TelferYoung (Hawkes Bay) Limited

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Hawkes Bay Newsletter - April 2009

6 April 2009

Welcome to our first 2009 newsletter. The challenging economic times continue but Hawkes Bay seems reasonably well placed to come through in solid shape.

Introduction

The property market in recent weeks has begun to show signs of life.  In mid to late 2008, the buyers were not there and vendors were struggling to achieve a sale, almost regardless of their price.  The recent lift in sale volumes shows that buyers will now commit and vendors are adjusting to new levels.  In short the market has now begun to trade again.

However, we expect cautious market conditions to remain for sometime and recommend obtaining good advice before committing to your property decisions

Residential Market

While there have only been two full months of sales statistics in 2009, the graph below shows there has been a lift in the number of sales from the lowest part of 2008, and noticeably more sold stickers are appearing on real estate signs in March 2009. 

 Residential Property Sales Volumes

More broadly, in the three months from December 2008 to February 2009, we saw a drop in sales volumes of around 24% from the same period one year earlier.  This followed a drop of 21% from the same period a year earlier than that.  In the three months December 2006 to January 2007, there were 324 residential sales.  In the same period this year, there were 194 residential sales.  This is a total decline of just over 40% in sales volume in the two year period.  The result is that we are now seeing clear evidence that there has been a reduction in average sale prices across most sectors of the residential property market.  Prices do not appear to have risen from the 2008 levels however, more vendors are now willing to accept that prices have reduced since the height of the property market in 2007.

In 2008, we experienced a sustained period of inactivity, with properties sitting on the market for substantially longer periods of time than experienced in more recent years. Vendors appeared unwilling to accept that the market was heading towards a buyer's market, whereas in previous years it was a seller's market.  The latest statistics show that the number of days to sell is currently 49 days.

Some residential investors are being tempted into purchases given that recent interest rate reductions mean that rental payments are almost on a par with property outgoings and financing costs; this being a significant change from the 2002 to 2007 period where residential investors were ‘topping up' rental amounts from their own resources to meet financing costs.

Pastoral Market

There continues to be a lack of activity in the pastoral market in Hawkes Bay with only eight recorded sales in the Real Estate statistics from October 2008 to March 2009 inclusive, for properties over 100 hectares.

Value levels appear to have eased.  However with the minimal amount of data, the extent of any easing and in what areas is yet to be determined.  It is our expectation that values will ease and settle below the levels of 2008.  However, the fall in interest rates and the reasonably solid returns for lamb, mutton and beef will provide some confidence in the market but overall we expect the negative impact of the international economic situation to continue to temper prices in the short to medium term.

Further, the reduction in dairy payouts will impact on the dairy sectors ability to purchase land for dairy support operations and this should have the effect of reducing demand and prices for that class of land.  We anticipate sales over the autumn or early winter period will help confirm where market conditions lie.

Lifestyle Market

The lifestyle market is affected by many of the same factors impacting on the residential market.  The credit crunch and international economic turmoil have impacted on confidence with buyers remaining cautious and discerning.  However, there have been some sales of note within recent months including a mortgagee sale in Tuki Tuki Road which sold for just over $2,000,000 for an executive architecturally designed home on 19 hectares overlooking the Tuki Tuki River.  Additionally a substantial home in Endsleigh Road sold in December 2008 for $1,812,500 this being a five bedroom home on 1.6 hectares.  Continuing at the upper end of the market there has been a sale at Ballantyne Road, Poraiti for $1,000,000 in January and we also understand that there is a lifestyle sale in the Bay View area at similar levels.

In the middle price bracket, it is interesting to note a sale in the Esk Valley area which sold in mid 2008 for $660,000 after being on the market for some time, recently resold for $690,000, this over a period where we believed market conditions were weakening.

However to some extent, these are likely exceptions and are in contrast to the general market which has faced pressure from buyers with reduced confidence and generally slow demand but perhaps the lifestyle market has held overall a little better than the residential market.

Horticulture Market

The horticultural property market has mirrored other property sectors with sales volume being very low since our last newsletter.  We understand the horticultural sector is generally optimistic and the easing of the New Zealand Dollar verses the Greenback (US Dollars) should equate to better returns for unhedged exporters.  This coupled with easing interest rates and fuel prices should provide a more positive farm-gate return for producers in the 2008/2009 growing season.

The Hawkes Bay apple crop this season looks fantastic with respect to both size and colour.  Clients we have been in touch with, indicate pack-outs for the Gala varieties so far this year have generally been over 90%.

The most recent sale we are aware of is on the outskirts of Havelock North comprising a 12.2 hectare "Certified Organic" production orchard with the rural productive land and trees analysing to $65,875 per hectare.  This property was purchased by an adjoining owner.

Commercial and Industrial Market

Activity in the commercial and industrial market in the early part of 2009 has been more positive than expected, stimulated we think, by the currently attractive level of interest rates. Recent sales of interest with associated net yields include:-

• Rodd & Gunn Property, Emerson Street - 6.18%
• Countdown, Hastings - 8.02%
• Block of suburban shops, Napier- 7.38% on existing rentals
• Pending sale on a retail Art Deco Building, Napier - 7.42%
• Industrial building, Napier - sold vacant at 7.84% on notional rental  
• Industrial property, Hastings western industrial area - 8.9% on market rental.

Our comments of December last year regarding buyer sentiment appear to be holding true with yield rates from commercial property now appearing very attractive considering the cost of mortgage finance, interest rates available on bank deposits and returns from other forms of investment.  Investors remain very cautious with full consideration being given to the fundamentals including strength of the tenant, quality of the building, possible alternative uses of the property and location.

Rental levels for commercial and industrial space generally appear to be holding well, although in respect of office accommodation large floor plates of space have been coming available in recent months which are expected to have some impact on rental levels.  It has been noticeable that a number of landlords have been adopting a more conservative approach in rental negotiations in response to the difficult economic times presently being experienced.  Some rental reviews are being ‘rolled over' or a rental ‘holiday' for a period is being negotiated, sometimes being offset by the extension of the term of the lease, creating a ‘win - win' situation with tenants being assisted during a period where funds are tight and landlords avoiding their space becoming empty while improving the value of their property by extending the lease term.

Assuming economic conditions become no worse we anticipate the market for well leased property in the coming months to consolidate in respect of value levels as interest rate levels stabilise.

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email: hawkesbay@telferyoung.com

+ Mike Penrose + Trevor Kitchin + Max Plested + Derek Devane + Andrew Chambers + Hugh Peterson + Kayan Ho + Mark Apperley