Marlborough Property Investors' Association
Tauranga’s property market has been turned on its head by the current climate. Although some parts of the Bay of Plenty city and surrounding areas have finally reached the bottom, others are yet to hit. Adrienne Jervis talks to locals with their finger on the pulse to gauge the market from an investor’s point of view
Located around a large harbour extending along the western Bay of Plenty, and protected by Matakana Island and the extinct volcano of Mauao (Mt Maunganui), Tauranga’s sheltered position creates a warm, dry climate and is a lifestyler’s haven.
This temperate climate, combined with a diverse landscape rich in resources, makes the region a horticulture and agriculture stronghold, renowned for its tangelos, avocados and kiwifruit, burgeoning vineyards and winery industry.
Serving this large horticulture district is the Port of Tauranga, New Zealand’s largest export port.
Tauranga is New Zealand’s ninth largest city and the centre of the sixth largest urban area. It has the fastest growing population per capita in New Zealand and is expected to surpass Dunedin to become the country’s fifth largest urban area within a few years.
Ten years ago greater Tauranga was a popular retirement destination, but recent trends have seen Aucklanders moving more towards Northland for retirement.
Johnny Simmons, Tauranga City Council, says that with 2% growth per year, the Tauranga City region is second only to the Rodney District in terms of growth. “Our
population is 106,000, with a large number of young families moving to the region.”
There is a greater demand for skilled employees in a variety of roles to help sustain the growth.
Generally regarded as a safe place to invest, Simmons says the local property market has to deal with the same financial drivers that are evident both nationally and internationally. “The (disappearance) of cheap credit and the collapse of several finance companies, in particular, have had a direct affect on the finance available for property development and investment.”
In terms of outlook for property and business, Tauranga City Council forecasts are largely in line with the national forecasts. The region has a large number of infrastructure projects happening including an addition to the harbour bridge.
Chief executive officer of the Port of Tauranga, Mark Cairns, says the port has experienced a record log cart-in, with a significant increase in logs coming in the port gates. “We are tracking well ahead of the last four years.
“The fall in the New Zealand dollar, the drop in freight rates and the Russian Federation’s 80% export tariff will help our exporters.”
Forestry represents a third of the trade through the port and Cairns reports cautious optimism for the industry’s future.
Transport is essential to the success of SmartGrowth, a programme led by Environment Bay of Plenty, Tauranga City Council, Western Bay of Plenty District Council, and tangata whenua, to develop and implement a plan for managing growth in the western Bay of Plenty.
SmartGrowth reports that with around 289,000 people expected to be living in the Western Bay and Tauranga by 2051, planning needs to begin to ensure there is enough public transport and good roads to enable residents to get around safely, sustainably and without wasting excessive amounts of time sitting in traffic jams.
A new bus service has been introduced to serve the growth area of Pyes Pa West which is expected to feature around 3,000 homes by 2021 including 2,000 homes in The Lakes subdivision at Tauriko. While the potential pace of development in Arataki and Greerton may have slowed under Smart Living Places, the growth of Pyes Pa West is set to continue.
Western Bay of Plenty District Council planner, Mark Fauvel, says the council is following the regional SmartGrowth path with Waihi Beach, Katikati, Te Puke and Omokoroa identified as intensification areas. Two recent plan changes will free up more residential land. Sewage reticulation to the Omokoroa Peninsula allows for growth from its current 2,000-plus to 12,000.
Seventy-two hectares of industrial land has been created in Te Puke. Long-term provision will see an industrial park established at Rangiuru, between Te Puke and Paengaroa, strategically positioned along the new Tauranga Eastern motorway, which will by-pass Te Puke.
The strategy is to set aside industrial land and avoid big box retailing. “We want to preserve the identity and character of our townships,” says Fauvel.
Papamoa East provides an important opportunity to accommodate Tauranga’s future population growth through urban development of up to 1100ha of greenfield land.
The Wairakei-Te Tumu Urban Development Strategy intends that Papamoa East be developed as a “live, work, play” environment in accordance with sustainable urban development principles.
According to Gareth Kiernan, managing director of Infometrics, land is still very plentiful, but residential development work has virtually stopped as credit conditions have tightened and buyer demand has dried up. “The cash flow of spec builders, in particular, is probably coming under a lot of pressure and there could be falls in land prices if developers are forced to reduce their holdings.”
He says development levies imposed by the council a few years ago have contributed to the lift in land prices, but housing affordability has been severely reduced. “Incomes in the region probably don't justify very high house prices, though obviously coastal property is generally an exception as demand is not confined to people buying their primary residence.”
Kiernan doesn’t expect the Tauranga market’s relative performance, compared to New Zealand as a whole, to be as good as it was during the 1990s. “Overall, the region's
property market is going through much the same as the rest of the country – a collapse in buyer demand, little pressure on most vendors to sell, and thus a Mexican stand-off of sorts.”
While Tauranga is a fast-growing region with a lot of subdivisions on stream, well marketed sales this year have been incredibly slow. Subdivision sections have perhaps been the hardest hit of all property categories during the downturn. Values have come back for most stock in the 10% to 20% range.
QV Valuations manager in Tauranga, Shayne Donovan-Grammer, says the market downturn has been unkind on spec builders. “Interest in new homes is less than established locations. There have been reports of some builders struggling to sell at cost.”
Recent residential property listings were 530 (Mt Maunganui), 350 (Papamoa) and Tauranga, 1120. The total number of sales for August was 140, 50% down on an average month.
“Supply and demand is out of whack,” says Simon Martin AREINZ, manager of Harcourts Mt Maunganui.
Listings hit a 44-month low, but are slowly coming back. Martin says homes were placed in the rental pool, creating an oversupply. “They either couldn’t rent them or rent prices couldn’t be achieved, so were put back on the market.”
Martin’s gut feeling is that the Mount Maunganui/Papamoa market, which performs differently to Tauranga, hit the bottom in May in terms of volume of sales and the market has started to rebound. “May sales were 41, which have slightly improved since then – apart from August. The average time to sell plummeted to 95 days in June, then to 58 days in July.
“Judging by previous cycles, the Mt Maunganui/Papamoa market was the first to slow down and the first to recover.”
Based on the QV House Price Index, property values increased steadily until mid to late 2007. Since that time values have started to decline slightly and are now 6-7% below their peak. This represents a change in sales price from around $380,000 in early 2006 to a peak of around $480,000 in September 2007. Average sales prices have fluctuated considerably over the last six months (hence the weakness in that measure compared to the index) but are now around early to mid $400,000.
The number of sales of residential properties shows a similar pattern but slightly different timing. The number of sales rose steadily from around 300 sales per month in early 2006 to a peak of 470 sales in March 2007. Since that time there has been a rapid decline in volumes to around 160 sales per month since May 2008.
Donovan-Grammer says there is a real disinterest in property at present. “The buyers who are looking are taking their time, are critical on any property shortcomings and are expecting a bargain.”
Mortgagee sales have clearly increased with more expected in coming months. A lot of owners over-extended during the peak of the market. Now with the property and business downturn they find themselves in non-sustainable financial positions.
Section sales have slowed dramatically and developers are not buying big development blocks.
While the investment market has dried up, improvements are expected with interest rates coming back. Given the global economic uncertainty, more New Zealanders are favouring property as a preferred investment.
The Waikato and greater Bay of Plenty farming community impacts on the Tauranga market. “They’re positive about their profits and the future, and they always buy a lot of property here,” says Martin.
Using TradeMe as a rough measuring stick for the amount of property available, Quinovic general manager, Mark Tower, says that from February up to the present, the number of rental properties has almost tripled. The average of 285 rentals on TradeMe alone is split approximately 40% to Mt Maunganui/Papamoa and 60% to Tauranga. “While homeowners’ first choice was to sell, the slowing market has seen them resort to plan B and rent their properties.”
Though winter is traditionally slow, there was more supply than demand. Tower says rents have pulled back a bit, but there are areas which have not been affected, such as the town centre and well-presented properties.
Tenants have more choice and as a result properties can stay vacant longer. And with more competition on the rental market, rents are forced down. Properties further away from amenities are slower to move.
But Tower believes things are picking up. Key rental areas include the Avenues, certain parts of Otumoetai, Matua and Cherrywood. Properties close to town and close to good schools (Tauranga, Matua and Pillans Point Primary, and Papamoa’s Taitaia Primary) are always popular.
During the fuel price rise crisis, longer travelling distances impacted on the rental market and the likes of Papamoa East took longer to move. Though now less of an issue, distance is still a factor.
Three-bedroom homes weather the storm relatively well and generally rent for $350 and under. Nice four-bedroom homes have succumbed to pressure and rents have lowered. Tidy two-bedroom properties close to town go quickly. Rents range between $240-$290 depending on the condition and location of the property. Executive homes return between $400-$600, depending on location and what the property has to offer. High-end tenants are few and far between.
Investors are cautious, due to the state of financial markets and uncertainty about interest rates. Tower says they’re holding off in the hope of better bargains down the line. Quinovic continues to sign up long-term tenants, with rentals being sought by families, the general work force and new arrivals.
Over recent weeks Rothbury Financial Services has seen a lift in mortgage inquiry with a lean towards the sub $450,000 market. Mortgage adviser, Brian Berry, says the company has seen definite purchases and has completed a large number of pre-approvals. “People are positioning themselves to buy when they feel the time is right.”
While property sales volumes have been low over the past months, there has been some activity and more opportunities for first home buyers in the $250,000-$350,000 range due to decreasing values. Rothbury has even seen some quite surprising prices, down to the low $200,000s, which may be attributed to some investors offloading property and, of course, more forced sales.
Berry believes the Tauranga market is no different to the rest of the country. “To date the main direct flow-on from the credit crisis overseas has been a dramatic fall in the sharemarket and a loss of positive sentiment. Some lenders are now just starting to tighten their lending criteria and, if all follow, that will have a negative effect on the property market as it will take some potential buyers out of the market and also make refinancing more difficult.”
In the short term (next six months), Berry believes Tauranga is possibly getting quite close to the bottom of the cycle. “In the medium to long term, Tauranga’s growing population is always going to underwrite our economy and property market.”