Manawatu’s housing market has shown strong growth with the median house price exhibiting a steep year-on-year rise. In Palmerston North, the median house price was up 28.7% with the Manawatu District also showing a 22.2% increase. Following this massive period of growth, we caught up with Simon Tavendale, principal of Quinovic Palmerston North to talk about his observations surrounding the Manawatu rental market.
Despite record high housing prices countrywide, the price for properties in the Manawatu region is still a key incentive for property investors. The median housing price in New Zealand currently sits at $820,000 with larger cities like Auckland reaching a median cost of $1,150,000 and Wellington $885,000. In contrast, Palmerston North’s median house price of $660,000 is considered a more realistic option for many investors. Looking forward, the region’s outlook remains bright and Simon expects to see continued growth in the housing market over the next five years with a consistent stream of people moving to the region.
So, what’s pushing the housing prices up in Manawatu? Palmerston North City’s already growing population is set to rocket with several large-scale construction and commercial investment projects planned. Simon noted how the region is about to receive significant fiscal stimulus from the Government for the Manawatu Gorge replacement motorway, expected to be completed by 2024, as well as the Ohakea Airforce base upgrade and KiwiRail freight hub. With total investment into the region expected to sit between $2 billion and $4 billion, developments will continue over the next 5-10 years, bringing new jobs and people into the Manawatu. This expected increase in demand will put pressure on a housing market already suffering from short supply.
This growth in demand has been echoed across the rental market with average rent costs rising in-line with property values. Trade Me’s latest rental price data shows the average rent price in the Manawatu region has increased a huge 15% year-on-year, second only to Marlborough which saw an increase of 23%. Simon pointed out that tenants are finding it difficult to secure good quality properties, leading him to believe that rent prices may rise even further. In the current market, it’s not unusual to see high quality rental properties being rented within one or two days of being advertised.
Over the past twelve months the rental industry has seen extensive legislative changes, including the Healthy Homes Standards, the Residential Tenancies Amendment Act 2020 which became law from 12 August 2020, shortly followed by extensions to the Bright-Line test and new property tax rules. Despite this period of immense change, Simon’s experience is that most investors have become well versed with all new legislation and are currently working through upgrades on their investment properties in accordance with the Healthy Homes act.
Simon has seen investor activity slow in the region as investors take a wait-and-see approach to determine the effect of the recent Government changes, the extension to the bright-line test and the removal of investors' ability to offset their loan interest against rental income for tax purposes, and consider the possibility of interest rate rises. Following the introduction of these changes in March 2021, ANZ economists have reported on the risk of increasing interest rates, “We aren’t forecasting house prices to fall, but from these lofty heights we certainly would not rule it out. There are a lot of highly indebted households out there who would be very vulnerable if interest rates were to increase or incomes were to deteriorate.” Speaking to investors specifically, the ANZ economists pointed out “it’s worth noting that interest rate increases no longer bring a larger tax offset.”
The capital costs for upgrades required for the Healthy Homes Standards have also impacted investors’ ability to purchase more property. “I suspect most will consolidate their positions before considering further acquisitions. Very few, at this stage, are considering selling down their portfolios altogether, however some are now looking at alternative investments such as commercial property, residential development and new builds.”
For those who are feeling less at ease with the new laws, Simon suggests “While the legislative changes are unsettling, I am encouraging investors to hang in there. Now is a good time to seek advice, particularly from an accountant to determine what future cash flow may look like and get prepared prior to the tax changes.”
Simon also recommends working with your property manager to look for additional ways to increase income and reduce costs. Here are a few ways that a property manager can help you reduce your investment costs:
Now is not a time to be passively managing your portfolio.
If you currently own a rental property or are considering investing and want professional property management advice, get in touch with your local Quinovic office. We’re a nationwide team of property management experts and have managed over 100,000 tenancies since 1988. When it comes to legislative matters, we have a professional understanding of all new and existing rental property laws, as well as local contacts to assist with any practical matters for the Healthy Homes Standards. No matter how big or small your question is, we’ll be happy to help. Ask Quinovic today.
