Canterbury: Winds of Change

People either love or hate the nor’west wind which blows across the Canterbury Plains and provides blustery, hot and dry summer days in Christchurch. However a different kind of wind is blowing through the real estate market in Canterbury at present as the barometer changes – a light southerly with the portent of dampening prices in 2006 after successive years of stellar increases.

Any confirmed news of a drop in prices is bad for speculators, the highly geared and those just seeking capital gains.

But for long-term property investors, it’s a good omen of opportunities to come.

And for those buying and selling in the same market, it’s not an issue.

Official statistics over the summer holiday season showed a quieter sales market but it is the figures for February and March that will give a truer indication of likely trends.

In the 12 months to December, Christchurch residential property values rose 20.2%, with an average sale price of $301,764, according to Quotable Value. It was the highest growth level for 2005.

All areas increased at similar levels: Christchurch East (21.1%), Central City/Northern areas (20.5%), Southwest (20.2%), and Hills (17.1%).

The Real Estate Institute of New Zealand (REINZ) showed the median property price in Canterbury/Westland eased from $270,000 in November to $263,000 in December but it had been $232,250 in December 2004.
The number of days taken to sell a property rose to 25 from 23 in November and December 2004.

Christchurch city’s median price decreased by $15,000 from November to settle at $280,000 in December, still higher than $260,000 a year earlier.

The market is settling down from overheated to buoyant, REINZ Canterbury Westland president Karen Clark says.

Things are still positive, but buyers’ and sellers’ expectations can be out of kilter and there is a shortage of listings per number of salespeople, she says.

News of business closures and staff cutbacks – Air NZ engineering and sheepskin product maker GL Bowron to name a couple – will affect buying and selling.

Good properties which are carefully and sensibly priced and well presented are selling, but others are slower.
The market began 2006 in much the same vein as it ended 2005, according to Jim Davis, business development manager for Harcourts South Island.

“There is a degree of caution from some buyers. People are listening to the doom-and-gloom propaganda war to talk down the economy and get the exchange rate more in exporters’ favour.

“But it’s too early to say what exactly is going to happen.”

Initial inquiries, appraisals and listings were stronger in January than a year earlier and February, March and April were traditionally the hectic months, he says.

If the doom and gloom merchants are successful, he believes it will have an effect on the market, but not much.

“Should there be a lower New Zealand dollar, we may well see an influx in the immigration statistics.”

English migrants, ex-pats and people moving from other New Zealand centres to Christchurch underpin the market.

There’s a large pool of jobs, with employment split between primary production and the farm service sector, manufacturing, technology firms, tourism, health and education.

People seeking a bit of space in the country are attracted to the lifestyle block market and settle up to an hour outside Christchurch. Four-hectare blocks have proliferated in the Selwyn and Waimakariri regions where the district plans favour such subdivision. Loburn, Ohoka, Rolleston, Darfield, West Melton and Tai Tapu are commuter communities.

Water and sewerage are big issues for development in all parts of Canterbury, as is the vicinity to the flight path at Christchurch International Airport.

In the farm market, 2005 in Canterbury saw some record sale prices achieved for land, with irrigation still a major factor in values, Shane O’Brien, managing director of Bayleys Canterbury, says.

Well-developed Central Canterbury dairy farms with spray irrigation can attract in excess of $30,000 a hectare.

People want to move to Christchurch because of the job market, the good standard of education and the lifestyle which allows people to cross town in 15 minutes. Plus it is price competitive, he says.

Buyers’ first question usually revolves around which school zone a property is in.

ASB Bank’s regional economic scoreboard rated Canterbury as fair to middling in the third quarter of 2005.
Annual growth in the population was 1.1%, employment rose 9%, retail trade rose 6%, house prices were up 19%, new car sales increased 2%, but construction fell 9%.

The National Bank’s regional economic activity measure had Canterbury growing 0.5% in the third quarter and 3.9% year-on-year.

The soaring property prices in Christchurch have led professional investors to hold back, such as Martin Evans, president of the Canterbury Property Investors’ Association.

“I am surprised at the number of investors still buying. People are now more impulsive and more likely to take less return to secure a property,” says Evans, who runs A1 Property Managers and has his own portfolio of investment properties.

Looking to 2006, Evans believes the peak of this particular part of the boom has been reached and prices are likely to fall but it would take a long time before the double-digit annual price rises in percentage terms in recent years are reversed.

In the long-term, looking to between 2006 and 2010, there’s more upside to come, he believes.
Brent Mason, the President of the Independent Property Managers’ Association of New Zealand, runs House of Cameron with his wife, Berwyn. They manage more than 100 properties in Christchurch and have their own portfolio of investment properties.

“There seems to be a lot more resistance from people to paying what I would call ridiculous prices, whereas up until six months ago people would pay almost anything for a property, regardless of condition or where it was,” he says.

He has noticed that the “quick flick” investors are unable to sell for the kind of profit they thought they were going to make.

For Tony Brazier, principal of Brazier Property Investments and Brazier Property Management, 2006 was always going to be a time of levelling off in the market.

That means long-term investors will have their calculators out again.

More listings were noted in the early part of the year, signalling that vendors believe a levelling period is coming and they are rehashing their portfolios, he says.

In the transitional period, there will be more sellers around, but perhaps fewer buyers.

From Evans’ perspective, a positive prospect for investors in Canterbury this year, apart from lower property prices and the opportunity for bargains, is that rents are likely to rise.

In January, properties were rented quickly even though the students had yet to arrive in Christchurch.

“I think rents need to go up because prices have gone up and rents can be less than a mortgage payment.”

An extra $10-$20 per week could be added to a three-bedroom house rent in the current market, Evans believes.

“January was the busiest for two to three years as far as tenants looking for properties,” Mason says.
He had thought rents might drop this year, but so far they have not.

He thinks the market is leaning towards being in a tenants’ favour. “Tenants are becoming more discerning about what they are asking for and it falls back on the landlord to provide a good product.”

Rents are still rising, but the rate of growth has been slowing, Brazier says.

Popular areas included the low socio-economic areas of east Christchurch – Aranui, Bexley and Linwood – which were in constant demand, particularly as new home owners, who could only afford those suburbs, lifted the neighbourhood.

Tenancy Services statistics show rents in these suburbs for a three-bedroom house vary from $230 to $280. Two-bedroom houses attract rent between $200 and $240.

St Albans (3-bdrm $260-$320, 2-bdrm $220-$265), Papanui (3-bdrm $267-$350, 2-bdrm $230-$300) and Addington (3-bdrm $250-$290, 2-bdrm $220-$250) continued to be popular areas.

The beachside suburb of Sumner (3-bdrm $290-$363, 2-bdrm $250-$320) holds many attractions, as do the hill suburbs such as Cashmere (3-bdrm $327-$400).

Now a house in Burwood and Dallington can return the same rent as one in Avonhead, which would have been unheard of two years ago, Evans says.

Homes in new subdivisions such as Northwood, between Redwood and Belfast, which Evans had thought might lose rental value had not only maintained value, but increased.

Demand for rental properties in the middle to high end of the market could not be met, according to Patricia Bowden, principal of Accommodation Centre, part of the Harcourts group. Families wanted a safe neighbourhood and a decent school nearby and couldn’t find a place.

Many tenants had renewed their 12-month fixed term tenancies at the same rent after looking around and realising there was nothing comparable available, she says.

“I think 2006 will be stable for rents as long as landlords present their properties well.”

In a changing market such as Canterbury is currently experiencing, Evans and Brazier believe investors can improve their situation by making improvements to properties. And cash can be used for debt reduction.

Reproduced from the NZ Property Magazine, March 2006

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