Private property issue #21 - best places to invest in NZ

Private Property – our weekly newsletter that gives you insights into what's happening in the NZ property market. Written by managing director Andrew Nicol. Sign up to receive this in your inbox every Thursday.

House prices are falling across most of the country. But some areas will fall further than others.

Take a look at this map.

This shows how house prices have changed since November last year (when the country’s prices peaked).

Wellington City has been battered.

Property prices in the capital have been cooked for the last 2-3 years. They’re now facing a swift come down.

Prices dropped 17.26% over the last 7 months according to the REINZ house price index – the most reliable measure of house price changes.

But while most areas are falling in value, others are still rising.

Property prices in Timaru are up 3.36% from November. Opotiki, Matamata-Piako, Southland, Selwyn and much of the West Coast are also up.

So while the nation’s house prices have dropped 9.5% since the peak … not everywhere is equally affected.

And that’s where the opportunities come in.

Where are the best places to invest in NZ?

Property investors love this map 👇

This shows which areas are most over or undervalued compared to where we’d expect their house prices to be.

Here are the latest numbers –

What does this tell us?

Property prices are more likely to be stable in undervalued areas.

And house values will probably take off more quickly in these regions, too – once we hit the recovery.

In comparison, values will likely fall further in the overvalued areas, like the Wider Wellington region.

Similarly, prices will likely remain depressed for longer in these overvalued regions than in undervalued areas.

Where looks good and where looks bad?

Canterbury and the top of the South Island appear to be the most undervalued.

Whereas Wellington, Manawatu-Whanganui and Waikato look most overcooked.

And this “over/undervalued” diagnosis actually works in the real world.

Look at the North Island. Taranaki appears to be the most reasonably priced (compared to where we’d expect prices to be).

So it’s not surprising that prices there have remained stable, while property prices in the neighbouring regions have slid.

How do you decide which regions are undervalued?

You might look at the above map and wonder how this has been calculated.

Here’s how it works. You start by looking at how expensive an area usually is compared to the rest of the country.

On average, Auckland house prices have been about 1.4x the rest of the country.

So if the average price in Auckland is 1.5x the rest of the country, Auckland looks a bit expensive.

If Auckland house prices are 1.3x the national price, Auckland looks comparatively cheap (for Auckland).

Christchurch is a good example of this (and one people often ask about … since I’ve been banging on about it for the last 3 years).

Here’s the latest data:

Christchurch is still undervalued by about 16.4% despite being on the catch-up. So this is an area with opportunities for investors.

We then run this model 67 times (to get the data for each council area) to get the map you see above, which shows the latest opportunities.

Where are the best places to invest right now?

Of all the places you could invest, here are my top picks based on the above data:

• Christchurch City – 16.4% undervalued
• Rolleston (Selwyn District) – 12.4% undervalued
• Auckland – Largest and fastest growing city
• New Plymouth – 2.8% undervalued
• Whangarei – 2.75% undervalued

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