Many in Christchurch counted their lucky stars that their properties were only partially damaged in the September 4th quake. Nevertheless, this did not necessarily mean they escaped the influence of the first quake. Any property with major damage had a negative effect on suburban house prices and were unable to be sold without engineering reports and banks/insurance companies found any excuse not to be part of any transactions for a minimum of 10 weeks.
Those suburbs that were unaffected had smaller increases in house values as people demanded properties in those suburbs. The quake of February 22nd 2011 had a completely different effect. People had fled the city in droves. A new issue had arisen: people were packing up and leaving, not just for a break, but for good.
Although the New Zealand Government had publically stated that there will be suburbs that would not be rebuilt, the impact has not yet been fully understood by the local real estate market. There were more homes becoming vacant than people losing their homes.
The good news is that after a few repairs there would be more homes available for those who have lost their homes. From family and friends, many more are leaving than having homes that are uninhabitable. The issue arises when those who have left decide they would like to repurchase a new home in their new-found stable region. The banks are already sitting on properties that qualify for mortgagee auctions as it would have a major impact on real estate prices if they were released, now we are bracing for a flood of properties as people required their equity back. The cheaper areas in Christchurch that were the most affected are likely to be advised that rebuilding is impossible.
If you were holding off purchasing a home in Christchurch then you are about to see the market adjust. You may not be able to buy for the next 3 months, but when you do you will come across people who need to sell their house after paying the mortgage on their home and competing with everyone else in the same boat. This may drive prices down which has advantages to the investor but costs to those who need to liquidate their property holdings.
You will find securing insurance on any property becoming an issue, and the standard approach by all insurers to delay cover for 21 days after a major shock can be invoked either for the big ones or even for substantial aftershocks. You do not want to be left without insurance on a newly-acquired property of any value. It is to be expected that any transaction will involve an assessment by a structural engineer before cover can be arranged and there will be substantial increases in premiums.
For all the investors looking for a selection of cheaper homes for residential investments, you may be in luck. But, investors are going to have to weigh up the risk of another earthquake with the potential for future capital gains. For the rest of us, we have to just keep smiling and watch our equity drop a little. But as always, my contacts in the real estate industry are optimistic and will forever expect the market to be buoyant and increase in activity.
Troy Surch is the lead accountant for Canterbury Taxation & Accounting Solutions Ltd www.canterburytaxation.com