Property investment in Taranaki
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Is now a good time to invest in property in Taranaki?

Property is a very hot topic at the moment and with a fair amount of reason! From values that are skyrocketing to cooling house prices and record low interest rates combining with increased laws aimed at landlords it seems like anyone and everyone has something to say about the New Zealand property scene. It's important to highlight that none of this article constitutes financial advice and is simply readily available information condensed into one place.

With all of the chatter it can be difficult to cut through the noise and find the facts. So we thought we'd help by addressing one of the key questions surrounding the current state of the property market; is now a good time to invest in property?

Well, the fact is that other forms of investment, outside of property, aren't doing as well as they have historically. In general terms the same conditions that make property favourable have made some other investment choices less appealing. For example, the low interest rate borrowers love to see means long-term deposits with high street banks are sitting at low interest rates of between 1% to 3% over 2 years according to Interest. Term deposits generally reward savers with higher interest rates than normal debit accounts because you face strict penalties for removing your funds before the term ends.

In a similar vein, Kiwi Bonds lock your money away for a set period of time and reward that with favourable interest rates. But with the OCR cutting the interest rate to 1% this has meant even Kiwi Bonds are looking unfavourable. According to the Kiwi Bond website it doesn't matter whether you leave your money with them for 6 months or 4 years either way you're only seeing a 1% return.

The stock market does show more varied returns but also significant volatility. From the trade war between the United States and China and conflict tensions between Iran and Saudi Arabia there are a number of reasons why stocks could rise or fall. Staying ahead of world news, buying when stocks are low but set to rise and selling before they fall is the basic mechanism for getting ahead with stocks and shares. But if you're not careful you can also lose out.

So why invest in property?

The low interest rate in New Zealand may be bad news for those looking to stick their money in a bank and watch it grow but it also makes borrowing money more affordable than ever before. This is great news for anyone looking to invest in property.

Property prices are high, with some areas currently experiencing record rises. South Taranaki, for example, has seen a 9.4% increase in property prices while Stratford has seen a 6.3% increase and New Plymouth a 2.9% increase in the last 12 months alone. But even though this may sound like bad news as it results to unaffordable houses, there are measures in place to offset this growth by easing things like the LVR, which is the amount of a mortgage the bank can offer to people who don't have a 20% deposit.

But rather than focus on getting on the property ladder, this article will focus on property investors. That generally means people looking to buy or build a second home for income. In many cases these people will need a 30% deposit, or the equivalent available as equity in their main residence.

For those people the rental market looks very rosy. According to QV the gross yield across Taranaki looks very good.

  • New Plymouth - 4.3% to 4.8% yield
  • South Taranaki - 4.3% to 5.4%
  • Stratford - 5.1%

Compare these to the 1% of Kiwi Bonds or the 1%-3% from bank term deposits and you can see why property may seem like a good avenue to explore.

But what about the legislative changes impacting landlords?

There have been a few updates to the laws around the standard of housing that people rent. There have also been updates to how tenancy agreements must be handled and how notices are given. Some of this has led to existing landlords selling their investment properties, as compared to the past, the new laws mean there's more work involved than they're used to.

In reality the addition of heating, insulation and a few other modifications represent only a small amount of work for something that could largely fund itself, while gaining equity. But the extra work, and staying up to date with property law, are a few of the many reasons why many landlords rely on a property manager to find tenants, and to stay on top of their property.

This can also be a favourable route if choosing to invest in an area that doesn't lend itself to quick responses to tenant issues or easy checks. This could be as simple as the landlord living in New Plymouth but investing in Hawera (or reverse). This can be particularly appealing when the average house price in New Plymouth is $463,000 versus $243,00 in South Taranaki.

 If you're looking to buy a house and work out its monthly income level, while also finding tenants and a professional to manage it for you then McDonald Real Estate is your perfect partner. With offices all over Taranaki we can help you find your next investment and help you with realising a return.

To book a free discussion with a rental specialist simply click below.

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