P-contamination is deterring some investors from buying residential properties in Nelson and Tasman, contributing to the region’s housing market cooling off after months of rapidly rising prices.
Quotable Value figures for April show that house prices are still rising with both Nelson and Tasman showing a 16.9 per cent increase over the last year.
The average house price in Nelson was $527,422 while Tasman’s average was $521,575 – house prices rose 3.8 per cent over the past three months in Nelson and 4.7 per cent in Tasman.
However, Quotable Value Nelson registered valuer Craig Russell says that “investor activity appears to have cooled off” and one of the reasons for that is the “implications around P-contamination”.
Craig says the cost of remediating houses contaminated by P can range from $10,000 to $25,000, and that’s putting off investors.
“There are quite a few properties that are coming back testing positive for P-contamination so, if you buy a rental now, there’s a risk that you have to pay the cost of remediation,” Craig says. “I’ve talked to quite a few people about this and the consensus is that the risk-adverse investors are tending to stay away from that.” He says the “worst case scenario” is that a contaminated house has to be demolished, although “most of the cases are to do with P-users and not manufacture, so that doesn’t tend to be so bad.”
Craig says the Reserve Bank’s Loan Value Ratio restrictions, which require investors to pay a higher deposit, have also contributed to the declining investment in the residential property market.
A likely rise in interest rates and reduced returns from rentals are other factors impacting on the amount of investment.
“The majority of buyers are more cautious with their purchasing decisions, given buyer’s reduced tolerance levels for debt and possible increased debt servicing from increased interest rates on the back of strong inflation figures.”
The average weekly rent in April was $326 in Nelson and $361 in Tasman, although Craig says there could be “some upward pressure put on rents over the coming months” if interest rates increase.
Despite investors cooling off, Craig says the region’s house prices are still “strong”, especially in outlying small townships which typically lag behind the main centres. “Buyers, at this stage of the property cycle, often widen their purchasing parameters due to affordability and the trade-off of commuting. Motueka values have increased considerably of late partly due to the relative affordability of property there compared to Nelson and Richmond.
“But the market is strong everywhere. We are still getting multiple offers and good numbers to open homes, it’s just there’s less of the silly stuff now.”
The number of new homes is increasing with 79 new homes consented in March, up from 55 new dwellings consented in January and 64 in February. Tasman had the most new homes consented at 37, which is up from 23 in February.