our annual report looking at the most relevant …...transmission gully otherwise known as the...

2017/18 NZ Property Hotspots Wealth Mentor

Our annual report looking at the most relevant factors to pinpoint where you should be looking to purchase your next property

Created by the team at Wealth Mentor lead by Wealth Mentor’s co-founder David Leon and prepared to be simple yet extremely insightful. We hope you enjoy it and wish you a very profitable 2017-18 and beyond.

Top 5 Areas Growth Drivers

Wellington Region 15-20% Infrastructure

Dunedin 10-15% Cycle and yield

Gisborne 10-15% Yield based growth

Palmerston North 8-13% Yield and infrastructure

Invercargill 7-12% Yield

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http://www.wealthmentor.co.nz


Hi, David Leon here, over the next few pages I will try to give you an insight into New Zealand’s hotspots and will explain how our team reached these conclusions.

To understand potential growth we have to analyse and understand the factors that contribute to this growth. We usually break them down in to 7 major factors but for the purpose of this report we will only cover the three more important ones.

To understand what 2017-18 will bring to NZ property markets we must first understand what has happened over the last 12 months up to mid 2017. The end of 2016 brought into full effect RBNZs lending restriction recommendations which brought massive implications into the property market nationally.

Lending institutions started lending only 60% LVR and this simple measure proved to have deep implications. In areas where property prices are higher, like Auckland, we experienced a major slow down on property prices. This was expected and not a surprise at all since it has actually happened for the last few years with recent government interventions to try to slow down our property market. On the other hand, lower lending made regional areas instantly more appealing due to their higher yields and lower deposit requirements. Once again this was expected and our clients took advantage of this great situation creating large amounts of equity and cashflow in specific regional areas. This year has started basically the same way that 2016 finished but we have seen Auckland stabilise and recover since the fundamentals for its growth are still intact; no supply for the huge existing demand, let alone new demand. I expect Auckland to still grow over 7% over the next 12 months.


“Interest rates are extremely low now and expected to stay that way into 2018” - Nick Tuffley, ASB Chief Economist



New Zealand's overall growth for the last 12 months (up to May 2017) is 11.1% and in the data shown here you can clearly note the top performers in the last year. As you can see they are dominated by lower North Island areas specially due to the opening of stage one of transmission gully otherwise known as the Kapiti Highway. This is the biggest roading project in NZ and it will continue to influence property prices over the next 2 years.

Please DO NOT go buying properties in Kawerau just because you looked at this data and properties are still "cheap" there. The growth in Kawerau is almost impossible to explain. A population base of 6,000 and unemployment of almost 25% do not lead me to believe this is a great place to invest.... In our opinion after talking to our friendly agents and local investors this property surge is only due to investors looking for yields in the wrong area.




As you can see in the picture above there are some clear regional area winners and then there is Christchurch. I predicted Christchurch's market issues a couple of years ago. The price surge experienced there was completely man made and there was no way that it could be sustainable. Unfortunately I believe this is just the beginning of a long flat line for Christchurch as the city finds a new balance after the core of the rebuild is fully finished.

Even with an outrageous 28.5% growth the Queenstown region is already starting to show signs of a slow down. Listings are taking longer to sell and there is an increase on overall properties for sale. I expect this market to slow down from its staggering growth pattern over the next 12 months.




Major factors that will contribute to property growth over the next year

There are 3 main factors I have used to determine my national hotspots.

1. New infrastructure

2. Yield / Affordability

3. Net migration / Demand

1. Let's get started with infrastructure. Roading is one of the most significant investments that can influence regional growth. Here is the link for the information on the seven (7) roads of national significance. These roads are shaping regional growth, and you can take advantage of knowing their implications on property growth.

https://www.nzta.govt.nz/roads-and-rail/state-highway-projects/roads-of-national-significance-rons/

After spending significant time studying these projects I believe the Wellington Northern Corridor project is the most important one for us to take advantage of. The corridor essentially connecting Wellington to Levin is already growing but I believe we have just seen its inception. Be prepared for more growth in this area. It will even influence the market in Palmerston North and Wanganui which I have pinpointed as hotspots for the next 18 months. Learn more about this project in the link below:

https://www.nzta.govt.nz/projects/wellington-northern-corridor/

The second project you should be very aware of is the Puhoi to Wellsford gateway. This project will make the Kaipara region and Northland a lot more accessible. These two areas are well known for their high yields and with this new project they should also get some very reasonable growth over the next few years. See more info in link below:

https://www.nzta.govt.nz/projects/ara-tuhono-puhoi-to-wellsford/

It also looks like Chinese investment may hit our shores pretty soon too. Chinese investors are eyeing up the possibility to open links especially through Northland. I expect the region to reach new heights over the next few years.

Ruakura Inland Port is expected to cost around $3 billion and could create up to 12,000 new jobs in the area. Purchasing high cashflow property in the area (also very close to the university) is definitely a smart call.




https://www.nzta.govt.nz/projects/wellington-northern-corridor/

https://www.nzta.govt.nz/projects/ara-tuhono-puhoi-to-wellsford/



2. Yield and Affordability

We have already started to see investor driven growth in regional areas over the last 18-24 months. These are usually not educated investors searching for yields. We have seen the likes of Kawerau explode because of this simple reason. As we know cashflow is king, but as an investor we must understand that the market reacts differently at specific times in the property cycle. This is the time of regional growth, and of investors trying to get cashflow in more obscure areas.

Based on this cyclical pattern I have pinpointed 3 main areas ripe for some exciting growth patterns:

I. Gisborne

II. Wanganui

III. Invercargill

These areas boast high cashflow, and they are at the relatively early stages of growth in this market cycle.

3. Demand and migration.

We know that Auckland's high growth pattern is completely aligned with the population growth that it has experienced. Besides that we are not building enough properties to meet the current demand meaning that prices only have one way to go even with government intervention.

Overall, New Zealand is growing and that is great news for us investors. Obviously not all areas are created equal but here is some data for you to explore in regards to where people are migrating to within New Zealand.

http://www.berl.co.nz/economic-insights/jobs/migration/auckland-top-spot-for-net-migration-in-2016/




Migration will ultimately determine demand which will set property pricing. In the last 12 months we have seen an easing in the Canterbury region so I will not pinpoint it as a place in which to invest in. Besides Auckland, which is the clear winner in this category, we should explore these areas:

I. Wellington region (see Transmission Gully)

II. Waikato

III. Otago (Dunedin)




Other factors to consider over the next 12 months

There is one significant event that will take place in New Zealand in 2017. This event is our national election and it really affects our property market conditions. Historically we have seen that three months prior to a national election (every three years) the property market essentially stops. Listings dry up and so do buyers. People become wary of election results, they wait to purchase property until the election takes place and they have more certainty about their political future. I expect the market to considerably slow down from mid June until October. This slow down will create a plethora of deals for the savvy investor.

Lending changes may take place to either cool off or maintain the market conditions. My projection is that the market will slow down from its staggering growth and this will mean that there will be less demand for lending which will create loosening criteria from banks to lend on property. If the market does not cool off we may see further lending changes that will have the same effect that they have had in the last 2 years; a slight cooling off followed by a growth spike to catch up.

We will also see some of the new projects (new builds) under the new unitary plan in Auckland come to fruition which will alleviate some of the pressure in the Auckland market but not enough to create a market correction.

Pressure on Auckland services (schools, roading, etc...) will create a migration trend towards some regional areas (mainly Waikato, Bay of Plenty, Otago). Auckland will still be the leader in growth but failing quality of life in the big city will also see some good performance from the regional areas.

Summary

We expect growth to finally slow down in the next 12-18 months. The lead up to the national election will have a big influence in the next 6 months but will not either cool off nor heat up the market in the longterm, regardless of who wins. The market will remain healthy due to demand and strong migration and economic performance. Lending should also loosen up while market conditions cool.

Happy investing!



our annual report looking at the most relevant …...transmission gully otherwise known as the...

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