
Lender Flt 1yr 2yr 3yr
RESIMAC Special - - - -
SBS Bank 5.29 4.85 5.05 5.49
SBS Bank Special - 3.65 3.59 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 4.49 4.39 4.85
TSB Special 5.29 3.69 3.59 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 - ▼3.55 ▼3.45 3.99
Median 5.34 4.05 3.95 4.05

Last updated: 18 October 2019 9:00am

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