The region includes the towns of Feilding, Kimbolton, Apiti, Himatangi and Linton to name a few and at the centre is Palmerston North city, the multi-cultural heart of Manawatu.

Palmerston North is an unusual provincial city because it includes a broad mix of public organisations, private businesses, two defence force bases at Ohakea and Linton and a range of cultural organisations all nestled within an established agricultural hinterland.

The wider Manawatu region was the first refugee resettlement area for the country, with Pahiatua welcoming Polish refugees in the 1940s.

Since then, the region has welcomed thousands of refugees who have enriched the city with their culture and sense of community and Palmerston North was also the destination for a quarter of the emergency intake of Syrian refugees and several Afghan interpreters.

Palmy, P Town or Swamp City, as many know it by, may get a bad rap for having dreary weather and being a bit boring, but it is not without its charms.

Though it doesn’t have the big city excitement of Auckland or the style of Wellington, Palmerston North has several attractive attributes that might surprise those who have thrown stones at the city without having visited.

It is a leading light in agriculture research and is home to more than 70 research and educational institutions. Among them are AgResearch, FoodHQ, Massey University, UCOL and the country’s only vet school.

Palmerston North is flat and cut off from the east side of the North Island by a long line of mountains, so with that geographic situation comes a whole lot of wind which powers 286 turbines in the Tararua and Ruahine Ranges wind farms, providing power for about 50,000 homes.

When not working or studying, people use the city and the surrounding areas for scenic walks, bike trails and hunting spots.

In the warmer months crowds of people walk, run, cycle and push prams along the Manawatu Riverside Walkway, taking in views of the Manawatu River and the Anzac Cliffs as they go.

The Manawatu Gorge track is another popular attraction, catering for people of varied fitness levels and offering views of the turbines and river rapids.

As the rapids flow so does the housing market, which has done a complete turnaround in the past few months.

Huge Market Correction

From homes selling for well above the rateable value at the end of last year, the median price is now under the rateable value.

Professionals Palmerston North agent, auctioneer and REINZ ambassador Andy Stewart says Palmerston North’s property valuations were done in November last year when houses were still selling over and above rateable values and now suddenly median values are on average $40,000 below their rateable values.

It’s a very difficult time in the property market, says Stewart. “People need to be genuine, have a reason to sell and price realistically as the market is in a huge correction and vendors need to adjust their expectations.”

Investors and first home buyers have been taken out of the market through the government’s and Reserve Bank’s intervention with loan-to-value ratios (LVR) reintroduced, the CCCFA rules tightening credit even for credit-worthy borrowers and rising interest rates.

“Under the LVR rules requiring investors to front up with a 40 per cent deposit for a new purchase, only a few would have that sort of equity in their portfolio,” says Stewart. “If that investor sells a property with the intention of buying another, the bank often takes the profit to offset it against any mortgages they hold. It is a no-win situation. These stricter credit controls are a big problem.” The government has indicated there will be changes to the CCCFA regulations in March.

Stewart, who has been through three to four property cycles in his 35 years in the industry, says the past three years have been abnormal. “We are now in a normal market and whatever prices vendors were selling for last year are now completely irrelevant.”

Because of last year’s inflated market there are now a lot of unhappy sellers. Stewart often hears comments from vendors that they are losing money. “My reply is they never had the money. The pricing and sales volumes of the past three years were abnormal and reached unsustainable levels.”

He says the continued fear of rising interest rates means housing affordability is deteriorating. “Many first home buyers have disengaged with the market and are observing what is happening with a wait and see attitude. Investors have all but disappeared and there is certainly little buyer urgency.”

The most active buyers, he says, are owner occupiers, upgrading, downsizing, or going about their business in the mid-price bracket. FOOP (fear of over paying) is now a greater concern and a far greater choice of properties listed has seen a transition to a buyers’ market.

Stewart says there is a noticeable drop in the numbers of cash buyers, with most offers including multiple conditions, predominantly builders’ reports, finance, and/or subject to sale conditions.

“Financial conditions are requiring a longer period of time to be satisfied with stricter criteria required for approval and a shortage of staff in financial institutions caused by Covid.” He says pre-approved mortgage finance appears to be a thing of the past.

More Tenancies From New Builds

Landlords are in a much better position than sellers as the rental market is not as susceptible to fluctuations in highs and lows.

Ray White property management team leader Tracy Gillman says during winter it is more difficult to rent property as people do not move around and hunker down.

From October to end of February it swings into full gear, particularly as Palmerston North is a student town, with Massey University, UCOL and the International Pacific College.

Ray White handles Massey University’s student accommodation and Gillman says if there is a waiting list for university accommodation it usually indicates a shortage of rentals.

When Healthy Homes legislation was introduced a number of Manawatu landlords threw their hands up in horror and moved away from the rental market. It has now rebounded and more tenancies are coming from the new build route, says Gillman.

Any rentals shortage in Palmerston North is because of the way the town works, with the population quite transient and different from Wellington and Auckland, says Gillman.

It is taking on average about 28 days to rent a property and if it takes longer Gillman says it is usually because the price, condition and location need to be tweaked.

Most of the rentals are in Hokowhitu, Kelvin Grove and Milson where landlords have invested heavily. In Hokowhitu rents start from $455 for a two-bedroom home, $580 for a three-bedroom, $685 for a four-bedroom and $725 for a five-bedroom. The most popular rentals are three-bedroom homes.

Rents have lifted substantially and two years ago a two-bedroom house in Hokowhitu would rent for $200-$250. Gillman, who has been in the industry for 15 years, says she has never seen rents increase so quickly.

She puts the rent rises down to a lot of people coming from both north and south to the region during the Covid lockdowns for cheaper housing and jobs and to get away from related issues.

“This influx has boosted rents because these newcomers have had the ability to pay higher rents. The Healthy Homes standards have also had an effect as landlords have had to upgrade their properties and are recouping the costs through higher rents.”

The biggest change over the past two years Gillman has noticed is tenants having greater expectations around the quality of rentals. “Tenants coming through now will not rent a property that is not in good condition and is not warm. Their expectations are for a quality, tidy property with no heating and water issues.”

Market Tough For Investors

Quite a few seasoned investors left the market before the government’s changes made being a landlord tough, says Pauline Beissel, president of the Manawatu Investors Association.

“They saw what was going to happen, were able to take a reasoned approach, decide it was time to sell and retire. High house prices last year also helped.”

She says on the flip side newer investors need to know more about property investment rules so they can be forewarned about what to expect and the association has been heavily involved in providing this.

"In order for investors to stay afloat rents have had to increase but not even this covers all their increasing costs, such as rates, insurance and rising interest rates.

“To cut costs investors are looking at all avenues, including taking their properties out of professional management and taking on the management themselves, which needs a deep understanding of the market and legislation.”

She says the biggest effect of the recent legislation has been the removal of mortgage interest as a tax deduction. “As investors become more stressed with the costs they are facing they are having to make decisions that affect not only themselves but their tenants. That doesn’t help anybody.”

Rental returns are not great. Beissel says there is no profit in investment right now. “If landlords can’t increase rents the only alternative is to sell. Investment properties that are going on the market are mainly being sold to existing owner-occupiers. First home buyers can’t get a look in because of lending restrictions.”

It is not all doom and gloom, says Beissel. There are opportunities. Three hundred Air Force families are eventually expected to live in and around Palmerston North as the defence force’s four new Poseidon aircraft replacing the ageing Orions will be based at Ohakea. Pilots, crew and surveillance officers have been training overseas and by the time they arrive at Ohakea, Beissel says about 450 houses will be needed for the families to buy and rent over the next few months.