Deals in Christchurch City Centre

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The rental oversupply is lessening and opportunities are presenting in the Garden City centre, writes Louise Richardson.

Monday, April 30th 2018, 8:00AM

by The Landlord

A natural disaster can change a city or town’s dynamic in ways that were previously unimaginable and that’s certainly what’s happened in Christchurch.

Seven years out from the shake in September 2010 and the much more deadly and destructive earthquake of February 2011, a lot of the housing that was marked with a red sticker in the aftermath has been replaced with new-builds, superior in quality to the destroyed properties. These owners are settling in, finally, with thoughts of selling far from their minds.

Additionally, most owners of repairable dwellings are also now back in their homes and many of the hundreds of tradespeople and associated rebuild workers who moved in immediately after the quake have finished what they started, and left the city.

Interestingly, in January, Christchurch City Centre was the most searched South Island location on Trade Me Property, with 8000 searches. There’s clearly no lack of interest in the local market – just a notable lack of action.

So, it’s understandable that Christchurch Central which extends beyond the CBD to Addington, Bishopsdale, Papanui, Fendalton, Ilam, Merivale, Riccarton Richmond, Shirley and other surrounding suburbs is being widely described as flat, although QV reports that there was slight growth in value of 0.8% over the last quarter, which may provide justification for guarded optimism.

Oversupply lessening

For some property investors the high-supply of stock is bad news, particularly if they are being forced to join the still-small, but rising, number of owners selling at a loss in the Garden City, unable to positively gear their investment while facing increased costs due to impending tenancy regulation.

And although rental oversupply in the city is generally accepted, Christchurch rental listings on Trade Me have fallen by 19% in the year to January 2018.

Nigel Jeffries, Head of Property at Trade Me says that’s actually a good thing in many ways as there had been a huge surplus of rentals leading to lower rents in the two years prior, dating from about the time that temporary residents started leaving the city.

“It certainly hasn’t turned into a situation with too few rentals yet,” he says.

He suspects that increased costs, low growth and maybe impatience with the market may be motivating some landlords to get out of the investment business.

“But I’m broadly optimistic that values are going to improve there but it won’t be by a lot – at this stage, maybe 1-2% this year.”

Jeffries says that Trade Me is creating around 25 jobs in Christchurch – partly because the company believes in having representation in centres outside Wellington, but also in the expectation that the Christchurch Central property scene is going to improve in time.

“If enough businesses do this, it will hopefully help to stimulate growth.”

What tenants want

Naturally, if you want to rent out a property in Christchurch, quality is key; if a dwelling – especially an apartment, town house or unit - all of which are enjoying a current upsurge in popularity, is well-presented, with insulation and sufficient heating already installed, there will generally still be suitable tenants around.

However, landlords have to accept that the letting process can take time, and they will need to be able to cope financially while they wait.

Sharon Layton at Quinovic Merivale, a suburb that retains its reputation for quality dwellings, has extensive experience in the local market and she too believes that things will eventually pick up in Christchurch Central but agrees that the changes over the last two years have been fairly dramatic in terms of the drop-off. Nevertheless, she did have a surprisingly busy Christmas and New Year period. However, since then, it’s been quiet again.

She says that tenants now have so much choice on offer in the inner suburbs that they take their time, applying for a number of rentals - and then go with the one offering the best deal, disappointing those landlords whose often high-quality properties are being rejected.

Market Outlook

Layton goes on to say that it’s nothing like the immediate post-quake days when property owners - some of whom were savvy professional investors while others were ‘accidental’ landlords - could charge sky-high rents and have potential tenants literally beating a path to the door.

“Basically, I believe that even if the earthquakes hadn’t happened we’re now at about the same point with the market as we would have been without them. Growth wasn’t especially strong before the quakes and it’s really level at the moment,” she says.

And asked whether investors should still be looking in Central Christchurch now, she says yes, but adds that they need to have a long-term plan and be prepared to ride out static rents, slow growth in value, and the possibility of interest rate rises.

“Anywhere in the four avenues is still a good bet if you know what you’re doing as there will always be demand in there.”

Canterbury Property Investors’ Association president Steven East is another who sees Christchurch central as a slow and steady part of town.

“It’s never been a gung-ho sort of market, apart from just after the quakes, but it’s basically quite reliable and there are still some good deals around, in those suburbs close to the centre.”

He says that with the opening of new entertainment strip – The Terrace, the CBD itself is coming back to life and with its new dynamic will likely see more people wanting to live in that vicinity.

“The as-is where-is opportunities are still there but some owners have adjusted their price expectations for these ones up a bit. If you can afford to buy one, do it up and reinsure it, I certainly wouldn’t be advising against that.”

Where to buy

Investment sales expert Angela Webb from Bayleys, Canterbury, says that she too sees scope still for successful purchases. She cites Lynwood as a place that has good potential – especially on the city side.

“There are still lots of character homes there and it’s quite affordable. It has good access to all the things that are being built and developed centrally such as the new sports stadium, for example.

Webb recently bought a property in the family-friendly area of Avondale which is surrounded by the red zone, not far from the river.

She expects that in time, once now empty sections and streets are developed into parkland it will become very popular.

The property consists of a four-bedroom house and a one-bedroom attached flat at the rear.

“I bought it from traders who had picked it up privately from the original owner who had cashed, settled damage and kept the money,” she says.

“I paid $260,000 for the property and embarked on a huge amount of work, which started with levelling, floor repairs, repainting, removing liquefaction, doing repairs to the foundations and to a leaking roof.

“Next up was new floorcoverings, curtains and blinds and I tidied the bathroom and kitchen. After that there was landscaping and new fences.”

Webb says that the process took longer than she expected and cost more than she’d budgeted (at $100,000), largely because of the engineers’ reports and other red tape with council, contractors and insurers.

‘I approached the bank with valuations and insurance in place to finance at 65% and pull out $300,000,” she says. Because I spent more than planned, I had to leave around $70,000 cash in the property.

The time taken to get insurance once it was all fixed was a little longer than Webb expected, as was the time it took to find tenants, but she’s very happy with the outcome now. From start to finish the project took five months.

The front house is bringing in $420 per week now and the back house $260. Now valued at $460,000, Webb’s return is 9.5%.

“I’ve created equity and it’s good to have multi-income cash flow,” she says.

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