Regional Review: Christchurch

Christchurch residents have much to be thankful for. This includes more affordable housing than their northern counterparts, easy access to the great outdoors and international travel as well as excellent education opportunities.

Long hailed as the Garden City, Christchurch's reputation as the gateway to the South Island has developed most in recent years.

Dubbed Little London by some because of its mild climate, strong English heritage and the Avon River coursing through its streets, it is a 45,240 hectare city rich in tradition and blessed with a thriving economy that has rapidly-developing, high-tech industries.

Christchurch is the heart of the Mainland and has become known as the Gateway to the South as 1.2 million of the island's international tourists come through its busy and expanding international airport each year.

Visitors are drawn to the city's natural beauty, which includes the 161-hectare Hagley Park. It celebrates this reputation at the Floral Festival held each February, one of more than a dozen festivals it hosts annually.

Residents, who number about 350,000, are in the enviable position of being within minutes of the South Island's east coast, an hour's drive from some of the country's top ski fields as well as having the beauty of Banks Peninsula and the recreational opportunities offered by the Port Hills on their doorstep.

Carolyn Ingles, programme manager for Christchurch City Council's Liveable City
unit, says the council is planning for a population increase of 75,000 in the greater Christchurch area over the next 35 years with two-thirds of that growth expected in the next two decades.

“In terms of settlement, 71% of that 75,000 will be in the city,” she says.

The council is looking at two strategies to house the burgeoning population. Greenfield areas to the North and South West have been earmarked for development, particularly in Belfast and Halswell, and there is allowance for intensification housing within the city. Many Christchurch sections are long and narrow, making them suitable for subdivision or the development of flats and townhouses.

Housing market
The New Zealand love affair with property ownership is reflected in Christchurch where about two-thirds of the population own the roof over their heads.

There has been extensive new building with several large new suburbs emerging at the city's boundaries including Aidanfield and Northwood, reshaping outlying areas and sparking the development of satellite retail parks to cater for new residents' needs. Council records show Christchurch had 126,648 dwellings in 2001, a rise of 22% or 22,467 homes since 1986.

Building is a desirable option, resulting in a shortage of land for residential development in parts of the city.

According to Statistics New Zealand, Canterbury is second only to Auckland in new dwelling consents. In July, 390 consents were issued in Canterbury representing 18% of the national total. In the 12 months to July, the mean monthly contribution from Canterbury was 17%.

Simes chief executive Layne Harwood says the Western periphery has seen the most new building in greenfields areas, due to a good land supply and city and airport access.

“Much is controlled by a few development companies which supply a land and building package rather than sell bare land,” he says.

Harwood says the limited supply of moderately priced apartments in the city in the $250,000 to $350,000 price bracket means the packages could be viewed as a good alternative to the regular suburban home for first time buyers.

Data from the Real Estate Institute of New Zealand (REINZ) has showed a softening in sales volumes nationwide but Christchurch has so far remained stable.

National sales slid from 7474 in June to 6660 in July – the lowest sales volumes for any July since 2001. Residential property prices slipped back $2,500 to a median of $345,000 nationwide but the Canterbury/Westland region showed strength with a median of $310,000, up from $305,250 in June. These figures were buoyed by Christchurch city's unchanged median of $330,000 and similar results in outlying areas including Rangiora and Timaru.

Figures from Quotable Value (QV) support a slowing of the market. According to QV Christchurch's residential property values rose by 13.4% in the year to July, the same growth rate reported in June. QV's average sale price for Christchurch was $356,969.

Home affordability in the Canterbury/Westland region is in decline, according to Massey University's May 2007 report. In the three months to May affordability in the region fell by 4.9% and, in the 12 month period, the drop was 12.1%. Although the annual figure was higher than Auckland's, it was significantly less than Wellington's 18.3% and the 16.9% measured in the Manawatu/Wanganui region.

Yvonne Craig, a property consultant with Gillman Edge Real Estate, says the residential sales market is steady, with the majority of properties being placed under offer within the first 30 days of marketing.

“It would appear most properties are moving at a similar pace – be it a humble unit/ investment style property, in the late $100,000s to early $200,000s, or the family home, from the late $200,000s to early $400,000s,” she says. “What we have observed is some properties in the top echelon are on the market longer.”

Craig says market interest is spread evenly across property types providing they are well-priced and promoted. But, if pressured to narrow it to one field where interest was strongest, Craig cites the family home.

“… this can range hugely. Yet a three to four family home – be it in Avonhead or Aranui – attracts good market interest,” she says. “If priced according to area all properties seem to be in demand. Low social economic suburbs are often not favoured by those wishing to occupy the homes but can have a different appeal for an investor.”

School zoning continues to be a big issue for home buyers with areas zoned for high decile schools appealing to plenty of purchasers. Hill suburbs also have appeal.

“School zoning is huge; the impact of being zoned for the school of your choice has not diminished,” Craig says. “This demand has grown for both secondary and primary zones.”

Rentals
Chris Uren, director of Priority Property Management, says potential tenants often opted to stay put during the colder months but there had been no seasonal slowing this year.

While there is a good demand from tenants, Uren says some investors are finding they have to dig deep to find the courage to stay in the market.

“There's a lot of uncertainty at the moment for property investors,” he says. “A lot of owners have fixed term loans at 6.95% and, coming off a fixed term, they're being introduced to something in the low nines. For many the knee-jerk reaction is to sell but what I'm saying is that’s normal for where we are in the property cycle.”

Demand is particularly strong for three bedroom houses rented at between $280 and $340 a week.

“I tell clients it is in their best interest, if they can afford it, to get a three bedroom property in good condition,” Uren says.

Martin Evans is managing director of A1 Property Managers which has hundreds of Christchurch properties on its books.

Evans agrees that there is no shortage of tenants, saying the city's student population is already trying to pin down accommodation for next year. But, while students may be thinking of their next move, investors appear to be sitting tight.

“There don't seem to be any investors buying properties as a long-term hold,” he says.

On average, properties are taking between a fortnight and three weeks to let with executive properties being most sought after.

“Executive properties are more in demand than they have ever been,” he says. “People who would normally buy their own home either can't afford to, or are choosing to rent because they want the lifestyle rather than tie themselves to a mortgage,” Evans says. “For example you can rent a home in Northwood worth $500,000 and it would cost you $26,000 a year. It would cost you $40,000 just to pay the interest on the mortgage if you owned it.”

According Tenancy Services, rent varies greatly depending on suburb. A three bedroom house in Riccarton – an area popular with students as it’s close to Canterbury University and the city centre – has a median of $320 a week and a two bedroom flat earns an average of $240. Across town, the median rent on a three bedroom house in Linwood, Woolston or Opawa is $285 and $210 for a two bedroom flat.

Paul Kinley, Canterbury Property Investors Association president, doesn't believe there are bargains out there waiting to be snapped up by shrewd investors despite the higher interest rate.

Kinley says mortgagee sales remain at a fairly normal level with only a few advertised each week.

While Christchurch has historically provided better returns than Wellington and Auckland, the best case scenario was a yield of about 8%.

“Some people would get 8% and be skipping down the street but I wouldn't,” he says. “The city is changing and the good opportunities are around those changes.”

Commercial development
Christchurch is well known to have more retail space per head of population than anywhere in Australasia but land zoned for business is in short supply.

Simes has surveyed the business-zoned land in the city and calculates 335 hectares of vacant land is available for use. Of this, 146 hectares is in the city's west with 15% owned by a single developer and 47 hectares is constrained by other factors including lack of services and anticipated clean-up costs.

Harwood says only 55 sites of 1 hectare or more were identified, a factor which could restrict the establishment of large businesses.

“We estimate the land supply will be exhausted in less than eight years at historic rates of take up, unless more land is rezoned,” he says. “A constrained supply and big increase in land values has had a flow-on effect on the surrounding districts where there has been a big jump in values off much lower base values.”

The shortage of business zoned land has produced some outstanding results for some speculative purchases. A large block in the inner city with a number of older shops was sold in September 2004 for $6 million and has resold lately in the region of $13 million. Another block of land about 1 hectare in size with a frontage on Main South Rd sold in April 2004 for $2 million and again recently for $4.1 million.

High quality office space is in short supply with top office buildings virtually 100% occupied.

“This has created the opportunity for the construction of new CBD buildings and also new office developments around the periphery where land is cheaper and parking more available,” Harwood says.

Projects on the drawing board in Christchurch include 20,000sq m of offices in multiple buildings at the Hazeldean business park on Lincoln Rd, a new 14,400sq m home for the Inland Revenue Department on Cashel St and a nine-level, 5000sq m building for offices and apartments on part of the Canterbury Club site on Worcester St. There are also plans to build Parkview, a 3000sq m five-level office building on Moorhouse Ave.

City's vital statistics
Christchurch's healthy economy has been described as `living off the sheep's back’ because of its reliance on the primary producing hinterland. However, secondary industries including tourism, manufacturing, software development and electronics are making inroads into that dependence. Tourism has become a star performer and pumps an estimated $2 billion into the Christchurch economy.


Population profile
83% of the 350,000-strong population is European, 7% Maori, 2% Pacific Island and 5% Asian.
In 2004, some 168,590 people worked in manufacturing, 20.1% in retail, accommodation, cafes and restaurants, 12.3% in property and business and 12.5% in health and community services.
According to the 2006 Census, Christchurch incomes are slightly below the national median. The median Christchurch household income was $48,200 compared with $51,400 nationwide.