Christchurch - It's hit....

[andyp2010]

Take from this what you will, I guess the whole idea of this site is to help each other out. From my view on the ground, the mood in Christchurch has changed. I'd have thought standard tenancies (as opposed to my room rentals) would take a bit longer to catch up with local economics due to their longer term nature.

There's still some work around but perhaps not the crying out for skilled workers there was, expected with EQC at 98% completion.

In the last 2 months I've had to drop my room prices by approximately 10% and removed a sleepout, expecting further drops still, as well as spending a fair bit on cosmetic improvements. I'm just about keeping the rooms at near full capacity but it's proving difficult. Whereas my phone would be constantly ringing as little as 6 months ago when I put an ad up, I now get one or two calls a day and the standard of tenant seems to have dropped slightly too. Doesn't help when I've got 5 rooms coming empty by this weekend.

According to a source at the bank, the major players in the house building game have gone from selling loads every month down to a trickle.

Checked in with the trade desk at the local Bunnings, they've noticed a significant drop of late.

Another investor I know is running at 30+% vacancy on their rooms (they haven't dropped prices I think).

Perhaps it won't be so bad if interest rates stay low but I'm feeling like some shirts may be lost reasonably soon. Doing my best to make sure it won't be mine, any tips for riding out this one are well received and appreciated as it will be my very first downturn! So far it's about improving quality, dropping prices and getting the portfolio revalued and credit in line before everything drops off.

[Courham]

Hi Andy

I've heard/read that things are changing with the ready supply of people moving out while their homes are being repaired is drying up, and no doubt that will flow on into the number of tradies requiring accommodation too. Sounds like to good times are coming to an end and once more it will be about quality and not being too exposed to risk. Depends a bit on how much you are leveraged as to how much you can continue the way you have been, might even be time to look at selling a property or two if concerned that you are too exposed.

Good luck and hope it goes well.

Craig

[andyp2010]

Running about 74% LVR when I've got the most recent one revalued so I thiiink I should be ok but not too certain on just how rough things can get. Would this have been ok in the 08 GFC do you reckon? Considered selling one just to free up cash if prices do drop significantly.

I'm not expecting to make a loss at any point, I'd almost have to halve the room prices to just break even and I thoroughly doubt it would get to that point. It's just going to be a lot more hard work and lateral thinking for a smaller return than I'm used to.

Cheers for the good luck, might have to call on it this winter haha

[speights boy]

Considered selling one just to free up cash if prices do drop significantly.

Be aware if you have multiple properties with the one bank you may not receive any proceeds from a sale.
The bank can retain these funds if they wish to reduce your LVR further.

[Courham]

For me its more about serviceability of loans- I wasn't affected by the GFC at all (well took a 10k hit selling a bach when I upgraded to a better one) as wasn't too exposed and rents etc not impacted where I am and never had any vacancies.

Are all you properties rented by room or do you also have properties for families/couples too? That type of property may leave you exposed to finding it harder to get tenants assuming many tenants are involved in the rebuild (but I have no idea what that market is like so take my comments with a grain of salt). Sounds like you have room move on rents though and may have reached the peak for that type of property.

Being able to sell one of necessary is good the question is what will prices do? They seem to be stablising in CHCH now dso better to sell now for hopefully top dollar or wait and have to sell only if needed and maybe sell under a bit of financial pressure (so potentially impacting on sale price?) in future? That is the question. So, if those are the only type of properties you have may be worth diversifying your portfolio a bit in future (no doubt they have been a very lucrative way to rent properties though)

If concerned you could, As Speights has pointed out, maybe looking into getting one or two properties with another provider to spread risk. Hopefully though it may only result in you getting less rents off each property in the short /medium term as the market changes.

Craig

[beno]

What location do you rent the rooms?
A tenant told me yesterday there is an oversupply of labourer work now. He would go into the agencies at 630am and sit around for 2 hours hoping there would be some work. He hurt his hand but carried on working because there were 30 other people waiting to take his place doing road work.
It a crazy situation when central city is still empty sections waiting to be rebuilt.

[Wayne]

More to rebuilding Ch than a few labourers can fix.

[andyp2010]

Beno - I'm in Linwood/Woolston, all reasonably central, entry level stuff. I've heard similar things, there is work around if you're skilled but not quite the desperate need there was.

Courham - All my properties are rented by the room, even my PPOR. I've lived in a few shared housing arrangements pre-quake and they seemed to get by ok, just had bigger gaps between tenants but the tenants that did come seemed longer term. I think it should continue to be viable. 'Hopefully though it may only result in you getting less rents off each property in the short /medium term as the market changes. ' - that's essentially what I'm batting for. My thinking is if I can be crafty, put a lot of effort in and hang on then I'll reap the rewards of the increase in future capital gains in a more stable, economically organic future chch. I might have sold but even the worst performing property brings in 15% ROI so it's quite hard to let go.

Where are you based that you didn't have any issues in the GFC? Sounds like a good place to be haha, must be providing decent accommodation to get away with that.

[Courham]

Hi Andy

I'm 160kms south of you in Timaru. We might have had a 5% drop in GVs post 2008 and has well and truly recovered but my gearing levels are always under 50% so it hardly registered. My only regret now is not buying a couple more during the GFC but was cautious as not sure what would happen for a year or so. No panic selling that I'm aware of down here and rents remained reasonable. For me though, as I was semi-retired at the time and all my properties were well and truly positively geared as I needed the income generated to live on.

As for decent accommodation. During 2003-2007 rather than get lots of properties we focused on upgrading our original properties to better quality ones when we were able to (we got sick of dealing with tenant issues in houses converted into 2 flats- they had great yields bu needed high landlord input). Most of my properties now are 2-4 bedroom homes aimed at families and aim to keep rents reasonable and have (happy) long term tenants, several have been with us for 5+ years so far.

CHCH was always going to have a rent correction once enough new/fixed homes came onto the market and that seems to be happening. Your plan sounds sound to me and hope it works out.

Craig

[Meehole]

Lots of people purchased as is where is houses that they put tenants into and got big rents. It wasn't going to last and they will be left with a broken house on TC3 land that they have paid too much for and nobody wants to live in.

[Keys]

^^^^ agreed.

[Norwest]

Hi Andy, when I read your first post, I was sure you were talking about the east side of Christchurch. Your post regarding Linwood/Woolston confirmed what I was thinking... that you are dealing with the low socio economic areas of Christchurch.

Personally, I think that the east side will have less demand in the future, and its coming off a low base, it was never desirable to start with.

[beno]

Beno - I'm in Linwood/Woolston, all reasonably central, entry level stuff. I've heard similar things, there is work around if you're skilled but not quite the desperate need there was.

My room by room rental is in Linwood too and is mostly overseas workers. This time of year less people are arriving from overseas to work. I think demand for this type of accommodation should also pick up when the central city rebuild begins whenever that may be.

[nicsa122]

I've got a room to let in Woolston for the first time in a year and have definitely noticed less interest!

[Meehole]

Many skilled workers flying in and out of Christchurch have been for a while. Guess they still need somewhere to stay during the week tho