Investors are looking at towns other than Auckland for property bargains, writes Susan Edmunds.
Inflated house prices and stricter lending rules are prompting Auckland property investors to look outside the city for their next purchases.
From the start of next month, it will be difficult for Auckland investors to get a loan of more than 70 per cent of a property's purchase price.
But banks will be able to loosen their lending criteria in other parts of the country. Outside Auckland, instead of their current limit of no more than 10 per cent of new loans to borrowers with a deposit of less than 20 per cent, they will be able to lend 15 per cent, including to investors.
That is expected to add momentum to an already growing trend of Auckland landlords looking for regional bargains.
Housing market researcher Rodney Dickens said he had heard of an investor arriving in a small Waikato town recently and buying all the available stock in the entry-level price range.
He is now investing in Far North centres and said he had seen booming investment activity in areas such as Kaikohe that have fallen dramatically out of favour since the last property boom.
"We can buy a property in the Far North, gear it up to 80 per cent and still be cashflow-positive on it. It's not just that prices are cheaper outside Auckland but rental yields are high."
NZ Property Investor magazine publisher Philip Macalister said: "For quite a long time now, Auckland has been where all the action is and the provinces have been left behind. But you can argue reasonably strongly now that we are at the start of the time when the provinces will play a bit of catch-up."
The Sunday Star-Times asked experts for their property investment picks around the country.
Dickens said there had been an influx of buyers into Whangarei - so much so that prices had increased to the point where some parts were less attractive as investments.
But Infometrics economist Benje Patterson said the outlook was positive for the city. He said the lower dollar and dropping oil prices had boosted Marsden Point refinery's bottom line. It is one of the city's big employers. The number of people out of work was dropping despite increasing migration to the city, he said.
Data from Quotable Value (QV) shows gross yields, a calculation of rental income against purchase price, not including expenses such as maintenance, range from 4.2 per cent in the city's northwest rural suburbs through to 6.1 per cent in the central area around Morningside, Raumanga and Maunu. That part of the city also had the biggest year-on-year increase in values, up more than 10 per cent.
Paul Beazley, chief executive of LJ Hooker Whangarei, said he had sold blocks of flats over recent months returning between 5.8 per cent and 6.2 per cent yield. "A lot of people are coming north and were struggling to get 2 per cent to 3 per cent in Auckland."
But Hamilton has already experienced strong price growth, which buyers' agent Maree Tassell, of iFindProperty, said was putting some buyers off.Macalister said Hamilton was an area that had potential because it had a sound economic outlook as well as proximity to Auckland. "It's always been said when we go through a cycle it starts in Auckland and moves out in waves."
QV data shows Auckland investors entering the market and competing with first-home buyers, pushing house prices up at their fastest rate since the late 1980s.
Auckland broker Bruce Patten said 90 per cent of the landlords he dealt with who were looking for properties elsewhere wanted to buy in Hamilton or Tauranga. "They look at a Hamilton property at $550,000 renting for $500 a week, you'd pay $750,000 in Auckland. That's the main driver."
QV shows gross yields from 3.2 per cent to 5.8 per cent across Hamilton. Fairfield and Fairview Downs offered the best rental return, with a median value of $322 and a median rent of $360. That area had the strongest price growth, up almost 15 per cent on 2014.
Mark Honeybone, of Property Ventures, said he was dealing with increasing numbers of investors interested in Tauranga. "Tauranga has already had good growth but I would say it is about halfway through and still has a long way to go."
Tassell said Tauranga was "an affordable Auckland". "It's got good capital gains and growth and positive population growth. If you are an investor with $500,000 in Auckland you would be lucky to get a nasty house in Manurewa somewhere but you can get a nice place in Tauranga for $400,000, in a good area."
QV shows gross yields of between 4 per cent in Mt Maunganui, and 5.3 per cent in central Tauranga. Mt Maunganui has had the strongest value growth.
Macalister said neighbouring Rotorua was another option for investors looking for better yields. "A lot of people buy in places like Tokoroa and Kawerau but I wouldn't go near those, they don't have the solid economy you need to back it up."
Tassell said it was still possible to get yields of more than 8 per cent and buy properties for less than $200,000 in Rotorua.
Macalister said investors would do well to consider New Plymouth. "If you think about Jetstar starting regional routes, they are going to Palmerston North, New Plymouth, Nelson and Napier, areas with growth that are going places."
According to QV, you can get gross yields of between 4.7 per cent and 5.5 per cent but Waitara is the only part of the region showing substantial value increases, up 4.2 per cent year-on-year.
The capital is a good buy for people wanting to get in to a market where prices might be at their lowest, Macalister said.
Prices have been stagnant in Wellington for some time and are only up 1.7 per cent over the past year.
Honeybone agreed: "It hasn't had a lot of growth in the last 10 years at all. But there is not a whole lot of available stock there and rents have gone up. The right factors are there."
In Hataitai and Northland, rents are up 10.8 per cent and 12 per cent annually, respectively.
Wellington yields range from 2.5 per cent in Northland through to 5.7 per cent in Lambton.
While some regional centres will be affected by the drop in dairy prices, Patterson said investors could do well to look to those that would be buoyed by a low dollar.
He said Queenstown in particular was set for a boost.
"Just over a year ago, a visitor with a US$100 a day budget could spend $113 on activities, accommodation and hospitality. [Now] that same tourist can spend $157."
Tourists account for 40 per cent of Queenstown GDP.
The biggest hurdle for investors in Queenstown is likely the price tag - you won't get much for less than $500,000. Yields are low, at 4 per cent or less but prices are rising strongly.
Macalister said investors should realise the best prospects of capital gains would likely always be in Auckland.
The key to investing elsewhere was finding places that had good yields.
He said it was important to remember that the cost of maintaining a property, and things such as insurance and rates, would be similar to matter the area.
Tassell urged caution. She said a lot of the Auckland buyers she dealt with felt panicked at having "missed out" on the Auckland market and were too quick to jump into other deals. "They need to take some deep breaths."
Patten said investors should do their sums to ensure they could continue to service their borrowing if interest rates rose.