TelferYoung (Hawkes Bay) Limited
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Hawkes Bay Newsletter - August 2006
3 August 2006
Welcome to this mid year newsletter.
Introduction
In general the market has eased from the pressure of 2003/2004 and the solidity of 2005.
However, sales activity for residential property remains at buoyant levels when viewed relative to long term levels, and because of this and a relatively strong economy, we do not anticipate a market collapse. The longer term property market prosects will depend on the economic fortunes of New Zealand generally.
Although residential property is selling steadily, some specific parts of the market are under more additional pressure, relative than others.
The commercial and rural sectors remain generally buoyant.
So at this stage, its steady as she goes but watch this space over the next six months, as there are many equally valid theories as to where the market may go.
We hope you enjoy our snapshot of the market but please contact us for more specific advice before making your property decisions.
Lifestyle Market
The lifestyle market to some extent is linked to the residential market. As market conditions have tightened for residential property, there has also been some easing in demand in the lifestyle market. To date prices appear to have been maintained however sale volumes appear to have reduced from earlier levels and prices are under some pressure.
There has been a significant amount of development occurring in the Bay View area where recent zoning changes have allowed further subdivision in the Seafield Road area. This has resulted in a relatively high number of mainly small subdivision developments. Prices are likely to come under some pressure. This is on top of the high quality subdivisions of Esk Hills and Esk Ridge which have completed Stages I with Stages II likely to be available in the near future. In brief the market is well supplied in this location.
We would anticipate that the more outlying lifestyle properties in excess of 15 minutes travel distance from town are likely to see reduced demand as the flow on effects of higher fuel costs impact but to date we are yet to see evidence of this occurring.
Pastoral Market
The pastoral market has generally continued along at strong levels after a significant surge in value levels in late 2005 and early 2006.
Typical economic hill country properties have generally seen values between $700 to $1,000 per stock unit. Those with special features are in excess of this.
Recent examples of this and sales of note include St Lawrence Station at Elsthorpe which sold for $8,040,000, this for an 1196 hectare property carrying approximately 11,400 stock units. The sale price equates to $705 per stock unit.
A recent sale in the Patoka area was for $3.81 million for 222 hectares or approximately $1,200 per stock unit. This is for a very well located and easy contoured property.
We would expect market conditions to remain firm however some downward pressure may arise if product prices remain slack and/or if interest rates increase as a result of continued inflation pressure.
Horticulture Market
There has been very little activity in the pip and stone fruit property sector in the last quarter. The main reasons for this are the annual harvest of fruit with orchard owners being occupied with management and quality control issues with respect to their produce and orchards and financiers evaluating individual grower positions.
The general feed back at present is that indicated returns are much better than last year with most varieties being plus $20 per carton. The New Zealand dollar remains around the 0.62 cent US mark and appears to be steady at this level. Coupled with a lower hold over of fruit in CA storage in the European markets, the indications are that there is good demand for quality New Zealand fruit.
There have been a number of property transactions recently with location influencing buyers. Orchards on the outskirts of Havelock North have been purchased by people in the lifestyle market with an ongoing trend of leasing the productive orchard portion of the property. Orchards in less desirable lifestyle localities are being purchased by existing growers, looking for economies of scale.
Values remain around the $55,000 to $60,000 per hectare for productive land and trees. We predict the horticultural property market to remain at these levels in the medium term as growers consolidate on 2005 results and look to more positive returns in 2006.
Industrial/Commercial
Steady demand appears to have continued for both vacant and improved industrial property in Hawkes Bay over the past few months. We are aware of pending sales on both a vacant site in the Onekawa industrial area and also of a developed industrial property.
A vacant area in excess of 1.2 hectares in the Omahu Road industrial locality of Hastings has recently contracted to sell at over $70 per square metre and a property which includes a workshop building situated in Havelock North recently sold at $675,000 showing a 7.36% return on our assessment of net market rental.
An older workshop building in a secondary location in the central portion of Onekawa was recently put under contract to sell on a vacant possession basis at a consideration showing an 8.3% return on net market rental, once again supporting the trend of there being little difference shown in yield rates for property selling on a vacant possession basis and property selling subject to a lease in place.
In July, an industrial building in Onekawa, sold at auction for $532,000 showing yield of 8.74% on existing rental which is presently under review. Land area of 1260 square metres.
Rental levels for industrial space appear to be holding well, and some solid rental increases have recently been achieved over rentals set two and three years ago. This trend is particularly noticeable for space enjoying a good profile to the busier traffic routes in the industrial localities of Hawke Bay.
The Napier/Hastings commercial property market has experienced a quieter period in the first half of 2006 compared to the strong momentum which occurred in the last quarter of 2005, with a lower volume of transactions especially in the office property sector. While the shortage of quality commercial property for sale within the market is a contributing factor, it is apparent that investors have become more cautious under the current economic climate with increasing interest rates and lower business confidence.
Nevertheless, there have been a number of significant sales evident in the market recently including a retail/showroom type property in Gloucester Street in the Napier suburb of Greenmeadows which sold in March 2006 for $1,155,000 at a 7.50% yield. A commercial retail building situated in Emerson Street in Napier's prime retail location also sold in March for $2,000,000 at a yield of 7.91%, comprising three ground floor retail tenancies separately leased to national tenants with vacant first floor accommodation. Another sale involved an Art Deco styled large retail property in lower Emerson Street sold in May 2006 for $1,462,500 at an 8.55% yield, having been leased to a new national fashion chain retailer with a 6 year lease term from late 2005. The Warehouse Stationery property situated on a high profile corner on St Aubyn Street West, Hastings on the fringe of the CBD sold in June 2006 for $1,150,000 at a 7.39% yield.
Yield trends show that prime commercial properties generally fall between 7.5% and 9.0%, while properties within the second tier generally have yields falling between 9.0% and 10.0%.
Residential Market
The residential property market in Napier has held relatively firm for the April to June 2006 quarter over most sectors, generally reflecting the first quarter of this year, when the first signs of an overall market slowdown were starting to be noticed.
We are continuing to see listed property prices reflecting inflated vendor price expectations. However buyers are being very cautious in their house buying decisions. This has resulted in what is termed a 'buyers market'. One key noticeable variable is that the selling period has now lengthened to a national average of around 37 days, seven days longer than June 2005. The time to sell is likely to be understated as this may not reflect properties that have been re-listed with another selling agency, having failed to sell within the first 3-4 months of original listing period.
In terms of where house prices are at present, we can see a sector of the market that is potentially priced out - the first home buyer. Even properties within lesser desirable localities may also be out of reach of these first home buyers. The impact on the market could be like a domino effect. To some extent that the market relies on the first home buyer so that existing home owners in the lower tier can move into the next tier, and so on.
The Parklands residential subdivision is now well under way with original section sales being effectively completed with new house development. There is a steady level of demand for new house and section packages within the subdivision at relatively affordable prices, generally between $420,000 to $480,000.
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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.