MICRO-POCKETS OF GROWTH (AND HOW TO FIND THEM)
The Auckland Effect Over the past few years, the Auckland real estate market has been splashed across national (and even global) headlines and for good reason. It has been an amazing market to watch and invest in! The Auckland story is unlike that of any other centre in New Zealand. The market experienced a unique blend of factors that created the perfect cocktail for capital growth, and grow it did. The last true bottom that the Auckland market saw was back in 2008. From there, we saw some moderate, gradual growth in certain pockets of Auckland from 2008 to 2010. Then from 2010, we started to see values begin to explode. In this time, we saw The Auckland Effect spread throughout the country. This was intensified by the changes in the financial market, predominantly the LVR restrictions that were introduced by the Reserve Bank. Many areas are still feeling this growth spurt today, and this could even continue well into 2017. But investors can t continue to rely on Auckland to propel prices nationally if they want to achieve long-term, sustainable growth. For that, there s a whole new approach needed... Are we saying there will be zero capital growth over the next few years? Not at all but the growth will start to become be more localised. This is what we call micro-pocket growth. In a buoyant market, growth is often seen as a lump concept. That is, while there are many types of growth working all at once, investors don t really need to break these down because the growth is widespread. When capital growth in an overall market softens and becomes more localised, it is essential for investors to really analyse the different forms of capital growth. 2016 GROWTH AT A GLANCE... Kawerau District topped the charts with 60.2% growth in value, followed by the South Waikato District with 32.4% growth Queenstown Lakes District had 31.6% growth ending the year with an average value of $1,022,214, joining Auckland in the $1 Million Club Despite a slowdown, Auckland City still saw 11.8% growth Only one region in the country missed out on any kind of growth, The Buller District, dropping 1.9% in value Among the centres with 20% or more growth were Wellington City, Lower Hutt, Upper Hutt, Tauranga, Waikato, Napier, Hastings, the Mackenzie District, Kapiti Coast, Whakatane, Hamilton City, and Porirua 2
Understanding The Four Forms Of Capital Growth There are four forms of capital growth. In a buoyant market, it s easy to just lump all these forms of growth together. But when an overall market is underperforming, it becomes imperative to separate these out and look for these indicators of growth in a localised market. 1. Buying the right property You can make money by just choosing the right asset, whether you re renovating something, building something or subdividing something, if you buy the right asset you can make money. 2. Buying in the right location While buying the right asset is all well and good, if you buy it in the wrong location, you re losing ground. You can make changes to the property, but you can t change its location. 3. Buying in the right market Obviously you want to buy where the market conditions are ripe for growth. 4. Over-market value If you ve ticked numbers one through three, then when it comes time to sell, you ll likely get more than what the property is worth by going to auction. You want people to line up, haggle and outbid for something that is quite rare and in high demand. Obviously, for the best results you should always aim to capture all four forms of growth. But the hardest to get right are numbers 2 and 3 So here is a quick rundown of what you need to look for: Economic drivers Infrastructure drivers Population drivers Supply and demand Of course, within the larger cities you need to find the smaller pockets of growth which have these four attributes. Look for areas where everybody wants to live, where there s existing, usable infrastructure, as well as infrastructure that s being improved and expanded. This is where strong economic growth is found. While the Auckland market has, broadly speaking, benefitted the growth of the rest of the country, we believe we are now entering a phase where micro-pockets within markets will become more successful than the broader market. We are already seeing certain pockets of Auckland that are getting a lot more activity than others. The same can be seen in Wellington and even Christchurch. Those pockets are proving to be growth harbours. In reverse, it s important to realise that just because a city s growth may be softening overall, that doesn t mean that every area within that city has stopped growing. 3
What Does Micro-Pocket Growth Mean? Micro-pocket growth means investors now need to look towards certain suburbs that have their own unique set of drivers that will drive prices up faster than anything around them. It s not necessarily just suburb-wide either. These micro-pockets of growth can be just a few streets in a suburb, or a developing area, or even a specific type of property. Here are some examples of when a micropocket can occur: 1. Luxury market split Often, you ll see a split between the luxury market and the normal market, like in Auckland, where properties worth over $1.5 million are still achieving exorbitant growth though the normal market has softened. Avonside houses are selling 25% above CV According to QV Property Trends, houses in Avonside sold in the past 3 months have sold 25% above CV on average. Avonside houses achieved 6.5% capital growth in 2016, compared to 1.1% in Christchurch City as a whole. Avonside houses have had an average of 13.3% capital growth in the past 3 years, compared to Christchurch City s 4.6% in the same time period. Auckland is world s hottest luxury property market Christie s International Real Estate surveyed the luxury property markets in 100 cities around the world and found Auckland s was the fastest growing. Auckland registered a 63% increase in its luxury property market Read more 3. Developing areas Regardless of what the market is doing in general, intense development and infrastructure spend can see an area transform into a desirable place to live. This will often see these previously lower-than-average house price areas experience growth. A great example of this is Hobsonville in Auckland. 2. Suburb trend-buckers A suburb (or a cluster of suburbs) where tenant and buyer demand doesn t ease off with the general trend. These are the kinds of areas people always want to live in, so owneroccupier demand continues to push values. These are also suburbs receiving an overflow of interest from suburbs that have become less affordable. West Auckland suburb tipped as fastest-growing hotspot in the country 4
Infometrics released a report today naming the west Auckland suburb of Hobsonville as the fastest-growing area, with its population forecast to increase by 254% within the decade. Read more 4. Flight to Quality This is a basic concept: people want to live in nice homes. Owner occupiers are emotional buyers, and they look for different qualities in a property than an investor would. They are also prepared to pay top dollar regardless of market trends, whereas investors will cap their budget where the numbers stop looking good. One trend we re seeing here is home buyers increasingly looking at high-quality, spacious apartments closer to the city, rather than buying a stand-alone house an hour or more s commute away. 5. Specific Property Type Are tenants paying premiums for brand new house and land builds? Are student flats with 5+ bedrooms getting 10% yields? Are 3-bedroom family rentals in undersupply? Are short-term, furnished 2-bedroom apartments in hot demand? If you ve done your due diligence, you ll know your demographic inside and out, and which types of properties are achieving the best yields in the area. Queenstown top spot for renting a holiday home Apartment sales take off - the new property boom Queenstown generated 51% more booking enquiries than Mount Maunganui (in second place) and has held the top spot for the last four years. No surprises, then, that Queenstown commands the highest average rental rate in the country at $624 a night Read more Stunning Grace Victoria Apartments in Auckland Home buyers are turning their backs on traditional suburban villas, sparking a boom in apartment living. Building consents for apartments have increased tenfold in five years and figures show one in five people buying apartments are switching from a house Read more $150K+ POTENTIAL GROWTH IN 8 MONTHS In June last year, 1-bedroom apartments in Grace could be snapped up from $540,000. Now, 1-bedroom apartments are advertised for $695,000. With very few dwellings remaining for sale in the development, Grace is a prime example of a flight to quality. WHAT CAN I DO NOW? When you attend your Property Investor Night, we ll explain in greater depth what these micropockets are all about. On the night, you ll also get an invitation to attend a Mentoring Workshop as a guest, where we ll be teaching our clients about investment strategy in greater detail. You can also spy on us and ask our clients if we re any good at what we do. 5