Christchurch landlords lower rents due to 'oversupply' of properties

[Wellington Broker]

http://www.stuff.co.nz/the-press/business/89187538/christchurch-landlords-lower-rents-due-to-oversupply-of-properties

Christchurch landlords are being encouraged to lower rents and offer incentives to secure tenants as properties sit empty for up to a month.
The city is facing an oversupply of rentals as earthquake-damaged houses are repaired, new houses are built, and more as-is, where-is properties are listed as rentals.
Ray White Shelleys Property Management director Shelley Scott said she had to teach several property owners about realistic weekly rents over the last year.
"When we go to re-let the property we find we often have to make adjustments."

She recently dropped the rent of a new listing in New Brighton from $350 to $320 a week.
"I've got some properties sitting for a month but the owner is still adamant they don't want the rent to drop. The properties are also in areas where there might be 100 similar properties."
Scott, a landlord herself, said there was an over-saturation of fully-furnished properties in particular.
"In some cases I have had to reduce a couple of my furnished ones by $100 a week, which is quite a lot."
As of Thursday, there were over 1800 properties advertised on Trade Me as available to rent in Christchurch. At the start of March 2013, there were only 582 properties available in the city.


Braziers property management and sales director Michael McCormick said there was "a complete oversupply" of rental properties in Christchurch, possibly driven by the high number of "as-is, where-is" properties available.
Such homes would have previously been lived in by their owner, but were now being rented out.
"There is a shortage [of rentals] in Auckland, but it's the exact opposite in Christchurch because rents have been falling, people have been offering free rent and endorsements like that to secure tenants."
Braziers is advertising a three-bedroom townhouse in Waltham for $379 a week, with the first week free.
Another property in Somerfield, under Bayleys Property Management, comes with one week's free rent and a $150 supermarket voucher.
"It's a great tenant's market at the moment," McCormick said.
Tenants Protection Association manager Di Harwood said rentals remained costly for some, despite more being available.
"We see clients who live week-to-week because their accommodation costs take up a significant proportion of their budget.
"New builds will be out of reach for those who are in this group. They will be renting the older properties, which often come with additional costs. . . . These properties are often more costly to heat and keep warm and dry."
Bayleys Property Management senior property manager Matthew Curtis said he expected rent prices would remain "pretty steady" until more of the city's major rebuild projects were finished, such as the convention centre.
"Once they're operational, you'll see those areas around them grow . . . and that will see an influx of people."
Adding incentives to attract tenants tended to work only for cheaper properties, he said.
- Stuff

[andyp2010]

Yeah, i reckon its compounded by the incentives to build, creating even more supply in all these new subdivisions.
Its ok though, hit my room rentals 2 years ago now, 20% drop at the time. Rents have crept back up to within 5% of where they were, i just have to work harder to keep people happy.

[Anthonyacat]

Surely most people saw this coming, didn't they? Have been warning clients with Christchurch property that the days of super profits post-earthquake are limited for the last two years. None have argued, all were aware.

At some point, all the new builds combined with repairs will probably be an oversupply. But even if there wasn't an oversupply, just a fix of the undersupply, you'd expect rents to go back to 'normal' before the big spike post-2011.

[Don't believe the Hype]

Surely most people saw this coming, didn't they? Have been warning clients with Christchurch property that the days of super profits post-earthquake are limited for the last two years. None have argued, all were aware.

At some point, all the new builds combined with repairs will probably be an oversupply. But even if there wasn't an oversupply, just a fix of the undersupply, you'd expect rents to go back to 'normal' before the big spike post-2011.

spot on... This will likely happen to sale prices too... ChCh was relatively expensive pre EQ, that then shot up for obvious reasons when a large number of houses became uninhabitable...

The question is will there be a floor under prices? I'm far from an expert on ChCh market so will leave it to someone who has greater knowledge to comment.

[MikeO]

spot on... This will likely happen to sale prices too... ChCh was relatively expensive pre EQ, that then shot up for obvious reasons when a large number of houses became uninhabitable...

The question is will there be a floor under prices? I'm far from an expert on ChCh market so will leave it to someone who has greater knowledge to comment.

It is definitely getting harder to find tenants. I've just filled a vacancy (very small 2 bedroom plus study unit). Dropped the rent from $380 per week down to $295 per week. I probably could have found a tenant at around the $320-$350 mark but I wanted to get someone in ASAP as I was considering picking up another property and didn't want multiple vacancies.

That is still around 6% gross yield which is roughly what I was looking at getting for the other place I was considering and presumably a lot more than you would be getting in Auckland.

I reckon the long term outlook is good for both rental returns and capital gains but I think the next few years could be pretty tough with flat to decreasing rents, flat to decreasing prices, and rising interest rates. I also think that rents will start to rise before property values (my guestimate will be at least 3-5 years out before we see either) based on:
1. population continues to grow and that will ultimately lead to increasing prices as replacement costs exceeds pricing by a LOT, but
2. more supply will continue to come onstream (notably to include overpriced apartments that will stack up very badly as investments - $350k for a property returning $350 per week or less less BC Rates etc etc)

Still thinking of picking up another rental over the medium term but thinking I will wait and see what happens with interest rates, rents and pricing over the next 6-12 months.

[propertycycle]

Yes, it is a definitely oversupply in CHCH.

For the residential houses, the rental price is expected to keep dropping till more people live here to get the balance of demand and supply.

For the commercial property, there is a huge oversupply and worse situation than residential part. The new CBD box office buildings create huge supply for the business. We are not expected such big number of business growth in CHCH.

For motel business, the asking price for motel dropped from 800k to 600k range, even the peak season of tourism, most of motels have a very low vacancy. For annual vacancy rate is around 46%.

The price is still slowly pickup annually by 3%, because this benefits from the low mortgage rate environment. I do not believe that the investors are still wanting to hold if the mortgage rates are rising too much or quickly with a dropping rent.

If the mortgage rate would reach 6%-6.5%, CHCH property market could have a burst in price, just like Irish property market crash in 2007/2008. Too many new houses there.

[ripeka]

Having lived through all the quakes, but chosen to invest elsewhere up until now, I have been taking a bit of a closer look at Chch and wondering what to do. It's seems quite difficult to project much with confidence because the market forces are so warped here, and the inter-connected factors are complex (business confidence, speed of city redevelopment, action in the CBD or lack thereof, govt forcing majority of its staff back into the CBD in the hope it will increase confidence, reasonably high % chance of another decent shake etc etc). I wonder whether there are some general, large scale trends from other cities who have been subject to natural disasters that would be worth reviewing and factoring in? Some things seem obvious (the fall in rent after the dizzy heights of 3 years ago) but others are not. eg there was an article 3 weeks ago saying that student accommodation is in very short supply. Tourist bed numbers are surely not back to previous levels yet motel asking prices are down, and vacancy rates are 46%? I wouldn't have expected that.... confusing times to be honest.

[cube]

What is the outlook for population - will incoming people simply be replacing outgoing tradies and builders?

[Nick G]

In an effort to be counter-cyclical... remember all those idiots who bought up <insert cheap undesirable area here> during some slump in the (quite often very recent) past? I just published an article by an investor from Auckland who made $15mil through the GFC, most of it from within 5km of Otahuhu station.

What's going to happen to the as-is-where-is properties? Nobody will maintain them, can you even get contents insurance if you live in an uninsured house? Will council at some point pass a bylaw that they all need to be torn down? The council has a very definite agenda of a strong central city population and I'm sure they'll nudge the city in that direction. It's not going to happen smoothly but Christchurch is too big to fail.

Is now a good time to be looking for opportunities to buy in a top location from a scared landlord, develop to maximise rental and then sit tight?

[Davo36]

Got a link to your article?

[ripeka]

The as-is-where-is situation is unique and complicated. Sometimes, they are being fixed up, and where the owner can satisfy the insurance company the repairs are done well enough and an engineering report produced, the owner gets normal house insurance. So those houses will be carry on as part of the usual housing stock including eventually being onsold probably for normal market value with a solid capital profit.

The other houses will be maintained in so far as it is in the landlord's best interest to do so i.e. the need to attract tenants so the landlord might have more motivation to do so especially now in an over supplied housing market. Also, lots of the houses were quite executive builds - again, it would be in the landlords best interest to keep the houses looking good and well maintained to attract higher paying tenants. I don't think that we will see many of those houses abandoned and needing to be torn down, if any.

Remember too that lots of the "As is" houses are in the middle of other housing that has now been repaired and where life is carrying on as per normal. Regardless of the CCC agenda to encourage a central city population, I can't see the As-is housing impacting that agenda much other than to reduce the amount of housing that is needed overall in Chch in the short to medium term unless overall population growth sparks up.

[Beano]

It is definitely getting harder to find tenants. I've just filled a vacancy (very small 2 bedroom plus study unit). Dropped the rent from $380 per week down to $295 per week. I probably could have found a tenant at around the $320-$350 mark but I wanted to get someone in ASAP as I was considering picking up another property and didn't want multiple vacancies.

That is still around 6% gross yield which is roughly what I was looking at getting for the other place I was considering and presumably a lot more than you would be getting in Auckland.

I reckon the long term outlook is good for both rental returns and capital gains but I think the next few years could be pretty tough with flat to decreasing rents, flat to decreasing prices, and rising interest rates. I also think that rents will start to rise before property values (my guestimate will be at least 3-5 years out before we see either) based on:
1. population continues to grow and that will ultimately lead to increasing prices as replacement costs exceeds pricing by a LOT, but
2. more supply will continue to come onstream (notably to include overpriced apartments that will stack up very badly as investments - $350k for a property returning $350 per week or less less BC Rates etc etc)

Still thinking of picking up another rental over the medium term but thinking I will wait and see what happens with interest rates, rents and pricing over the next 6-12 months.

In Wellington 6pc to 6.5pc Net Yield
Bayleys Residential agent said to me he would not accept a investment flat listing at less than a 6.5pc net yield

[Nick G]

Is that apartments?

[Beano]

Is that apartments?

Yes apartments ..

[CHCBW]

My experience - we have a development in the CBD, I'm living in one, college living in one, and one tenanted off the market. The tenanted unit is a 3 bed, 2 bath, 1 garage, very central, brand new house and that took about 6 weeks to be rented. This was December '16. Rented at $550 per week. Good yield on cost value, not on market value. Think it's still a fair result given the state of the market.