TelferYoung (Taranaki) Limited
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Taranaki Newsletter - May 2006
10 May 2006
The New Zealand residential property market has now reached a point of consolidation following a sustained period of growth.
The Residential Property Market
New Zealand Real Estate Institute statistics show December 2005 sales, 6906, were the lowest for the year, down from 8546 in December 2004. The national average sale price however increased from $260,000 to $295,000. March 2006 saw 10,094 sales, a drop of 312 on March 2005. New Plymouth and Bell Block sales figures for 1995 compared to 2005 are shown in the table.
New Plymouth and Bell Block | ||||
Residential Sales 1995 vs 2005 | ||||
| Quarter | Number of sales | Median sale price | ||
1995 | 2005 | 1995 | 2005 | |
| March | 310 | 395 | 121,738 | 278,133 |
| June | 284 | 323 | 116,179 | 288,110 |
| Sept. | 261 | 304 | 123,446 | 306,541 |
| Dec. | 327 | 236 | 122,155 | 301,533 |
Over the next six to twelve months there may be a reduction in values, although we do not believe this will be as great as predicted by some commentators.
In South Taranaki the market remains relatively robust, while in North Taranaki we are seeing a buyers' market. The market peaked prior to the October election, since then more houses have come on the market and buyers have become more cautious. The best presented, designed, and located properties continue to do well but selling periods are lengthening.
The average buyer appears to accept current interest rates, acknowledging the ability to fix a rate, and remains quite active. However in the higher price ranges there is some concern over economic conditions which is slowing things down. This is despite renewed activity in Taranaki's energy sector and relatively good results on the farming scene.
We have also seen a large amount of residential subdivision completed in recent times. Many of these sections sell to builders for spec homes and this sector of the market has slowed.
Moves in the Investment Market
Gross returns are now as low as 3.5% to 4% for rental dwellings.
Investors in the residential market are now, not surprisingly, dissatisfied with returns available and are looking for other property investments. Gross returns (prior to expenses such as rates, insurance, maintenance etc) are now as low as 3.5% to 4% for rental dwellings. In association with projected low capital gain, and static weekly rentals this has meant a move for many investors to flats or commercial properties.
Rental flats have consequently seen a boost in activity, and are now being strongly sought after. Several very successful auctions and tenders have taken place, recent sales showing returns of 7% to 8% gross have occurred (down from 9% in 2003), one central block of eight flats selling for $920,000. Although returns are better than for residential housing, investors often do not factor in higher management requirements/costs and shorter average tenancy periods.
Smaller commercial properties of up to $600,000 are also an option for the established residential investor. Advantages are less management of tenants and higher returns. The major disadvantage is that at the end of the lease term, or on failure of the lessee, gaining a replacement tenant is not as straightforward as for a residential property, and there is the risk of a period with less or no cashflow from the property.
Good property advice is essential when purchasing commercial property. We cover a wide field of valuation expertise. We can help you with a range of advice from a no obligation phone conversation to a full valuation report. Give us a ring at any time to discuss your needs.
Rural Market Report
The farm selling season for 2005/06 is stuttering to a conclusion with the only certainty as at May 2006 being further uncertainty. Changes are about to take place in the Fonterra share standard; the massive spike in fuel prices will surely add significantly to on-farm costs and indeed to the price of all goods and services; while the Reserve Bank's response to the likely inflationary surge may see interest rates firming despite earlier predictions to the contrary.
Dairy farms sold well through to the end of December 2005 but results during autumn 2006 have been mixed. Good farms in top localities sold well at auction or tender but a number of properties were put through loose tendering arrangements that at times obscured the objective of getting buyer and seller to negotiate a price acceptable to both. In an uncertain market selling agents need to re-discover the knack of pricing properties realistically and then marketing them at that level. In the coming season, as in 2005-06, adjoining owner sales will continue to exert a strong influence on the market.
Small rural blocks have so far remained resilient to tightening market conditions but, as we have pointed out before, there appears to be an oversupply of these properties and this is likely to affect the market sooner rather than later.
Economic pastoral properties remain scarce in the Taranaki market and the major drop in lamb prices has put some downward pressure on this sector. Smaller drystock blocks suitable for heifer grazing or as a backup property to dairy farms continue to sell readily up to $1,200,000, while the more expensive larger blocks, which require significant financing, have a longer selling period.
As the transition proceeds from 2005/06 to 2006/07 the TelferYoung prediction is that bankers will be more cautious, buyers will need to be better informed, and sellers may face a settling or easing off in the market for all but the most attractive and well located rural properties.
Fuel vs Location Rising fuel prices are a hot topic at present. But what about the effect on property prices and buyers' attitudes?
TelferYoung will be watching this new market factor closely. |
Back issues of the newsletter can be obtained from TelferYoung (Taranaki) Ltd
143 Powderham Street,
P O Box 713,
New Plymouth,
New Zealand.
email: telferyoung@taranaki.telferyoung.com
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+ John Larmer + Mike Myers + Ian Baker + Mike Drew + Adam Boon
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.