11 Jun Christchurch Property Investment Market Update
The Christchurch Property investment market!
I personally think Christchurch is hugely undervalued and am extremely excited about investing in the CHCH property market right now!
Here are a couple of reason why:
- Supply & Demand – CHCH is the gateway to the south island and it’s the second largest city in New Zealand but it is one of the cheapest places to live in NZ. Both rental and home ownership! What we are starting to see is many kiwis starting to move to CHCH to find work and have a better value of life as their money goes further than in Wellington or Auckland. This is only going to push property prices up due to supply and demand. What we are currently seeing in the marker is an increase in First home buyers and this is increased by the extremely low interest rates.
- Return on Interest – ROI is a measure of a property’s gross yield- annual rent over its purchase cost and in CHCH we have some of the highest yields in the country. A lot of this has to do with the low land price in CHCH.After the earthquakes land values were essentially reset. So this is giving investors huge yield increases as the entry prices are so much cheaper based on the costs of the land. The cost of Building in CHCH is similar to that of Wellington, Auckland or Hamilton so automatically you are getting much better returns.
- Low Valuations -If your property Is getting a good return that typically means that the value of your property is higher than what you paid for your property because most valuers value on recent sales. When it comes to investment property it gets valued by calculating the return from rent and if CHCH gross yields ROI is higher than the rest of the country that typically means the properties are worth more than what they are getting sold for as they are not getting valued on the capitalisation of the rents. Without getting to in depth and complicated basically when this happens there is a discrepancy. An example of this is what happened in Wellington in 2014 – yields caught up with the values and what the meant was the property values suddenly jumped from say $500k to $650k in 9 months because the capitalisation rates the valuer was using were to high for the location. Cap rates are dropped which in turn increases the value of the property!
- LOW Rents – CHCH rents are comparatively low and straight away that’s pressure on that cap value!
- LOW Interest Rates – The Value of property is also tagged to interest rates and every time we see an interest rate drop property prices technically should go up but they don’t and that is the lag (national). You add this lag as well as the other lags mentioned above you can understand why CHCH may have a similar like jump in values as Wellington!
- Rest of the country Comparisons – Most City’s in NZ follow each other and it generally starts in Auckland. In 2015 we had a property boom because the global financial crisis caused a massive supply shortage and NZ was just catching up. However CHCH hasn’t been catching up (mainly due to the earthquake) and its grossly undervalued comparative to the rest of the country and comparative to national rents.
All of the above reasons are all pointing to CHCH being hugely undervalued to the rest of NZ and a correction in the property values is what I believe will happen in the next few years. An economics point of view CHCH is under valued and that is when you should buy.
If you are interested in investing in CHCH get in touch and take advantage of the historically low interest rates with as little as 20% deposit needed.
To discuss your options and hear more about Jonny’s views on the Christchurch property investment market, book a free appointment with him today!