He Bought In The WORST Area In NZ. Here’s What Happened

Back in 2021, we called Levin the most overvalued town in the country. A listener gone unconditional on a $930k house there. Today, he's down around $150,000, and he asked a fair question: would we change our answer now? In this episode, Ed and Andrew re-run Levin through five tests to see if it's finally a buy. You'll learn: Whether Levin is genuinely cheap now, or just getting cheaperWhy it's still overvalued after four years of falling pricesThe small-town risk that most buyers never checkThe lesson? This was never really about Levin. He paid 1.8x the average house in town... and the "overflow town" has nothing overflowing into it right now. Let us know your thoughts by leaving us a voice message on the Property Academy Hotline⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ https://www.speakpipe.com/PropertyAcademy For more from Opes Partners: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ https://www.opespartners.co.nz/newsletter-sign-up⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Stay ahead of the NZ property market⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ https://www.opespartners.co.nz/private-property-sign-up?utm_source=podcast&utm_medium=promo&utm_campaign=pp_signup ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Instagram⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ https://www.instagram.com/opes_partners/ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠TikTok⁠⁠⁠⁠⁠⁠⁠ https://www.tiktok.com/@opespartners

• 0:08Speaker 00

  Hello and welcome along to the Property Academy Podcast by Opes Partners. I'm your host, Stephen Knight.

• 0:12Speaker 01

  And I'm Andrew Nicol.

• 0:13Speaker 00

  And this is a show that helps Kiwis go from zero to five investment properties. So you can be financially free and stick around for the next 15 minutes because you're going to learn, should you buy a property and invest in Levin? What's happening in the Levin property market right now and where it could go over the next few years? And how long before Levin house prices take off again? Now, I got an email just this week that I've been thinking about for a couple of days. It's a listener who's working through our back catalogue and it's always nice actually when people are like, I'm going to go back to episode 700 and listen to it. And so this guy did get up to episode 704, which went out in August 2021. This was like two months before property prices started falling, the absolute peak of the market.

• 0:57Speaker 00

  And in that episode, I was talking about how I thought Levin was very, very overvalued. I think my exact words were along the lines of, there were too many red flags for me to think about it as a really good place to invest, but in 10 or 15 years, maybe I'd take a look at it again and that's when Levin might have its day. Now, if we look about what happened next, he didn't actually hear that episode because he wasn't listening at the time, hadn't found the show yet.

• 1:23Speaker 01

  Serves a right.

• 1:24Speaker 00

  So, no, he actually ended up going unconditional on a brand new house in Levin the following month in September, paid about $930,000 for that property. And today he's down $150,000. And his question is kind of, well, have house prices fallen so far in Levin that it now could be a good buy? Like, would we change our answer about Levin, given what's happened over the last five years? Now, if we look at what the numbers look like in Levin today versus when we recorded the show, Andrew, what are you kind of seeing? What does it look like?

• 2:01Speaker 01

  So if we go back in time to August 21, our model showed Levin as overvalued by 26% at the time. So it would have, it would have been an area that we would say, it probably is unlikely to get any growth. And if anything, it might be more susceptible to, you know, either flatlining or going backwards, as it has quite significantly. And just to talk to the numbers there, the average house value is about $615,000. The gross yield was 3.8% on average and the long run growth rate was 9.4% a year. I mean, that's awesome, isn't it? Imagine if you bought a property at that stage, you could understand if you had a few properties in Levin, thinking this is just a goldmine, I'm going to buy some more.

• 2:44Speaker 01

  Now today, five years later, still overvalued by about 12%. So it's come back a bit and the values are now down kind of around that 530 mark. So quite a big difference in terms of a drop. That has pushed up the gross yield though, 4.6%. The long run growth rate has dropped to 6.3%. It's amazing, like that's still a good growth rate. I think anyone in the property market at the moment would be thinking how happy they'd be at 6.3%, but not if you'd bought back in August 21 and had that drop. So in terms of context for, for when we talk about overvalued, undervalued, when we say 26% overvalue back in August 21, that means it's more expensive than we would imagine

• 3:27Speaker 01

  it should be based on where Levin tends to fall compared to New Zealand's average house price.

• 3:34Speaker 00

  What I'd just say as well is since then, Levin house prices are down about 26%. If we look at Horefenua all up, but all of Wellington has done pretty poorly. Now, buying in what we would consider an undervalued area does not necessarily protect you from any fall whatsoever. I mean, Auckland, we were talking about was being undervalued back then. Property prices still fell about 22%, but we do see that the Wellington market in particular has been hammered. That was one of the areas we were really warning about, about five years ago. But if I'm thinking about whether to invest in Levin today, there are five tests that I'd want to go through. And the first one is about what is the average house price and like, how cheap is it, right?

• 4:16Speaker 00

  Because I prefer cheaper properties to way more expensive properties. And the reason behind that is it's a bit easier for me to get the mortgage across. And if I can buy two properties for half a million dollars each, as opposed to one for a million bucks, most of the time I'm personally going to go for that, just because then I can spread my risk across two different streets or two different towns. Now Levin actually does tick the box when it comes to being cheap. Like the average house value or median house value in Levin is currently 528 grand, like Andrew told you. It's down about 2.4% on last year, so still falling a little bit, but not massive drops like what we've seen. So, you know, I think that being able to buy a three bedroom house in a town of about

• 4:59Speaker 00

  20,000 people for about 530 odd K, I still think like, it's a decent price, right? Now, you've always got to think about what, what you get for that and the value from it and how far away it is. But in terms of just that raw number, I actually have a reasonably favourable view of the average house value.

• 5:18Speaker 01

  Test number four is, what's the rental return like? So the average rent in Levin at the moment is $470 a week and the median sale price, as we said before, was about $530,000. So gross yield of 4.6%, which is okay, but given that it's a small town, I would probably not accept that as an acceptable gross yield because you can get that kind of gross yield or even better in your major cities where you've got a bit more probably depth to the rental market. Like if I think, I just was looking at a project just before in Auckland, 5% yield. And then these are like, you know, proper three bedroom townhouses. I kind of think, well, if we get 5% in Auckland, that's probably what I'd do if I could afford it.

• 6:02Speaker 00

  The other thing that I'd just say as well, for, for anybody who owns properties in Levin right now, and there've been people have come on for case study Sunday who own property in Levin. We're not saying that you should sell it, right? Like, oh no, the town's done, you need to, need to sell up and get out of there. I'm more analyzing it right now about would I go in right now? Have house prices fallen to such a degree that I would be keen to invest? That's the lens we're looking at this in. Now, I'm going to hand test number three to you because one of the other things I often think about is if I buy a property, how easy is it for me to sell and get out?

• 6:39Speaker 01

  Yeah, so this is something that people never think to check. And, and if you're thinking about a small town, this is one that can really catch you out because in Levin at the moment, it takes 42 days to sell a house. The national median, that's actually 50 days. And if we're talking numbers of like quantum of sales, 464 properties sold over the last year in Levin and 43 were listed last month. So roughly 500 listings per year against 464 sales. Well, that means most of them actually went through with a transaction and people actually end up buying the property. So very few were listed and then taken back. So supply and demand kind of match up quite well here.

• 7:21Speaker 01

  And so if I was an investor, I'd be kind of wanting to see, well, how liquid is my illiquid asset? So how quickly can I get my money back if I need to?

• 7:31Speaker 00

  And so you'd probably say that's reasonably good for Levin, actually.

• 7:34Speaker 01

  I think so too.

• 7:35Speaker 00

  So reasonably low property prices, they are transacting, yield might still be a little on the low side for a small town. So things have certainly improved since the last time we reviewed Levin. But one of the things that I really think about before I'm like, okay, something can improve, but still not be at the top of my list, right? So that's why I always think about, well, is the area still overvalued? And again, this is, was a large part of the argument we had back in 2021. Now, if we look where Horefenua district is, where Levin is located, it's still about 12% overvalued. So even after four years of falling house prices, because everywhere else has also

• 8:18Speaker 00

  fallen in value, it hasn't necessarily fully made up for or fallen enough to compensate for the fact that it was so overvalued. So I still think that it is more expensive than it should be. Now, when I say expensive than it should be, what I really mean by that is over the last like 30 years, the average value of a, a property in Levin was 45% cheaper than the average house price in New Zealand, right? So 45% cheaper or 46% cheaper. At the moment, it's only 40% cheaper, right? So I would expect either the rest of the country to appreciate at a faster rate than

• 9:03Speaker 00

  Levin, or I would expect Levin house prices to continue falling relative to the rest of the country. So that's the reason why I'm like, it's still overvalued. Either I think it's going to flatline for a bit while everywhere else appreciates, or I think it might continue to decline in value, whereas the rest of the country might start to flatline a bit more. So I anticipate there'll be some sort of that dynamic going on. So that's why five years ago, I was like, yep, Levin will have its heyday again, but it's going to take time. Well, we've been through five years of it or so, where we've actually seen those property values come down. If I think about last time, that Wellington or Wellington region went through a major decline, that was back in the GFC, house prices there were flat for another eight or nine years after that decline.

• 9:48Speaker 00

  So I think, you know, we're five years into the downturn, bang on another five to 10 years of a flat to a market. Yeah, I think Levin will have its day maybe in five years or so, five to 10 years. But that actually also brings us to the final test that I know that you wanted to talk about.

• 10:03Speaker 01

  Test number one, who actually lives there and is anyone actually moving there? Now, back in 21, we said that Levin's population is projected to start declining from about 2033, but now it's projected to grow a little bit, 0.9% a year between 2023 and 2053. But there's a bit of a catch. Levin is already part of one of the 14 districts with more deaths than births. That's called natural decrease and it started for them back in 2020. So the town, they're not going to grow on their own. So they need people to start moving there. They can't just rely on people having kids and just that natural increase for its population growth.

• 10:47Speaker 00

  They're not branding enough. Is that what you're trying to tell me?

• 10:50Speaker 01

  Yeah, they need to, they need to switch off Netflix and let people get to bed earlier.

• 10:54Speaker 00

  Well, you see, the thing is, I would have thought in Levin, I mean, I'm sure it's got a thriving.

• 10:58Speaker 01

  There's not much to do.

• 10:59Speaker 00

  Well, I'm sure, I'm sure there's a, I'm sure there's a couple of good things, things to do, but you would have thought they'd have a lot of time on their hands for the baby making.

• 11:07Speaker 01

  If you're in Levin and obviously not doing anything bad, send either complaint to district to us email.

• 11:14Speaker 00

  But just speaking about people moving into Levin, I always thought the reason that people, especially in 2021, 2020, were moving up the coast to Wongonui and Levin and Palmerston North was specifically because they were the cheap option, right? Wellington house prices had absolutely spiked. They'd gone off like a frog at a sock. They were up about three times what they were 10 years earlier. And so these smaller towns up the highway got people moving there because it was the cheap option. But now Wellington City is about 31% below its peak, right? It's the cheapest it's been in years. And so that natural advantage that Levin had, which was it's cheaper than Wellington,

• 11:59Speaker 00

  has somewhat been dissipated because house prices have fallen, but Wellington house prices have actually fallen even further. And so it doesn't necessarily have that same benefit than it previously had. Now, I think as the main cities start to recover, you might see that, that some of these smaller towns regain that benefit and people will start to look at it again. The other benefit that it had, of course, was with more people working from home and working remotely, these smaller, cheaper towns became more attractive because you didn't have to go into the city as much. That seems to be changing a bit as well. And so the shine, in my view, is being taken off. So if you ask me about my take, I'd say it is definitely better in terms of the numbers over the last five years,

• 12:44Speaker 00

  but it's not yet at the place where I'm like, that's absolutely where I'm going to jump in. But having said that, I think, give it another five years or seven years, and I might be jumping up and down, talking about how much I love Levin, right? Because every area in the country could be a good place to invest based on whatever's happening in the market at the time. And our job is to try and read the tea leaves and the data points to try and understand where do we think the most opportune area is right now? But things do move somewhat slowly, right? An area that I was like real dark on five years ago, it's not going to be the area that I'm like throwing my panties at five years later. So for instance, Mackenzie District in Twysall is an area that I'm real dark on at the moment.

• 13:28Speaker 00

  In five years, I won't be like so excited about it. But give me 15 years and I could well be, right? I mean, what's your take, Andrew?

• 13:35Speaker 01

  Yeah, I definitely agree that it's going to take a bit more time for this to become exciting again. Same with Wellington. Someone asked me just today, when do you think Wellington's going to kind of start to recover? I kind of think three or four years before you're going to see any kind of meaningful movement there. But Wellington, as we've seen in the past, can be flat for a long period of time and then it can go bananas, just not today.

• 13:57Speaker 00

  Well, let me ask you this. What would need to happen in Levin for you to be hot on it?

• 14:01Speaker 01

  To be honest, Levin's not going to be a place that I, I kind of, I kind of see it as it's off the back of somewhere else. Like it'll be Wellington getting quite expensive again and then people flowing onto a cheaper area. But personally, it wouldn't be somewhere that I'd ever be that excited about. But that's, that's how someone might buy into it.

• 14:19Speaker 00

  Yeah, but having said that, I mean, there are definitely investors who have done really well in Levin, especially those who, who bought properties when they were 150K and now they're 450, 550K, right? So some people certainly have made a lot of money, right? The question is whether that opportunity has now closed and there are other opportunities elsewhere that we've got to go for. The other thing that stood out to me about this guy's story is that the average house value in Levin or median sale price for a property in Levin back in 2021 was 600 and something thousand, 650K. And he paid $930,000 for a property in Levin at that time. And it really stuck out to me because I thought that is a very, very expensive property

• 15:04Speaker 00

  for what is meant to be a very, very cheap town. What's your take on that?

• 15:08Speaker 01

  I think we can always talk about properties and by their averages or areas and their averages. That doesn't mean you can't get a good or a bad deal and it's not necessarily property specific. And remember, we're also, you know, talking about this on the way that we're quite growth focused with a lot of our things like considering overvalued, undervalued. That doesn't mean you can't find an investment that's suitable to you.

• 15:32Speaker 00

  Okay, I can see how if it was, because we don't really know anything about this property, if the property had three units within it and they were all renting really well and his yield was very high and he was like really going for yield, I can see how that actually might have been a decent price to pay. And over the last 15 minutes, you've learned, should you buy a property and invest in Levin? What's happening in the Levin property market right now? Where it could go over the next few years? And how long before house prices take off again? Right, let's wrap it up there, but please don't forget to rate, review and subscribe to the podcast. Really does help us get the message out to more people.

• 16:10Speaker 00

  Thanks for listening to the Property Academy Podcast. I'm your host, Stephen Knight. We're going to be back in tomorrow with even more daily strategies, tactics and insights to help you get the most out of the new selling property market. Until next time.