Known as the city of 100 beaches, the NZ Property Investor check out whether opportunities for investors measure up to the golden sands, or whether wreckage of the recent storm is still lingering.
Jacqui Sorenson knew exactly what to look for when she bought an investment property in Whangarei earlier this year. That's because she's a property manager at Whangarei Real Estate (Just Rentals Northland) and knew what the city's tenants want.
The $205,000 Raumanga property is a three-bedroom house with garage. It's fully fenced, insulated and had a heat pump fitted already. Allowing pets makes the property much easier to rent. She has just rented the Fairburn Road property at $300 per week, which is slightly below market rent.
Raumanga isn't always tenants' first choice and Sorenson warns landlords looking to buy investment properties in Whangarei to know their suburb before buying. Many of Whangarei's lower priced suburbs have good pockets and bad pockets - which you'll only find out if you drive around.
Median sales prices in Whangarei City are below the national levels, making the city accessible financially. Prices on starter homes suitable for rental start at just below $140,000. A 10% deposit on that isn't onerous to raise.
Rents being asked on TradeMe for one-bedroom properties in the city start at $145 a week, two-bedrooms from $180 and three-bedroom properties in the city start at $200 per week.
Market rental data shows, however that rents for two and three-bedroom properties have been declining since July last year. The worst area for Whangarei has been Kamo/Tikipunga/Kensington, with a 5.10% annualised drop in rent.
Having said that, rents appear to be stabilising, says valuer Mike Nyssen, a director at TelferYoung (Northland) and tenants are no longer trying to negotiate on price as they have done over the past 18 months.
In central Whangarei, median rents according to bond receipts sit around $300 per week for a three-bedroom house, $250, for a two-bedroom house and $165 for a one-bedroom flat. In Morningside/Raumanga/Maunu, they were $280, $240 and $150 respectively and in Ngunguru/Onerahi/Whangarei Heads and Waipu they were $300, $245, and $170.
The profile of Sorenson's recent purchase fits well with what L.J. Hooker Whangarei owner Michael Springford recommends investors to buy in the current market - although like Sorenson he would only recommend pockets of Raumanga.
That is investment property of up to $200,000. "You can probably get $250 for that per week (on the rental market)," says Springford.
But you'll need good management because at that level you don't always get the best tenants.
Sorenson, like many other investment property commentators, lists the top suburbs to attract tenants as Central - especially The Avenues area, Kensington, Maunu, Regent and Morningside.
Both Maunu and Morningside's newer developments are popular with tenants. And when it comes to schooling, says Sorenson, Maunu and Kamo schools are the draw cards - although the latter tends to be more expensive with more "executive" rentals priced in the $450 to $500 a week bracket.
Flats (now called apartments) aren't common in the city. Sorenson says, however, if they are renovated to a high standard they rent quite well.
"We have a number of blocks of flats with electric gates that we manage that are completely renovated with cleaners going through every fortnight."
It's easier to keep tenants longer when the entire block is either owned by one landlord or managed by the same property manager, because tenants are able to solve problems more easily.
And blocks of flats are the one area where Nyssen sees yields bucking the trend. Recent sales have seen such blocks sell at yields between 7% and 9.50%.
The other alternative for investors looking for yield, says Nyssen, are properties in fringe areas such as Raumanga, Otaika, and Tikipunga - where mortgagee sales are becoming common.
Mortgagee auctions are increasing in Whangarei and the investors that are buying are often snapping up bargains. Springford says many people bought up large during the boom thanks to attending investment seminars and are now finding they can't make ends meet.
He cites the example of a mortgagee auction at the end of November in which a property valued at $280,000 sold for $218,000. It had storage units at the back and was pulling in $600 a week in total rent.
Another example of the bargains available is one property Springford for sale that was originally bought by an investor for $240,000 is currently on the market for $198,000 - and even then there have been few enquiries.
Economy-wise Whangarei has been hard hit by the recession with unemployment rising.
The number of unemployed job-seekers in Whangarei climbed by 44.20% in the year to June 2009 and the unemployment rate rose to 8.60% in the June quarter from 4.40% in the same quarter in 2008.
Hard hit in the city is the constructions industry - after residential consents declined by 27% and non-residential consents by one third, says economic forecaster Infometrics' Andrew Whiteford. The tourism industry has also been hard hit as well with guest nights falling by 5.50%.
Good news for investors is that the population is projected to grow from 74,430 in 2006 to 109,235 in 2041, and to 129,678 in 2061. That's 1.35% or 1,004 additional people per year, with the number of occupied dwellings in the Whangarei District projected to increase from 27,993 in 2006 to 41,704 in 2041, and to 49,785 in 2061. That represents almost 400 additional dwellings per year.
Having said that, new development in Whangarei has largely stalled, says Nyssen.
House prices in Whangarei, like many regional centres, but unlike the big cities, are still sitting well below peak levels. Currently in Whangarei sellers are getting 2004/5 prices - and many sellers are struggling to get the price they want. Springford thinks this is in part because provincial centres aren't benefiting from immigration in the way the main centres do.
Nyssen doesn't predict that there will be a house price recovery in Whangarei in a hurry. But when it does come, he expects to see prices begin to rise first in the central areas including Regent, Mairtown, Kensington and The Avenues.
"That is traditionally what happens after the bottom of the market. Most astute landlords will know this."
Some of the problem may be that investors, says Nyssen, are mainly "sniffing around" because they can't find the yields they need.
Those investors in the market are looking hard to find properties with a twist. "If you don't find a twist, the rentals don't add up," says Springford.
Another twist is buying an entire block of flats, which are good renters in the city, but are few and far between.
"Every now and then something will crop up."
That includes subdividable properties, says Springford. The smallest lot size you can subdivide to without applying for resource consent in Whangarei is:
You can also apply for resource consent to go smaller. Subdivision typically costs around $60,000 to $70,000 in the city, he adds.
Property managers can see the drop in demand on the ground.
"A couple of years ago we couldn't get enough rental property," says Sorenson.
The drop in rental prices has seen a flight from the less desirable areas to better areas as tenants find they can afford more. Otangarei, which has large concentrations of Housing New Zealand homes and parts of Raumanga, have been affected by this, says Sorenson.
Roger Raymond, president of the Northland Property Investors' Association sees some investors buying in the city and at the last association meeting of the year one investor said he planned to do a small development.
"There is good buying now, but most [investors] are waiting," says Raymond.
More investors would be buying if the banks would "be more accommodating", he adds. "Finance is a real challenge."
Raymond and his wife Susan have recently bought two new homes in Whangarei central. They are what he describes as higher end rentals, which are more difficult to let.
Sections - particularly on the coast - says Raymond, just aren't selling. It's an observation mirrored by Springford, who has seen some phenomenal bargains.
Springford's argument is that investors can buy sections for $60,000 to $90,000 and build a new home on them for less than an older-style property, making them an attractive proposition if you can get the finance.
In 2007 and 2008 tenants showed a distinct desire to live closer into town, says Raymond - thanks to petrol prices. But memories are short and now it doesn't seem to be such a huge factor.
Even so, says Sorenson, unlike cities like Auckland where people are prepared to commute half and hour or more, Whangarei's tenants typically like to be within walking distance of work or a very short commute.
The one exception to this is overseas doctors, who make up a reasonable chunk of renters at the higher end of the market. Because coastal properties are remarkably cheap to rent compared to the UK and other countries where the doctors hail from and they're used to commuting, many choose coastal areas such as Onerahi to rent, she says.
Doctors, in part, account for seasonal swings in the Whangarei property market. Sorenson sees a distinct upswing in enquiries in December. This is due to the rotation of junior doctors at Whangarei Hospital, says Fleur King, communications manager at the Northland District Health Board. Junior doctors are rotated in January and July between Auckland and Whangarei. International doctors from the UK and other countries do not come in at any set times of the year.
The medical industry, including private providers such as White Cross, are very important to the rental market, says Sorenson. Unlike doctors, who arrive en-masse twice a year, nurses tend to blend into the normal mainstream rental market.
Virtually everyone agrees that the younger generation is getting much more demanding in their requirements for rental property.
"The ‘me' generation wants flasher properties," says Raymond. "Because we are letting newer homes we are getting a lot of people who either can't afford the rent (for better properties) or over commit themselves."
It makes it easier for landlords with newer properties or older ones that are well-maintained and have heat pumps, ventilation systems and insulation. Many landlords in the city have taken advantage of the government's subsidies to have their properties insulated.
That makes it harder for the slum landlords, says Raymond.