TelferYoung (Hawkes Bay) Limited

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Hawkes Bay Newsletter - July 2009

17 July 2009

Welcome to the TelferYoung (Hawkes Bay) Limited Winter 2009 newsletter.

Introduction

The residential property market has seen positive activity in recent months with sale volumes showing a significant turnaround from those experienced in 2008 and having now reached a point where Real Estate agencies are reporting a lack of available stock.

The anticipated housing shortage expected as a consequence of increasing immigration to New Zealand along with the reported 9% year on year fall in housing values against the predicted 10% to 15% fall indicates that the real estate market may have bottomed out and is likely to improve.  Importantly it appears further downside risk to value has eased assuming we are not faced with some unforeseen international event.

TelferYoung (Hawkes Bay) Limited are pleased to advise that Kayan Ho, who has been with us for almost four years, has now been elevated to the status of "Registered Valuer".

We congratulate Kayan and wish her all the best for her future in the valuation profession and can assure clients of her competency and judgement.   Kayan specialises in the commercial and industrial sector.

We hope you find the various commentaries on the respective property sectors of interest and note that we welcome your feedback or comment.

Residential Market

Since our last newsletter in Autumn 2009, the residential property market in Hawkes Bay has seen significantly increased property transaction levels, albeit these coming off a very low base.  Also, early Winter 2009 has seen an increase in the number of homes being constructed, relative to the record low levels of new construction activity in 2008 and early 2009.

While there has been an increase in sales activity, there is no significant evidence of any increase in property prices.  This increase in the number of houses sold is just a clearing of the large amount of housing on the market in Autumn 2009.

In the three months February to April 2009 inclusive, residential sales volumes increased to an average of 100 sales per month, double the average number of sales for the three month period September to November 2008.

Subsequent to the lift in sale volumes, the median sale price has increased from $290,000 in September/November to $310,000.

We believe that this increase in the median price results from the wider spread of sales, now occurring across all price sectors and not being concentrated at the bottom end.  In effect the sale of higher valued houses has lifted the median price.

There is again a shortage of good housing stock on the market, and there appears to be an abundance of motivated buyers at present.

Perhaps, with more people now looking to re enter the residential scene, the recent buyers market may turn to one with more balance between vendor and purchaser price expectations.  This should translate to less pressure on sellers to drop their prices. 

We anticipate Spring may see an upsurge in activity as this is the preferred selling season. 

Pastoral Market

The pastoral market has continued to see a lack of sales over recent months.  This appears to be a result of several factors:-

• Banks generally appear unwilling to extend significant credit for new farm purchases.
• The woes of the dairy industry have now crossed over into the general pastoral market and the strong values that were being achieved last year for dairy support units on the back of record dairy payments are now not occurring.
• There seems to be a gap between vendor expectations and what buyers are prepared or able to pay.
• Dry Autumn conditions in the majority of Hawkes Bay (up until recent weeks) have resulted in strained cash flows and a general lack of rural optimism in spite of some reasonable product price returns.

We understand there are a number of farmers with cash flow difficulties and some of these will be looking to exit the industry over the next six to 12 months.  It is likely that these vendors will see significant reductions in value on what would have been achieved 12 months ago.  Common expectations are for decreases in the vicinity of 20%.

However, there is some market resilience.  A recent sale in Poporangi Road sold above market expectations at over $1,000 per stock unit for a property of mainly flat contour and with gorge areas.  We understand there was relatively strong interest and the price was bid up accordingly.

There was also a recent mortgagee sale of a property at Tutira, this being a property badly affected by cyclone Bola in the past and which has been purchased by the Hawkes Bay Regional Council.  This property sold for approximately $525 per stock unit, a reasonably good sale in the circumstances.

It will be interesting to note where the market moves from here.  On the one hand there are relatively low interest rates, and good returns for mutton, lamb and beef.  Offsetting this is the risk of a rising New Zealand dollar, poor climatic conditions, a lack of buyer support from dairy farmers and difficult credit conditions.  The credit situation is interesting.  We understand that most recent sales that have occurred have been from buyers that have not required Bank support with this being a strongly determining factor in being able to bid strongly for a property if the desire to purchase is there.  We believe that there will be a period of adjustment in values over the next 6 - 12 months on account of the continuing difficult credit conditions.  As always, those better located, more desirable properties are likely to see a less significant reduction in values relative to the more outlying units.

Horticulture Market

There has been very little activity in the horticultural sector in the past quarter.  We understand early season returns to growers were very promising.  However these have been eroded by the high New Zealand dollar, and market competition from South Africa and South America.

Three notable sales in the past quarter include an organic orchard/lifestyle property on the outskirts of Havelock North with the productive land and trees equating to $68,000 per hectare, a larger orchard in Haumoana under contract with the productive land and trees equating to $75,600 per hectare and a 8 hectare production block with the productive value equating to $56,000 per hectare.  These would indicate that productive land and improvements values have firmed but remain in line with our last newsletter.

Commercial & Industrial Market

The commercial and industrial market continues to be typified by low volumes of sales and leasing agreements as compared to that taking place two and three years ago.

Commercial property remains tightly held where the fundamentals of a good investment are in place as the alternative of investing capital on deposit does not compare favourably at the moment to property returns of 7% to 9%.

Sales are however still being recorded with some of the more notable transactions including:-

• Hastings Industrial - Pending sale of substantial industrial property at $2,800,000, selling for yield of 9.85% with 4.5 years remaining on lease.
• Havelock North - Havelock North prime redevelopment site of 1386 square metres recently sold for $900,000; equivalent to $649 per square metre.
• Napier Fringe Commercial - Pending sale of fringe commercial property subject to leaseback with net yield of 8.25% on initial rental.
• Carlyle Street - Sale of four unit retail property leased to national tenants with five to ten year unexpired lease terms, net rental shows 7.23% yield on sale price.
• Carter Holt, Napier - Involves substantial industrial property in high profile location but part leasehold land.  Sale at $3,250,000, net yield of 10.9% on existing rental.
• Burger King Premises, Napier - Sold at auction with net yield of 12.5% and five years left to run on lease.  Land is leasehold tenure with seven year reviews, yield considered to reflect resistance to leasehold tenure.
• Bare Industrial Land, Onekawa - Pending sale of site of 1390 square metres in secondary location in Onekawa; sale analysing at $165 per square metre.

While retail rentals within the most popular parts of the city centres seem to be holding, it has become noticeable that there is some pressure on rentals for older second tier office accommodation due to the amount of new office space recently becoming available as well as relocation of some larger tenants to the Ahuriri Business Park (previous British American Tobacco site).  However rental levels being achieved on some of the new office accommodation is surprisingly healthy considering the present economic climate.

Survey Results

Thank you to all who have participated in our surveys over the last few months.  Your comments and feedback is important to us.  The winners of the mid year prize draw for the survey are L Jones and L Scott, Wendy Lawrence, J Peakman, D Woodhead, D Grieve and J Dever.  All winners have been notified. 

We appreciate you taking the time to complete our survey.  All comments are considered and we look to implement new ideas to improve our services, whenever possible.

Thank you and we look forward to further feedback in the future.

Back issues of the newsletter can be obtained from TelferYoung (Hawkes Bay) Ltd
email: hawkesbay@telferyoung.com

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