Few things about Christchurch City at this time are straightforward. The population, post the February 2011 earthquake, has rearranged itself and the rearranging will continue into the foreseeable future. The property market, while enjoying a buoyant re-birth, is so complex it creates a number of considerations for investors.

Previously popular suburbs have been wiped out by the destructive path of the earthquake and a new centre is taking shape.

For many, the newly condensed Christchurch CBD is the key place to invest. Sitting pretty within the four avenues, it has been designed to focus firmly on a beautified, accessible, bio-diverse river waterfront.

Because of this drawcard, property investors will continue to secure safe bets with centrally located, well-engineered properties.

Christchurch Property Investors’ Association president Stephen East believes because of the aesthetic and the location, the demand will always be greater for CBD rental properties than in other areas.

“The closer in to the four avenues you get, the more demand there inevitably is,” he says.

All indications are this central yearning can only strengthen from now on. With many of the central attractions on the cusp of existence – bars, state-of-the-art offices, multi-use commercial and cultural premises, courtyards and cafes – investors who strengthen their portfolios within the four avenues are not misguided.

If your capital-to-borrowings ratio can sustain an interest rate rise of six and a half to seven percent, going ahead becomes okay - Stephen East

The New Inner City

But the central areas surrounding the CBD are still well worth considering and are now a popular home to the city’s many renters.

However, to delineate ‘central Christchurch’ is currently a vexed issue. Central Christchurch has become where the centrally located people are, rather than the CBD itself.

While many red-zoned Christchurch dwellers moved out to such peripheral places as Rolleston, Lincoln or Rangiora, previously inner-city renters have moved to the 'new inner', places like Addington, Riccarton, Sydenham, Fendalton, Merivale, Papanui and Ilam. Because of this trend, Rolleston and Lincoln now appear more like Christchurch’s outer suburbs, rather than satellite towns.

Rebuild And Renew

Currently it’s a renter’s market in central Christchurch. However, given recent stellar returns enjoyed briefly by investors post-quake, nobody seems too begrudging.

Immediately after the seismic event liveable homes were few and far between, meaning investors who possessed intact properties were sitting pretty on burgeoning yields of up to 15% for short lets.

Owners of wrecked houses were forced to become renters, bank-rolled by EQC and insurance companies – but only for a finite time.

Investors could ask for high rents and get them. The extra takings were frowned upon from some quarters – but what detractors didn’t factor in was the extra work involved for landlords. There were more specific tenant demands, higher tenant turnover, technical property assessments and uncertainty of tenure added in to the mix.

Safe Bets

The rental market which was, broadly speaking, split between short-term fully furnished offerings and long-term unfurnished dwellings, is now predominantly the latter.

East cautions against trying to let furnished property, as he sees demand for this diminishing. He also advises new or potential investors to take great care with pre-investment maths, saying the current low-interest rate environment shouldn’t be taken as a given.

“If your capital-to-borrowings ratio can sustain an interest rate rise of six and a half to seven percent, going ahead becomes okay.”

His other advice centres on tenant selection; even more topical in the current oversupplied market. “I’d advise people to join the NZPIF and take advantage of the reduced fees for credit/reference checks on tenants.”

Damaged Gems

An increasing investment trend in Christchurch is the buying up of ‘as-is-where-is’ properties. Iron Bridge Property Group managing director Brent Smith says these dwellings fall into two categories. In the first instance the owner has been paid out in full by their insurance company and is selling to cash-up.

The purchaser can either repair the property so that it can then be insured, or leave it uninsured and tenant the property (providing an engineer’s report has deemed it habitable and the uninsured status of the property is disclosed to the tenant).

Smith says this type of property is ideal for builder investors or someone with exceptional skills in this area.

The second category is where the owner is still waiting to get a resolution to their insurance claim. “They are over it,” Smith says. “They can’t move on with their lives.”

He says in this case, buyers who are well set up to take on the insurance claim will have it assigned to them as part of the sale agreement and will typically pay the owner the market value of their property pre- quake. This allows the owner to move on, Smith says.

But assessing a purchase price for as-is-where-is property is a convoluted process. Smith explains that after the earthquake land was categorised into three technical categories (TCs), (or red-zoned), TC3 being the least geo-technically stable. Smith says the TC category of a property has a huge impact on its value.

He also warns that securing lending for uninsured properties can be difficult. “The most you’d get is 50% of land value from banks.”

Investors Beware

East sees the residential rental market currently in favour of tenants, though real estate prices are still relatively buoyant, so new investors should proceed to buy with caution, and make sure purchases are positively geared.

The current high sales prices make sense. Owners have had their damaged homes repaired and everything’s fixed up, painted, carpeted and brand new, ready to sell. But investors should beware great-looking houses attract top sales sums. Will the property look as desirable and fetch as much after three stints with tenants?

Uni Students, School Zones

Christchurch investor Jarrod Purdue believes flexibility with tenants is the key, particularly in the current market in which he estimates rents have dropped by ten percent since the earthquakes.

“If you have a furnished family home with huge garaging, give prospective tenants the option of whether they’d like furniture packed into the garage so they can bring in their own,” he counsels.

Ireland Property Management’s Caroline Ireland agrees the current oversupply has shaved $30 to $40 off the weekly rent of Christchurch’s average three-bedroom rental home. She says an ‘average’ locale’s rent can now be just $420 to $430 per week. She suggests investors to tick off the full checklist wherever possible; three bedrooms, heating, tidy kitchen and bathroom, fully-fenced and double garage.

But while Purdue says the residential market has dropped, he believes the same hasn’t held true for the university student market.

“It’s interesting that the student market seems to have increased. There isn’t currently a huge supply of student rentals,” he says.

Another section of the rental market which has held its own is the $300 - $350 per week unit, according to Quinovic Riccarton principal Tessa Keeling.

Small, attached, older units with no garden to speak of are popular but she says in general the market has settled back to its pre-quake takings.

In this environment she believes the safest investment bet is the tidy, comfortable two or three-bedroom, two-bathroom home and courtyard in a reasonable area; “not flash”, and asking below $500 per week.

We're finding lots of old housing is gone because of the quakes, and those landlords used to take tenants with pets. - Kim Willems

Quinovic Merivale principal Sharon Layton says investors should consult a property manager as part of their research. Not doing so could make an expensive difference in rental yield.

“We know about each area and who each offering will appeal to,” Layton says. “Being just out of a good school zone could drop the rent by $100 a week, and choosing another property for the same money might make the difference. For instance, being in the right location with three bedrooms might rent for more than being out slightly further with five. We struggle with renting the five-bedders or bigger.”

Good Tenants

Ruby Housing director Kim Willems says she believes a time of reduced rental takings should make landlords extra vigilant rather than lenient about tenant selection. She says people who present well should still have their references thoroughly checked. “We’ve heard some terrible private landlord stories about non-payers who trash places,” Willems says.

She thinks flexibility is crucial to attracting good tenants. “We’re finding lots of old housing is gone because of the quakes, and those landlords used to take tenants with pets. Accepting pets is a way of increasing your property’s desirability and reach.”