TelferYoung (Hawkes Bay) Limited

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Hawkes Bay Newsletter - November 2009

26 November 2009

Welcome to the final newsletter for 2009, we hope you enjoy the read.

It has certainly been a challenging year, the early part of which saw falling values and expectations across most property types followed by price and sale volume consolidation.  The government stimulus package and low interest rates boosted the residential market back to reasonably solid levels with prices consolidating and with modest increases in some locations.  Some parts of the property market continue to struggle, these sectors including development land and any investment properties with weaker tenancy schedules or vacancies.

We are sure 2010 will continue to provide challenges, but are optimistic that the worst of the recessions' impact is behind us and that there will be a steadying period through next year.

On behalf of all of us at TelferYoung, we wish you a Merry Christmas and a Happy New Year, and we look forward to meeting your property needs in the New Year.

Conference

September saw all our valuers attend TelferYoung's national conference in Taranaki with some 60 valuers from throughout New Zealand.  There were very high quality presentations from national speakers and local business leaders, on topical valuation issues such as preparation for attending Court as an expert witness, leaky homes and the effects of the "baby boomer" age group on residential, commercial and industrial property.  This sort of contact, networking and sharing of information can only benefit our clients, both here in Hawkes Bay and nationally.

Client Function

We have always enjoyed hosting our "Client Christmas" function but this year we are departing from tradition and are deferring our function until late summer.  We will keep you informed of this change.

Rugby Sponsorship

As many of you will know, most of us are keen rugby supporters at TelferYoung.  To this end TelferYoung have sponsored a junior rugby team at Napier Old Boys Marist since 2002.  TelferYoung parents provided three of the children in the Napier Old Boys Marist TelferYoung 12^th Grade team, Matthew and Liam Kitchin and Armani Murtagh.

Armani Murtagh (Natalie's son) from that team was selected into the Napier Ross Shield team which came second in the tournament in Wairoa.  It is a huge honour to be selected at this level where competition is strong.

TelferYoung also sponsored the Napier West Wakely Shield team and Matthew Kitchin was selected in that team.  The team won the competition which was a fitting end to the season.  TelferYoung would also like to thank Stephen Daysh of Environmental Management Services Limited for their joint sponsorship with TelferYoung.  We appreciated their support.  

Hawkes Bay Orchards

There has been very little activity in the Hawkes Bay orchard market during the past quarter. The latest sales relate primarily to the lifestyle sector with the existence of fruit trees having very little influence on the price paid. We attribute this to a number of factors. Firstly the worldwide economic conditions have put substantial pressure on the availability of credit which has meant that existing growers looking for increased scale, and other new purchasers have been unable to secure funding.  The appreciation in value of the New Zealand dollar has reduced farm gate returns creating a wait and see mindset for potential purchasers.

There appears to be some industry confidence with new plantings of large parcels of land noted around the Heretaunga Plains. The removal of existing trees has not been widespread and we anticipate growers continuing to manage their way through a volatile economy as best they can for the up and coming season.     

Residential

The market has shown an upswing in optimism throughout the residential sector in Hawkes Bay in the third quarter of this year.  Although the Spring "boom" in property listings didn't eventuate to the level anticipated, sale volumes this Spring have been much stronger than the previous twelve month period, while demand from prospective purchasers is continuing to exceed the current supply of properties that are for sale.  This we see as being very positive moving forward into summer and 2010.  The low short-term interest rates being offered by lenders appears to be fueling the current demand.

Overall, a weakening in house values has been experienced throughout the residential sector this year, but recent months have seen some very strong prices, which has been surprising, particularly in Napier South and parts of Ahuriri.  This shows that if the property has the desirable attributes of location, condition, amenity and quality, buyers will purchase on personal sentiment rather than what the general market may be suggesting the price should be from recent sales activity. 

The following graph shows the change in volumes for residential property sales over a three year period for Napier, with this trend being reflected in Hawkes Bay and other main centres.

Residential Property Sale Volumes

The below $200,000 price bracket is back to near normal sales volume levels, though up a massive 271.1% on the preceding twelve month period.  This also indicates there are more properties selling in the lower price bracket, reflecting sellers acceptance that their properties are worth less than in 2007.

For $200,000 to $400,000, the main price bracket, volumes are up 212.3% on the preceding twelve month period. 

In November 2008 the total annual volume of sales was down 66.4% on the previous year.  This contrasts with November 2009 where the market has seen an overall increase in sales volume of 205.5% over the preceding twelve month period.

It appears a new cycle is emerging in the residential sector.  Although prices are not expected to climb past the levels of 2007, they should stabilise, with sale volumes also expected to settle at near average pre boom levels.

Commercial and Industrial Comment

The general level of activity in the commercial and industrial sectors continues to be subdued with little rental demand being shown for the increasing amount of available industrial space and second tier office space in Napier and Hastings.

The volume of sales of commercial and industrial property remains low but recent examples include:-

• Napier, Suburban Commercial - A block of three shops selling in September for $630,000.  Contract net rentals showing yield of 7.01% on sale price.
• Napier, Suburban Commercial - Contract for sale of property in Marewa suburban commercial area.  Sale and lease-back arrangement with net yield of 6.6%.
• Napier, Industrial - Pending sale of property in three separate tenancies, one tenancy being owner occupied. Net yield 9.71%.
• Napier, Industrial - Sale of two properties in high profile Austin Street position, unexpired lease term of six months, net yield of 12.67% on notional market rentals.
• Hastings, Industrial - September sale, small warehouse/workshop building of some 300 square metres for $330,000.
• Hastings, Fringe Commercial - Sale of vacant showroom/warehouse building on fringe of the Hastings central commercial area.  Sale price of $650,000 shows net return of 8.55% on notional market rental.
• Waipukurau. Showroom/Store - Recent sale and leaseback of PGG Wrightson property at $1.7 million.  Net yield of 7.79% on initial rental.  Strong sale compared to expectations at date of tender.

The high profile Austin Street sale is an example of how the market has reacted to vacant property with the notional yield reflecting the added risk facing the investor securing new tenants, whereas the tenanted properties are falling within a yield range of 7% to 9% which demonstrates some stability but a slight easing of values

TelferYoung Hawkes Bay has made a comparison with two other provincial centres and the yield rates analysed from the above Hawkes Bay sales are comparable with commercial sales yields in Nelson and Taranaki. 

Brief details of these sales include:-

• Nelson, Central City Commercial - Sale of substantial commercial property with large format retail store and specialty shops to ground floor level and first floor offices in heart of retail area.  Sale in May 2009 at $8,950,000 showing net yield of 8.5%.
• Nelson, Fringe Commercial - Sale of fringe commercial property in July 2009 at $1,410,000.  Property subject to long term lease and net yield of 8.2%.
• New Plymouth, Suburban Commercial - Involves six small retail shops and two first floor flats sold for $650,000.  Net yield of 9.3%.
• New Plymouth, Fringe Commercial - Recent sale at mortgagee auction for $711,000.  Net yield on contract rent of 7.74% with potential to increase return after letting of some vacant space.

Most recently, the portfolio of "Farmlands" sale and leaseback auctions have produced some strong yields including:-

• Tremain Avenue, Palmerston North - $2,310,000, 6.95%.
• Tauhara Road, Taupo - passed in at $2,300,000, 6.6% (subsequently sold at a higher price).
• Hautapu Road, Cambridge - $2,250,000, 6.89%.
• Queen Street East, Levin - $1,252,000, 8.35%.
• Pukepapa Road, Marton - $1,567,500, 7.79%.

Telarc Accreditation

November also saw our yearly review and audit of TelferYoung's Qbase quality control systems, procedures and standards.  This is undertaken by Telarc who audit and award our certification.  We are pleased to announce that again we flew through the audit process with flying colours and continue to improve on our systems and processes.

Survey Results

Throughout the year we send out surveys to many of our clients and ask that they take a few minutes of their time to complete and return.  The feedback from you is an important tool for TelferYoung to help monitor and improve our quality control. 

The lucky winners of beautiful Hawkes Bay wines were Ross Brooking, Petal Clark, Frank Burgiss, Sue Warner, Sue Smith and Mr A Davies.

All winners have been notified and once again thank you for taking the time to complete and return. 

Staff News and Congratulations

And finally, we would like to acknowledge and express our warmest congratulations on the engagement of Kayan Ho to Austin Stirling.  Kayan who assists Max in the commercial sector has been with TelferYoung (Hawkes Bay) for four years and became a Registered Valuer midway through this year.  We wish Kayan and Austin all the very best for their upcoming wedding and future together.

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