TelferYoung (Waikato) Limited

Current | 2011 | 2010 | 2009 | 2008 | 2007 | 2006 | 2004

Waikato Newsletter - April 2009

8 April 2009

How time flies! We are now a third of the way through 2009 and there have been changes afoot.

General

The global economic situation has remained more negative than positive, and whilst this has filtered down to the local economy, the recent OCR decreases and some vendors wishing to free up capital, has led to an increase in market activity in the past month.

Once again Hamilton has taken the "can do" approach and the next few months will host two major international sporting events: TUA vs CAMERON - Hamilton Stadium will be the stage for the much anticipated showdown between David Tua and Shane Cameron in August-September.  This will arguably be the biggest boxing match in New Zealand for many years.

V8 SUPERCARS - After last year's great success, track construction is underway and all will be set come 17-19 April.  This has been dubbed New Zealand's Largest Annual Sporting Event and with the new race format, should be an exciting weekend for the City.

Market Commentary

Commercial and Industrial

The market remains slow despite some market activity at recent auctions earlier this month.  The OCR has been further reduced on 12 March 2008 now down to 3%, the lowest level since the OCR was introduced in 1999.  This has allowed investors to realise cashflow positive properties, as the ability to fix loans with a lower mortgage rate for a reasonable length of time, has enabled some good investment opportunities.

Generally the market is typified by demand for good quality investment property with Hamilton City and the Provincial Towns of the Greater Waikato Region, however supply is very limited.  The market for second tier property has softened considerably and the gap between returns of good quality in comparison to lower quality continues to widen. 

General bands indicate investment yields for good quality property fall in the 7% - 7.75% range, with secondary property achieving returns of 8% to in excess of 10%.  Larger property transactions tend to show higher returns, due to the size of the investment. 

Sales of note so far in 2009 include:

205 Ellis Street sold at auction in March 2009 for $2,825,000. The property has a ten year lease in place with a guaranteed rental, which reflected a return of 9.38%.

• 18-22 de Leeuw Place sold with a new nine year lease in place, in February 2009 for $3,900,000.  The property is located with rear exposure to State Highway 1 and was sold at 7.08% on the contract rental.  

19 Kaimiro Street sold in March 2009 for $1,090,000.  This is a relatively modern office building leased to Telecom for six years, located in the Pukete Industrial Area.  On the passing income, the return was 7.71%.

Ellis Street - Placemakers sold in March 2009 for $6,000,000.  The property had a land holding of 3.9641ha with some rear profile to State Highway 1.  There were four years left on the lease at the time of sale, and the sale reflected a return of 10% on the passing income. 

Residential

• The Hamilton residential Real Estate market has declined since the peak of latter 2007 and early 2008, indicated by the reduced sales volume, as well as a decrease in the median sales price progressively throughout 2008. 
• Residential investor property market: Below is a list of recent investment property sales and their potential returns (Based on assessed market rentals). 

Address	Sale Date	Sale Price	Yield
			Gross	Net
Parr St	Jul-08	$520,000	8.51%	7.11%
Block of flats, 4 x 2 bed units
Bellmont Ave	Oct-08	$472,000	6.36%	5.05%
3 bed dwelling +  2 bed dwelling
Cook & Galloway St	Nov-08	$700,000	9.93%	8.12%
4 bed dwelling + 3 x 5 bed dwellings, over two titles
Te Aroha St	Mar-09	$665,000	6.47%	5.37%
Block of flats, 4 x 2 bed units, over four cross lease titles
Lake Rd	Mar-09	$610,000	8.03%	6.56%
Block of flats, 6 x 1 bed units

The return from the investment properties ranges from 6.36% gross to 9.93% gross and 5.05% net to 8.12 % net. 

The yield reflects the risk level of an investment property, which is in relation to the level of the security of the income stream, location, size of the investment property and condition and quality of the building, amongst other factors. 

Despite the lack of confidence in the market place, investors appear to be expecting similar returns to previous years from investment properties; this is likely due to the higher margin of returns courtesy of interest rates having fallen.  However, the investors at the higher end of the market are expecting greater returns from their investment properties, as purchasers are aware that they have less competition and a wider choice of properties due to the difficulty to get finance at acceptable levels.

The market is still adjusting to a climate of lower expectations of capital gain.

Rural Residential

• The market for rural residential or lifestyle properties in the Waikato has continued the pattern of 2008, with the volume of sales in the first two months of this year being approximately half of the 2007 monthly average. 
• There is still a high volume of vacant sections available and as a result, land with potential for subdivision has attracted minimal premiums.  We have however, seen less bargain priced sales lately, with prices being more steady.  This may reflect the lower interest rates and general acceptance of a new, lower price level.

Rural

As the graph shows, rural property values have been on a continuous upward trend till late last year. In our last news letter we noted a number of prominent properties being marketed. To our knowledge none have sold, and other vendors have had to be negotiable to achieve a sale.  The small number of dairy farm sales in February distorts the graph trend, with one dairy/equestrian property selling for $11,900,000.

Although anticipated, the predicted $5.10kg Milk Solid end of season payout announcement by Fonterra, has still echoed through the industry.  This has particularly impacted on smaller dairy grazing /cropping farms who had hoped to capitalise on a buoyant period by selling maize silage at 35-40cents/kg Dry Matter for supplementary feed.  Recent advertisements for maize silage are now as low as 10cents/kg Dry Matter with deferred payment in some cases.

Red Meats provide a positive outlook within the rural sector as they continue to sell well as a result of a shortage of supply and favourable exchange rates.  This appears to have been reflected by a recent sale at Te Uku, Raglan where a good quality 255ha fattening farm sold for $5,750,000. 

Lower bank interest rates would normally improve demand for rural property; however, to date, lending institutions have restricted purchaser's finance options with only restricted funds available. Reports are now filtering through that wholesale funding is loosening up, easing funding pressures and allowing consideration of more lending proposals. 

Currently most rural property investors are adopting a cautious approach to any further large scale investment, unless funds are readily available to take advantage of any propitious opportunity. We anticipate farm sales will remain restricted in the short to medium term.  Overall however all sales are likely to be influenced by New Zealand's current account deficit fluctuating exchange rates and sale prices will reflect both world and industry, financial and export commodity trends.

TelferYoung (Waikato) Ltd thank you for all your continued support and we look forward to continuing our association throughout 2009.

Back issues of the newsletter can be obtained from TelferYoung (Waikato) Ltd
ph 07 839 2030
Fax 07 839 2029
489 Anglesea Street,
Hamilton
www.telferyoung.com
email: waikato@telferyoung.com

+ Doug Saunders + Roger Gordon + Andrew Don + Bill Bailey + Rob Smithers + Richard Graham + Russel Flynn + Lloyd Stephenson