The 14th of February 2023 will go down in local history as one of the worst natural disasters to hit our region as Hawke’s Bay endured the fury of Cyclone Gabrielle.

The unprecedented level of devastation and loss faced by the community in the aftermath has been immense. The primary focus of this article is to summarise the process now in place for owners of Category 3 properties regarding the Voluntary Buy Out Policy (VBOP) adopted by both Napier City Council (NCC) and Hastings District Council (HDC).

In May 2023, the Government announced three risk categories for Cyclone affected land with the most ‘at risk’ areas referred to as Category 3 and being areas “not safe to live in because of the unacceptable risk of future flooding and loss of life”.

The HB Regional Council then carried out the process of assessing all flood affected land, applying Category 3 status to land where “Future severe weather event risk cannot be sufficiently mitigated. In some cases, some current land uses may remain acceptable, while for others there is an intolerable risk of injury or death.”

This policy does not set a precedence about how future natural disasters will be dealt with but is in recognition by the councils of the substantial impact that the Cyclone has had on people’s lives and the risk associated with people continuing to live in these Category 3 areas. The Councils acknowledge that there is significant loss and damage beyond what is covered in the policy but is governed by its scope which is limited by the terms of agreement with the Crown.

Some of the land classed at Category 3 in HDC is Whenua Māori and this Policy is not intended to apply to Whenua Māori as the Crown has undertaken to consult directly with affected mana whenua and tangata whenua. The VBOP is pertinent to landowners of Category 3 assessed land.

Those eligible are owners where property is ‘Residential Property’ (land on which one or more dwelling was located on the land, two hectares or less in size) or a ‘Mixed-Use Property’ (land on which one or more dwelling was located and is greater than two hectares regardless of whether activities other than residential were occurring on the land at that date) and based on a retrospective market value as at 13 February 2023.

The owners must sign and adhere to the preliminary agreement and the policy is based on TWO primary bases, a Property Purchase Offer, and a Residential Relocation Offer. Owners of Residential property can elect to choose either offer at the initial meeting or at the time of the Council’s offer, however, owners of Mixed-Use properties are only eligible for the Residential Relocation Offer.

What is a Property Purchase Offer – the purchase by Council of the Residential Property.

If the property is not insured, the payment will be for the market value of the property less a deduction equivalent to what would have been payable under the earthquake Commission Act for damage to the land had it been insured. If the property is insured payment will be for market value less any insurance proceeds that have not been spent. If owners retain the insurance proceeds related to the dwelling, payment shall be made for the market value of the land less any payment under the Earthquake Commission Act 1993 for damage to the land that has not been spent, in good faith, on repairs to the land.

What is the Residential Relocation Offer – the purchase by Council of any dwellings/improvements on the property (including any necessary rights to undertake demolition and/or, removal of the dwelling and residential improvements, and site reinstatement related to the demolition (including removal of septic tanks and capping
of wells), but whereby the Owner can retain ownership of the land with a covenant in gross in favour or similar legal instruments registered on the Title ensuring:

No residential activity may occur within that part of the property categorised as Category 3.

The owner shall not oppose or otherwise participate in or fund any third party to participate in any regional or district plan change or variation, or similar proposal, which seeks to remove or restrict the ability to undertake residential activity within the locality of the property. Under this offer the owners will receive a Relocation Grant which is a payment to the Owner in an amount that represents the difference in the market value of the land with and without the right to rebuild a dwelling on Category 3 land.

Where the property is not insured, payment is for the market value of the dwelling and residential Improvements. If the property is insured owners can elect for a payment that will be for market value less any insurance proceeds that have not been spent or to retain the insurance proceeds and take up the Relocation Grant for which they are eligible.

The Valuation Process
Councils’ will require a retrospective market valuation from a Registered Valuer. Owners are also eligible for reimbursement of their own valuation and legal advice up to a maximum of $5,000 and Councils will base its voluntary offer on the valuation advice received.

The Owner’s valuation report will only be reimbursed up until the time an offer is made by Council and the Owner cannot progress to the Offer stage without a Council Commissioned valuation. In this instance Williams’ Harvey has made the decision not to sit on the Council panel but to act for Owners seeking their own independent valuation advice.

The full policy document is publicly available online on Councils’ websites and describes in detail the process, special circumstances and disputes process available to owners.

When Damon told me that this issue of The Profit was going to feature 150 years of Hastings City and look at some of our longest established business, I thought it appropriate to dig into the Harvey family history, as there has been a long association with the Harvey family providing real estate and property valuation services since they stepped off
the boat in the 1870’s.

In fact, the Harvey family, who originally came from Cornwall were involved in property there too. You could say property is in our DNA. It all started when Elizabeth and Thomas Harvey sailed from Cornwall on the SS Helen Denny from the UK to arrive in Port Ahuriri, Napier on 22 October 1874.

Thomas’s three children, William, and his half siblings Elizabeth and John also made the journey. The two half brothers, William who is my great great grandfather and John Thomas originally bought a horse and coach business from the Crowther family.

However, in 1918 they established their own business known as Harvey Fulton and Hill, Public Accountants and Land Agents. This business originally covered Napier but later expanded to cover Hastings as well. My great great grandfather also a staunch supporter of the preservation of scenic spots in the province, and resolutely fought (though unsuccessfully), for the preservation of Balls Clearing, a bush in the Puketitiri district, and the area known as the Turangakumu Bush on the Napier-Taupo Road.

He was also a strong advocate for the East Coast Railway, and at the same time he was partly instrumental in the determined efforts made to have the Lake Waikaremoana Hydro Electric Power scheme developed. He was a member of the provincial committee that laid the foundation for the establishment of the Hawke’s Bay (HB) Electric Power Board. William, and his wife went on to have four children, of which the two boys, William Thomas (Bill) and Norman also went into the family business of Harvey Fulton and Hill continuing William’s legacy who died in 1945.

From 1932 Bill managed the Hastings office and became the General Manager of Harvey Fulton & Hill in 1965 when he bought his brother Norman out. Norman continued to run a real estate business in Napier until the early seventies, and then he moved to Auckland. So, the now Hastings based business of Harvey Fulton & Hill progressed.

My grandfather Bill Harvey was also a Registered Valuer. Interestingly, back in those days he was registered under the Valuers Act of 1948 when became a registered valuer for good behaviour and ability, no exams required – bit different to the current state of play! Bill was also the Hastings City Valuer and was very involved in the acquisition for the Council (Hastings City Council) of most of the land at Flaxmere.

Consequently, the Hastings City Council developed parts of Flaxmere to the extent of what we know today. My grandfather managed the business right up until his untimely death from cancer in 1971 and then my father, William Jens (Jim) took over the business. Under Jim’s tenure Harvey Fulton & Hill merged with Barry Long Real Estate, and for the first time since its inception Harvey Fulton & Hill had a name change becoming Harvey Fulton & Long being a Real Estate Agents, Valuers and Auctioneers, with the firm’s auction rooms situated in Russell Street in a location that we held from 1932 until the property was sold to become part the Bay Plaza development.

Dad, Jim Harvey was involved in Real Estate and Valuation and was President of the HB Real Estate Institute, Chair of HB branch of the Valuers’ Institute as well as receiving the Government appointment to become a member of the HB Land Valuation Tribunal, a position he held for about twenty-eight years. In 1997 the two branches of the family met up again when Harvey Fulton and Long became part of the Harvey’s Real Estate Group, which was founded by Norman’s son Ross Harvey, continuing the tradition providing both real estate and valuation services. However, in 2006 I bought back the valuation division within the HB franchise and set up Williams’ Harvey as an independent valuation practice. My career has been property focused but diverse giving me broad knowledge of the property industry in New Zealand (NZ).

Starting as a Property Manager at NZ Rail in 1990 I was promoted to be one of their youngest Area Managers until embarking on my OE in 1994. On returning I joined the family business selling residential/commercial real estate. After completing my valuation registration in 2001 I then became the General Manager for Harvey’s Real Estate, Hawke’s Bay and managed four business branches with over 50 staff through setting up Williams’ Harvey Registered Valuers.

In honour of my forebearers, who have all named their first-born sons William (known to their peers by their second name) and since William Harvey founded the first business four Williams’ have been valuing property or selling property in the region since 1918, hence the company’s current name Williams’ Harvey.

I am proud of the team, the business and the fact that I am the fourth generation Harvey involved in a business that started over 100 years ago.

There is nothing like a natural disaster such as Cyclone Gabrielle to once again have the spotlight shone firmly on ensuring your property is adequately insured in the event of loss and damage.

The way Kiwi homes were insured largely changed following the devastation of the Canterbury earthquakes with a shift from guaranteed full replacement or undefined cover to a defined cost of replacing a home which is destroyed referred to as ‘Agreed Value or Sum Insured’. Primarily the shift meant that insurers had a more accurate way of defining what their exposure was in the event of damage or loss.

However, as a result, there is a mixture of policies available in the market but unless you have a current Replacement Insurance valuation you risk being underinsured. When homeowners are asked to come up with an agreed amount to replace their house, homeowners think of just the house itself and will use a dollar rate per square metre to approximate the replacement cost, which may be reasonably accurate.

However, there are other important aspects to consider, such as demolition, site works and inflationary provisions, which all cost, as well as the replacement value of your home. If your house is damaged or destroyed by fire, there is a very genuine cost attached to removing/demolishing the existing structure so that you can commence work on your replacement, if demolition is not considered this sum simply gets deducted from your Agreed Value and you have less money to build your new home.

If your home is destroyed on the last day of your insurance policy there is 12 months’ worth of inflation on building costs, although it is likely to be considerably longer than that before you can rebuild. Demolition, drawing plans, getting council consents and then the build time could easily be another 12 months, meaning potentially 24 months on inflationary provisions will be required, if not allowed for, again you will simply have less money to rebuild with. This is also true of site works such as concrete sealed paths and drives, fencing, landscaping, clotheslines and even your letterbox. To replace them they all have a cost that needs to be accounted for.

If homeowners have not factored these costs into their Agreed Value, they will be the ones paying for the site works should they be faced with loss or damage to their property. The sum to replace a metal letterbox is negligible; however, the cost to replace 300m² of concrete seal is not. Just working out a per square metre rate on your house, will not in the future translate to full replacement as we currently understand it.

However, you can get a Replacement Insurance Valuation from a Registered Valuer to ensure you are properly insured and can replace your home with the same size, scale and quality as the home you had before the disaster. Whilst many New Zealanders remain fee averse about paying for professional advice, it’s important to remember; your home is your most valuable asset and worth properly insuring. Furthermore, I wrote in June 2022 about the significant coverage given to the rapid escalation of costs within the New Zealand (NZ) construction sector.

The escalation was so rapid that even if your policy includes an automatic inflation guard to cover annual inflation, your coverage had probably not kept pace with this unexpected spike in building and labour costs. To be protected against loss, your coverage should equal the cost to rebuild. An accurate valuation is vital to ensure policyholders have appropriate coverage in the event of a loss as this will allow you to replace your asset in the event of a disaster and this will directly impact the values assessed to ensure your property is adequately insured.

How does this Impact your Replacement Insurance Value? Firstly, it’s important to understand that Market Value (MV) of your property can be very different to the Reinstatement Value which refers to the cost to replace your asset today, to the same size and scale, considering modern equivalent technologies, materials and services.

Therefore, cost does not always equal value and if you have older premises, the cost to recreate may well be above the asset’s current market value (MV). However, with construction costs rising quickly in a comparatively short period and with most property insurers on an ‘Agreed Value’ policy, this means anything over and above that amount will not be paid out if the property needs repairs or a total rebuild.

As a result, you could discover that your existing policy limits and coverage no longer offer adequate protection. Considering these ongoing cost concerns, insurance companies are being proactive and asking for more regular valuations compared to five years ago. Property owners need to be proactive too and the most prudent thing they can do is to make sure they have a current replacement insurance sum that is as accurate as possible.

Unfortunately, insurance companies have already signalled that due to rising construction costs, an increase in claims due to the impacts of the cost escalations as well as the increased cost of reinsurance, premiums are signalled to go up.

Williams’ Harvey undertakes a retail shop occupancy survey of the Hastings City CBD twice a year in April and September. Undertaking the most recent survey it was apparent that much of what the Hastings District Council (HDC) set out to achieve under the ‘Hastings City Centre Vibrancy Plan’ is coming to fruition.

The plan’s key target and outcomes were to encourage more people and more business by creating an environment and activities where customers, workers, residents, students and visitors could experience and enjoy the Hastings city centre. Given this was started pre-pandemic it is pleasing to see that so much progress has been achieved and the results are being experienced by many. The survey is based on retail shop numbers and includes main street retail, side street retail and overall retail vacancies. Shops that are empty whether leased or not are classified
as vacant, as are shops that are advertised as closing down.

Relocating shops are included as vacant in the block they are leaving but excluded from the block they are moving to. Our last survey, completed in November 2022 recorded
a slight lift in vacancies up to 11.24% from 9.68% in April. This equates to 30 premises being vacant as opposed to 24 premises. However, with all the new developments finishing, shop numbers have lifted from 248 to 267.

So whilst vacancy numbers look higher than the previous surveys, 19 new shops have been added and thirteen  ew tenancies which is very encouraging considering the impacts of Covid-19, The 300 East Block has seen big changes in the last year with the renovation of the Municipal Building now complete and includes three new hospitality premises that open to the Heretaunga Street East  frontage. Other premises to this side of the street are a Church premises and HB Today while to the northern side of this street there are three retail stores, Fun Buns (eatery) and City Fitness Gym. The overall general street environs have also been enhanced.

The eastern retail blocks known as the 200 and 300 East Blocks of the Hastings CBD have seen quite major developments in more recent years. These two blocks form part of a precinct the HDC identified as potential entertainment areas which have seen the street environs remodelled to provide for footpath dining areas, multiple planters separate curbside parking from the footpath areas and the overall general street environs have been enhanced.

A pocket park has also been developed around the corner on Warren Street. The 200 East Block has transformed with several of the building owners being part of the revitalisation. This gave other landlords and developers the confidence to reinvest in this block.

Historically, this block had fallen out of favour with retailers and experienced high vacancy levels and poor quality of tenants on short lease terms residing within the block. While not in the main retail strip there have been other substantial developments to the east end of town which have assisted in making this location very attractive to the retailers and bars/eateries.

These include the refurbished Toitoi: Hawkes Bay Arts and Events Centre, the multi-level Quest Apartment Hotel building currently under construction to the rear of the Opera House, The large commercial development known as the Tribune positioned on the corner of Karamu Road North and Queen Street East is now occupied by a range of retailers, Brave Brewery Bar and Restaurant and upper-level offices.

To the edge of the CBD the HDC has recently purchased a building to be redeveloped for the new Museum Research and Archives Centre and Rush Munro’s have also located Albert Square. The net result of the investment and development to these blocks and other areas at this eastern end of town has meant this part of town is looking fantastic. HDC and developers alike can take credit for achieving the Vibrancy Plans key targets and objectives now being the more preferred and therefore sort after location of the Hastings CBD.

However, it is pleasing to see that the plans for the same key targets and objectives are well underway for the Western blocks with the release plans of a three-storey apartment building, pocket park and laneway between Queen Street West and Heretaunga Street West.

In November last year the NZ residential property market was running hot, as it was locally, evidenced from ever increasing values, the peak of which appeared to be in the latter part of last year. One could only wonder how long the upward trend could be sustained especially as there had been no letup in buyer fervour since the end of the first lock-down in 2020. To be frank some of the value levels achieved were simply eye watering.

Market conditions have a direct bearing on the property’s market value and Williams’ Harvey (WH) accumulates a library of research from numerous commentaries and views of economic/research analysts to build a ‘big picture’ oversight.

Looking at our most recent data sets, the year to date (YTD) Hawke’s Bay volume of sales is down 34.7% from previous month and 33.3% from previous year. It is also well reported that there is plenty supply of houses for sale and yet the volume of sales in Hawke’s Bay is the lowest for the first six months of a year recorded for over 20 years. Furthermore, the amount of time a property is on the market has also increased to 66 days, the highest recorded time since January 2009.

So, with volume down, time on the market to sell increasing and plenty of stock tilting the market towards the buyer, it is not surprising that we are starting to see some downward pressure on house values. Consequently, vendor’s are starting to realise that they have got to accept adjusted values. At the time of writing this article ANZ had also revised its forecast for how far house values would fall, increasing the predicted drop from 12% to 15% from previously.

This adjustment was attributed to the prediction that economists are now flagging inflation to peak at higher rates than first predicted and become less transitory and more persistent in duration. In response the RBNZ has raised the OCR 150 basis points (bp) since February 2022. The most recent MPS announcement (13 July) saw this go up 150 bps to give an OCR of 2.5%. Whilst raising the OCR was predicted, what has been widely unexpected was just how aggressive the MPS forecast track for the OCR would be with another 50bp increase also predicted in August. So whilst NZ joins most other countries as it transits out of its pandemic response phase, the post pandemic ‘new normal’ is still going to be economically tricky for the foreseeable future. The net result being downward pressure on house values.

Since the beginning of the year, we have been put on notice that there were significant head winds that would cool the property market, and these appear to be coming into play However, given the exponential growth experienced by the property market in the last 24 months this also needs to be seen with some perspective. For example, in February 2020, the month before the impacts of the Covid-19 pandemic hit the property market the Hawke’s Bay Median Sale Price (MSP) was $516,000.

The market exploded and peaked in November 2021 when the Hawke’s Bay MSP hit $830,000. The latest MSP data we have for June 2022 is recording a decrease of nearly 17% since November 2021, however, there has been an overall 33% increase in the Hawke’s Bay MSP since the beginning of the pandemic.

NZ continues to operate in a pandemic response environment as the highly contagious Omicron variant runs its course through the population. As signalled, this has and will continue to impact productivity as human resourcing disruptions, a tight labour market and supply constraint issues become part of day to day business management. Also, as signalled, inflation both at home and overseas is the predominant economic nemesis.

These inflationary pressures are further exacerbated by wider economic fallout from the current geopolitical crisis stemming from events in the Ukraine and the flow on effects from rising fuel costs and economic sanctions that will have a direct impact on global financial markets and supply chains.

Subsequently, we are currently seeing a slow down with good supply yet low volume of sales, longer periods to sell and the subsequent easing of values. This is a comparable trend being seen throughout many NZ regions, though it’s important to put this in perspective and remember that before the pandemic MSPs were approximately 33% lower, so even if the market does experience a 15% value decrease, values still remain higher than they did two years ago.

You would need to be living under a rock in New Zealand if you did not realise the property market is running hot.  Against all the predictions and crystal ball gazing buying, selling and developing property went into overdrive as soon as we got out of lockdown last year.  Initially, we thought we would have approximately three months of residual energy after lockdown and then a slowing of the market.  The complete opposite has occurred and as buyers, developers and sellers you need to be prepared when you hit the property market, as turnaround times are now impacted.

Of course, we deal in property all day every day, but for some buying a property either residential or commercial, this is a first-time experience and in the current environment unless you are prepared it can be very challenging. If you need to borrow money from a lending institution you will need to get your finance approved and to know that you can get a loan and what your borrowing threshold is.  Currently, there are more buyers than there is property available which is creating upward pressure on both stock and housing affordability.  If you want to buy a property you need all your ducks in a row preferably before entering the bear bit of buying property.

When buying a residential property, we often get phone calls enquiring how much the fee will be for a valuation for mortgage security purposes.  However, the first point of contact should be with your bank as all residential valuations for mortgage security purposes are ordered by your bank through a panel (Corelogic or Valocity) and a Registered Valuer is randomly selected to undertake the valuation.  In the current environment, there is a six-day turnaround for bank panel valuations, two if it’s urgent but you will incur a penalty urgency fee.  This turnaround time has only recently been extended from four-six days as valuation firms were unable to undertake the work in the specified turnaround times.  Given that we also take direct instructions for a variety of other purposes, for example, relationship property settlement, insurance, trusts, GST apportionment, compensation, planning to name but a few, means that all the Valuers in our office (and we are not alone) have at least six week’s work ahead of them.  Therefore,  it can take a while through the panel to find a firm that has the capacity to take on further instructions even though you are under a deadline.

As Registered Valuer’s we have a duty of care and professional pride to provide best practice work as well as complying with strict obligations to our stakeholders, professional governing bodies and professional indemnity insurers as well as valuing in an uncertain, Covid-19 impacted world.  Valuations are evidence-based and considered and there is a time factor involved, no matter how efficient our systems are. For example, we need to physically inspect, and gaining access to a property can take time, we need to sight comparable sales and then we need to analyse  the evidence to provide a valuation that the stakeholder and client can rely on.  This all takes time if the work is to be robust and considered, especially in the current environment.

The same applies in the commercial property sector where the work is often further complicated by how many parties are involved, leases, the scale of the facility, the special purpose or use of the property and the level of compliance required by the stakeholders and our professional governing bodies, not to mention the increased strictures our Professional Indemnity cover and providing the necessary consideration such a job requires.

To expedite the process, it helps to have as much detail for us to complete the work especially in the commercial sector, such as Deed(s) of Lease, various renewals, insurance premiums, seismic and asbestos reports and depending on the purpose any other information required.  If building off plans, supplying costings, stamped plans and an accurate location of the property is helpful.  We have often lost days going back to the panel/and or client for more information and detail required to do the work.

There is high demand, low-interest rates and not enough property.   This combined with the high levels of compliance, professional best practice and the impacts of the new Covid-19 impacted world we inhabit means that the sector and all its component parts are at capacity.  It is advisable to give yourself time and understand that the turnaround times will be slower even though we are working as efficiently as possible.