Case of in with the new on campus

Demand is still strong for  rental housing stock for University of Otago students, especially...
Demand is still strong for rental housing stock for University of Otago students, especially from out-of-town investors. Photos: Gerard O'Brien
Regulatory and legislative changes to housing investment are  yet to fully bite. Simon Hartley talks to Matt Morton, from Colliers International, about the possible effects on Dunedin’s campus area.

Dunedin's university rental market is changing as a new generation of new-build, well-insulated rental properties come on the market, which is stoking tenant demand, compared with the older traditional flat alternatives.

However,  owners of the older, poor-condition student flats are being warned to get them up to standard before July next year, while  well-renovated or modern properties can expect good demand from  students, and also buyers in the future.

In a report by Colliers on student and residential investment sales in Dunedin, Matt Morton said university student numbers had "rebounded slightly" in 2018, and  the university was anticipating rising numbers in coming years.

He noted the "spending power" of students on student allowances was up this year, rising $50 to $227 per week.

"Free money means more competition for improved accommodation," he said.

Rents for shared-tenancy flats in the heart of Dunedin’s campus had increased by $10 for next year’s students, to about $140-$150 per room.

There had been anecdotal reports of investors with cheaper-style student flats selling them, reportedly to first-home buyers, rather than upgrading them to meet the Government’s new  insulation and heating codes.

Mr Morton said those latest reforms, plus proposed changes to tenancy laws and earlier health and safety regulations,  were not having the expected effect on investors.

"I’ve been waiting two years to see this happen, but I haven’t seen that sentiment from investors yet," Mr Morton said.

However, he raised a caution for landlords whose properties were older and in poor condition.

"You may be renting well now with good demand for flats, but given governmental regulations and tenants’ increasing awareness of issues, the future needs to be addressed," he said.

For landlords with well-renovated or modern properties, the signs were good as demand appeared to be increasing from all sectors.

He said those  types of properties would also be considered a stable investment in the present environment.

Dunedin’s apartment market was not being closely followed at present, but  recent anecdotal reports indicated the situation was changing,  although not to the point of signalling a trend yet.

More would-be owner-occupiers were showing up to buy apartments, often on a 50:50 basis  with investors, and property managers had said to him they could not get enough two-bedroom properties.

Mr Morton said of six two-bedroom apartments in an inner-city complex, five were sold by the end of week 2 and the last  one a week later.

Two were sold to owner-occupiers, three to long-term investors for rental and the sixth to an investor for the short-term, online rental market.

The six sold for between $369,000 and $421,000 each, with a rental estimate of $450 a week.

Of another three apartments in a large North Dunedin apartment block, two  went to owner-occupiers and the third to an investor.

He said there was also anecdotal evidence of would-be home owners buying  what had been rental properties in the suburbs.

This was reducing the rental property pool, resulting in a greater strain on existing rental stock, and placing more upward pressure on rents.

On the sales side of the market, student property rental yields had been under  pressure, as had those of inner-city properties, pushing up the value of those properties.  More out-of-town buyers were looking to Dunedin for investments that offered "a low entry point and high return comparative to many other markets around New Zealand and overseas", Mr Morton said.

However, opposing this were increasing regulations and compliance issues for landlords. The Reserve Bank’s loan-to-value ratio (LVR) restrictions were still in place with no indication of relief any time soon.

"This makes it harder for local Dunedin investors to buy but has not slowed up national investors, who are very prevalent in the sales market," he said.

The Healthy Homes Guarantees Act, coming into effect next July, was likely to have an impact on the Dunedin student rental property market.

"If the purpose of the Act is to tidy up poor housing, surely the student market in Dunedin is in the firing line," he said.

This type of property stock might be in for some scrutiny as buyers would take into consideration any upgrades needed to meet the new regulations, and tenants would otherwise continue to drift towards warmer and drier modernised flats.

Ring-fencing, the five-year "bright-line test" or period investors had to hold on to a property, and increased insurance premiums  were  hampering investment, but they were yet to have a significant impact on buyers, he said.

Overall, he was  upbeat about the future of Dunedin for investors.

He said the roughly $1.5 billion spend on the new Dunedin Hospital came on top of the university’s  construction plans of more than $600 million of work over the coming decade.

"This construction activity is very positive for Dunedin overall and is tipped to increase worker numbers looking for accommodation across the city," he said.

However, he also noted the influx would likely put pressure on suburban and student property alike, as different tenants got "pushed around" competing for what property was available.



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