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Ed McKnight: You can't just buy and hope

Friday, July 24, 2020


Some property commentators (and investors) look at the data the Real Estate Institute release and proclaim that it doesn’t matter where you buy … properties go up roughly the same amount no matter what the region.

One economist released a fantastic piece of analysis that showed over the last 28 years, Gisborne house prices went up at the same rate as Auckland house prices.

And that is absolutely true when looking at the data from a regional level.

However, you’re not investing in an entire region. You’re not investing in one town. You’re investing in one specific property, within one suburb, within a town that’s within a region.

It’s of no comfort that the median house price doubled in 10 years if it takes 18 years for the property you invested to double.

The trouble with blanket average analysis is that it masks the enormous variation in capital growth that happens within regions.

For instance, over the last 20 years, the fastest-growing suburb in the Wellington Region, Cannons Creek, grew by 9.43% per year. That means house prices doubled roughly every 7.6 years.

On the other hand, the slowest growing suburb, Wellington Central, only grew by 3.81% each year. That’s 18.9 years on average to double in value.

Had Wellington Central house prices grown at the same rate as Cannons Creek, property owners there would be $859,553 richer.

What does this tell us?

Where you invest matters. You can’t just buy property anywhere and hope.

To get a sense of the trends, we’ve recently been crunching data to identify trends in where property prices have increased the fastest around cities. Take a look at the map of Christchurch below, which shows capital growth by suburb.

The redder the dot on the map the hotter the property market in terms of capital growth.

Which Christchurch suburb's house price grew the fastest?

We’ve also created these maps for Auckland, Wellington and Hamilton.

What we observe above is the same trend that appears across the four major NZ cities.

Property prices tend to grow more slowly in the very middle of the city due to the higher number of apartments, which don’t tend to appreciate as quickly.

Property prices in city-fringe suburbs tend to appreciate more quickly. This is especially true in traditionally affluent suburbs like Saint Mary’s Bay in Auckland and Fendalton in Christchurch.

Interestingly we see the inverse trend when it comes to average gross yields. That means high growth suburbs tend to have poor yields and vice versa.

Taking a look in Christchurch, some suburbs on the outskirts of the city, like Islington and Templeton have experienced mediocre capital growth over the long term, but have relatively high yields.

Which Christchurch suburbs have the highest yields?

Though bear in mind there are some suburbs that buck the trend.

If you’d like to explore this data yourself, you can play around with the interactive maps for free on the Opes website. They are available for Auckland property market, Wellington property market, Christchurch property market and Hamilton property market, with both gross yields and capital gains by suburb.


Ed McKnight

Ed is the Resident Economist at Opes Partners Limited as well as the host of the Property Academy Podcast





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