Christchurch West
by The Landlord
Christchurch West
Nearly seven years since the first in a series of devastating earthquakes rocked Canterbury and its people to their core, the local property scene stands in sharp contrast to many other parts of the country.
Residential ‘Joe average’ properties and even glossy new-builds in Christchurch’s north west and south west are currently seeing only modest capital gains, but the future isn’t necessarily bleak.
Initially, following the disaster, Canterbury as a whole experienced a red-hot rental market, peaking in 2015, but has now found itself in the opposite situation, with supply outstripping demand.
Many families who required short-term lets following the earthquakes and tradespeople who came to deal with the initial reconstruction period are now back in their homes or have returned to where they came from.
The artificial spike in rents has now dissipated. Trade Me reports the median rent across Canterbury in February 2017 was $395, having gone down every month since its $435 peak in March 2015.
In many cases, landlords are struggling to attract new tenants - even offering incentives, such as a week’s free rent - or allowing pets where they wouldn’t have done so previously.
Bayleys Property Management director Lisa Iliffe says what’s happening in the north west and south west is basically what’s happening throughout the city.
“It’s quiet everywhere in terms of rentals and there is definitely surplus stock. The winter months are always slow and while there’s a four-week lead time for finding tenants now, we expect to see that to rise to six weeks soon.”
The April Monthly Property Report from REINZ notes that investors (along with first home buyers) are finding it difficult to get finance throughout Christchurch and, as a result, most purchases are currently being made by owner-occupiers, buying in the mid-high section of the market.
It shows that entry-level houses, beloved by investors, are out of the reach of many for now - especially as the new LVR restrictions requiring 40% deposit for an existing property kick in.
Investment Opportunities
Iliffe believes that with house prices dropping and interest rates looking likely to remain low for quite some time, landlords who buy quality rentals will generally be okay.
“If the house is warm, with good insulation and a heat pump, there will be tenants for it. Although there have been schemes to help investors put these into their properties, many haven’t done so and that will be holding them back now.”
Some industry insiders expect that low rents may eventually attract residents from elsewhere seeking a new life, or inspire those who’ve departed to return to the city.
Worth considering too is that the suburbs in Christchurch’s northwest and southwest are close to amenities, good schools, handy to the city centre and are certainly enjoying a period of post-quake infrastructure growth and rejuvenation with more new retail outlets, sports facilities and transport connections expected to come on-stream over the next year or so.
Merivale, St Albans and Fendalton are just as gracious as ever, with excellent boutique shopping, cafes and restaurants.
Riccarton and Hornby Malls are extremely popular and still expanding, while exciting, vibrant new retail, parkland and office space is currently being developed at Wigram by Ngai Tahu.
Growth Ahead
Canterbury’s population is currently growing at around 12,000 people per year according to Stats NZ and new tenants will be seeking well-insulated, well-kept homes in centrally located suburbs.
Canterbury Property Investors’ Association president Stephen East says there are many areas in West Christchurch such as the Wigram Skies development that will be attractive to new renters and to investors.
He’s also a big fan of Riccarton. “It’s large, well-serviced, and within easy reach of the university so it’s always going to be a good bet.
“Hornby is strong right now with commercial and industrial units on its outskirts making it attractive to families. Halswell is another nice, leafy suburb with lots of three-bedroom detached housing, whereas in Riccarton you might be talking two-bedroom units.
“The key is in presenting your properties well, and accepting that the market is soft so you may need to accept a lower yield in the immediate term.”
Trade Me Property’s Nigel Jeffries says that ‘the devil is in the detail’ when it comes to investment strategies anywhere in Christchurch and good research is essential.
Jeffries suggests looking for properties on a large site where there’s potential to add another dwelling and therefore a second income stream. He believes the Christchurch market is about to hit rock bottom, then, in six to twelve months, the over-supply should start to ease.
Investors Jason and Catherine Pegley bought some properties on the east side of Christchurch in the wake of the quakes but the west ones they already had have done much better.
“We like to stay cash flow positive and you don’t get that in the east,” Jason says. “We bought a site with two houses, one three-bedroom and one four-bedroom in Papanui before the quakes, for $400,000, and they’ve almost doubled in value.
“We had some money left over after earthquake repairs and renovated them, then put the rent up and haven’t had to reduce it. The return on these is about 10%, which we’re happy with. The smaller one is about to become vacant again and we accept that we might get less per week, but that’s okay for now.”
The couple have another west side rental on the border of Fendalton and Bryndwr. It was a solidly built ex-state house which survived the quakes virtually unscathed.
“We paid about $440,000 for that one about six years ago and it’s worth about $600,000 now,” says Pegley, adding that it’s cash flow positive, but only just. Of course you don’t get rich on cash flow but on capital gains and the plan, eventually, is to knock that one over and develop the site.”
The Pegleys’ only other property in the west in Strowan, which lies between Merivale in the south, and Papanui in the north. It was $630,000, ‘as is where is’, and again it is a forward-looking investment with redevelopment on the cards.
“Overall, it is an unusual market, of course, but I believe that in the long-term, anything you buy over this way is going to turn out well.”
Renting room-by-room
Positive Real Estate property coach Sue Irons points out that the west has easy access to Christchurch airport which is always a drawcard.
“From a location and expected growth point of view, it should hold its value over time.”
She says that there isn’t a lot of room here for infill housing or development, which should push values up eventually.
Irons also cites a growing demand for ‘room-by-room’ rentals for the corporate tenant. “And there’s still a market for letting to companies, whose staff fly in and out as they work on the rebuild,” she says.
While the market is currently flat, she believes that as workers return to the city centre, values and rents will increase again.
“We consider Christchurch to be a sensible place to buy, for the investor who is prepared to take a long-term view,” says Irons.
“Property prices are lower than in Auckland and Wellington, generally speaking, so purchasing something new with a 20% deposit at the bottom of the market works over the long term.”
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