Property investment gems in New Zealand's South Island

Auckland's reign as the premier property investment location in New Zealand is at an end (for now). In fact, the Real Estate Institute of New Zealand's (REINZ) October report shows that the median property value in the city stayed the same during the year ending this September.

As Auckland's market slows, countless locations throughout the South Island have picked up, offering lucrative opportunities for those willing to take them. With a lower price of entry than many of the North Island's cities, and massive scope for growth, these hidden southern gems could be ideal for your next property investment.

Queenstown and Wanaka

The Lakes District is one of the country's most beautiful locations, and supports thriving tourism and hospitality industries. Factor in a shortage of rental properties, and the market here sits on a strong foundation for long term growth.

The REINZ report shows that the median property price here grew by 8.2 per cent over the year ending August, and 17.9 per cent over the prior year. The slowdown may be a symptom of the Reserve Bank's tightening of investment lending restrictions. However, thanks to consistent demand it's likely the market in Queenstown will remain strong.

QV data shows that due to the high prices in the area rental yields are low, averaging 3.2 per cent in Queenstown Central and 3.7 per cent in Frankton and Arrowtown. Average rent in the region did however increase considerably last year, with Queenstown Central increasing by 21.5 per cent, and Wanaka by 17.6 per cent.

Thanks to low yields, investing in this region is a capital gains game. Find a way to add value to a property, or look for assets in growth suburbs to maximise your property's potential.

Nelson

Nelson's economy is on a hot streak, according to ASB's most recent Regional Economic Scoreboard Report. In fact, it's been the best performing region for the last three quarters, beating out Auckland, Wellington and Christchurch to take the title.

Strong economic growth is often a precursor for population increases, rising consumer spending and of course a thriving housing market. Despite that, the REINZ's most recent results suggest that the median price has decreased in the region since August, falling from $520,000 to $481,000. It's likely that this change is caused by pre-election hesitation and the usual downturn as summer approaches.

The city's year on year growth figures are more promising, however. Over the 12 months up to September, the median price grew by close to 7 per cent, and by more in certain suburbs. QV data shows that home values grew by 12.6 per cent in Nelson central and 11.3 per cent in the Port Hills area during the same period.

Look for fast-growing areas near the city and your property should experience strong value growth and enjoy a rental yield north of 4 per cent.

Mackenzie district

If you're willing to invest in a slightly unconventional location Mackenzie may be worth considering. This district forms part of Canterbury and comprises several small towns, including Fairlie and Twizel. It also boasts the fastest growing property prices in all of the South Island, according to REINZ data.

Over the year ending September, the median price in the region grew by 41.7 per cent (that's more than even Auckland's hottest year of growth). What's more, the entry point into the area is fairly low thanks to an average price of just $455,000. For those reasons, if you can find a home for sale in the region it may just be worth snapping up.

Despite impressive growth, it's important to acknowledge the risk of investing in such a small area. With a population of 4,158 as of the 2013 census, finding a tenant could be challenging. To minimise that risk look for properties that are already tenanted, or ensure you buy in areas where demands for rentals are the highest.

Dunedin City

Dunedin is a wholly unique property investment location. There are two main options for investors: the student market near the university, and the family home market in South Dunedin and suburbs outside of the city centre.

The student market tends to offer more potential for capital gains, however, there's a chance you'll incur higher maintenance costs. Leases are also unique for student accommodation - they tend to run from January 1 through to December 31 with new tenants annually. Locations close to the university and in the Botanical Gardens area are often the most desirable, and may return higher capital gains.

On the other hand you've got areas such as Mosgiel and South Dunedin, where local families rent. This may be a more low risk, low maintenance option. The REINZ's data shows the city's median property price increased by 16 per cent over the past year, so whichever option you choose it's likely your investment will grow in value.

Before you dive into a southern market deposit first, do your research and seek the advice of a local real estate agent who specialises in property investment. Armed with the right knowledge and expert advice, you'll find these areas can offer similar, or better returns than New Zealand's northern centres.