TelferYoung (Hawkes Bay) Limited
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Hawkes Bay Newsletter - April 2006
7 April 2006
Welcome to this Autumn Newsletter.
Introduction
The residential property market has certainly cooled with the weather but we believe there has only been a steady easing to date. Future signs would appear reasonable as the interest rate cycle would appear to be at its peak with some reductions expected certainly by the end of the year. The New Zealand Dollar has eased considerably and this will help the regions exporters. Good recent Autumn rains will ensure farmers go into the Winter with plentiful feed supplies - a pity though for viticulturalists and cricket followers!
All in all, we expect a steady Winter period with consolidation likely late 2006 as the anticipated economic benefits kick in.
Please enjoy our market commentary. We look forward to your feedback.
Napier Apartment Market
Napier, along with other premium waterfront localities, has seen significant apartment development, over the last five years.
Apartment market development in Napier originally occurred with the QuaySide development in the mid 1990's. This was followed by a small number of apartments in Waghorne Street plus a limited number of apartments in the inner city area.
However within the last two to three years, we have seen significant growth in the number of apartments being built. These include Northridge on Napier Hill, West Quay, the Quadrant and the Number 5 Wool Store in Ahuriri, the T & G Building and McLean Towers in Napier City.
TelferYoung research indicates that almost 280 apartments have become available or are currently planned. Of this 172 are either built or under construction with completion due later this year. The significance of this number is seen when compared against new building housing consents for Napier which we calculate to have averaged approximately 165 for the last four years.
Of the 280 units, 40 units in the McLean Tower Complex are mainly selling in the $175,000 to $320,000 price bracket. The remaining units have sold or have asking prices typically from $285,000 up to $800,000 to $900,000, with a few in excess of this.
Apartment presales have been strong, and we understand that of the 101 units in Globe Holdings West Quay development, 80% have sold. For the Quadrant Development, where construction is well under way, current presales are at approximately 60% of the 89 available. We would anticipate some of the West Quay units will become available for sale as resales once construction is completed or near completion, and titles issued.
Feedback from the apartment sector is that there is steady interest continuing to be expressed and sales are still proceeding albeit at a more modest rate than was previously the case.
It will be interesting to follow the apartment market, both its own value levels and the impact on other residential properties in the Napier market. TelferYoung believe there may be an impact in the wider residential market in $400,000 to $800,000 price bracket. This market may be affected by those selling in this price bracket to complete their apartment purchase and by the apartments attracting buyers that otherwise would have bought houses in that price bracket. Any impact is likely to be moderate.
The availability of new apartments is approximately one year worth of new residential housing, and though the markets are different, there will undoubtedly be some cross effect. At this stage we believe that effect may be as much in the existing housing market as the apartment market.
The apartment market appears to have operated slightly removed from the general property market driven by those seeking a low maintenance and an easy care lifestyle option in preferred and favoured waterfront localities. Although the apartment market has shown significant growth along with the general property market price increases since 2003, it will be of interest to observe the expected consolidation period as resales occur. The question is, will there be sufficient demand from affluent "baby boomers" to maintain demand in these preferred locations or will demand and prices wane.
TelferYoung expects there will be a period of consolidation. However the cliché of location, location, location will undoubtedly have a major influence on the future value growth of apartments. We also believe the construction quality of the buildings will have a significant long term impact on apartment values. Those that are not constructed to the highest standards will undoubtedly show their wear and tear and purchasers are likely to be discerning.
TelferYoung believe the apartment market will have an impact on the entire market by taking away potential buyers from other sectors of the market. The apartment market itself is well supplied and developers will need to balance demand and supply to prevent price adjustments. We believe prices are likely to consolidate in line with the general market but believe the better quality well located units are likely to be best placed to ride out any market uncertainty.
Industrial/Commercial
There has been a strange surge in industrial land values with an example of a vacant site in the Onekawa industrial area having very recently sold for $454,000 or $170.00 per square metre. This same property previously sold in June 2004 for $240,000 or $90.00 per square metre - an 89% increase.
A specialised industrial building in Onekawa was recently placed under contract to sell at $1,500,000. Sale includes ten year lease back from previous owner and net yield of 9.33%.
An industrial property in Onekawa which comprises a complex of buildings, part of which is vacant recently contracted for sale at around $700,000. This property was purchased in August 2004 for $480,000, with some improvements completed to the building within the last year.
The commercial property market continues to reflect the strong period of activity experienced over the last four years approximately and in spite of increasing interest rates more recently yields on commercial property sales have remained firm.
Two examples of exceptional prices were evident in a Bayleys auction for suburban shops at Taradale where yields reflected 4.6% and 4.9% for properties of $410,000 and $710,000 respectively in December 2005 which compare to a yield of 6.2% in May 2005 for a property of $500,000 in Taradale which sold to the tenant.
A sale more in line with market expectations was the Arbuckles/Warehouse Stationery property which sold in December 2005 for $2,740,000, the rentals showing a 7.92% return.
A property at 309 Eastbourne Street West sold in November 2005 for $425,000 with vacant possession and then resold in January 2006 for owner occupation reflecting a notional yield on market rental of 9.54%. This confirms our earlier advice in respect of the increase in price in more recent times for properties being purchased for owner occupation.
We note a 385 square metre property fronting Napier Road in the Havelock North village centre has recently been cleared of improvements ready for redevelopment. This property was purchased May 2005 for $550,000.
The volume of activity within the more recent past has been quieter on account of the shortage of commercial and industrial property for sale within the market and the conditions now appear more rational compared to the near 'frenzy' conditions of 2004 and 2005.
Horticulture
We have seen a decline in the kiwi dollar against the greenback in the past 3-4 weeks (some 8 percent). This will result in 2006 final grower payments being vastly different from the 2005 season. The fall in the dollar will deliver a welcome income boost for export fruit. This coupled with the removal of a large area of production trees and lower crop volumes, returns are expected to be well up on last year, providing some welcome news for the pip and stone fruit sector.
From a capital value point of view there have been few orchard sales of late, however we are aware of a recent resale on the outskirts of Hastings at the same price the orchard sold for some twelve months earlier. There is still a high demand from lifestyle purchasers for orchards with quality dwellings, however it is taking longer to complete sale and purchase contracts as there is more market choice and less pressure for quick decisions.
We note that some of the local packhouses are now advertising for lease orchards again, we believe this indicates strengthening confidence.
Napier Residential
The residential property market in Hawkes Bay has seen a general flattening period over the first three months of 2006, which has resulted in the selling period for residential properties extending to an average of around 40 days, with some properties extending out beyond 3 months.
Initially in 2006, we had found that properties in the $500k plus price bracket had really struggled to sell, however properties in the lower tiers of the residential market are also now sitting for significantly longer periods of time. Generally speaking, buyers have become increasingly cautious and prudent when making a purchasing decision.
We do not expect prices to drop in the immediate short term, however, with weekly increases in the number of properties being listed to sell, and demand across most brackets softening, we are starting to see some more anxious vendors accepting lower settlements. This pressure may begin to be felt by the short term property investors who had purchased for capital gain.
Hastings Residential
There has been an across the board slow down in the rate of capital appreciation in the residential sector in Hastings. Values have remained steady, however volume has declined with the average time to sell lengthened out to around 90 days.
In some instances there are a number of agencies listing the same properties either together or when a sole agency has terminated, indicating that the market has moved to favour prospective buyers.
The kiwi dollar has been in sharp decline recently finishing at 0.6178 US at the time of writing this article. This is likely to put downward pressure on interest rates. It may take some time to see this eventuate as the reserve bank has indicated they are happy to keep the OCR at 7.25%, though retail trading banks have recently begun competing again for residential mortgages. We envisage a status quo housing market for the next twelve months, with values remaining steady.
Back issues of the newsletter can be obtained from TelferYoung (Hawkes Bay) Ltd
email: telferyoung@hawkesbay.telferyoung.com
+ Max Plested + Mike Penrose + Trevor Kitchin + Derek Devane + Andrew White + Andrew Chambers + Hugh Peterson + Kayan Ho + Mark Apperley
Opinions expressed in this newsletter are of a general nature and should be used as a guide only. TelferYoung should be consulted before acting on this information.