Research KNIGHT FRANK TC3 SALES RESEARCH

research

march 2013 KNIGHT FRANK TC3 SALES RESEARCH

Executive summary of information Gathered

• In 2010, the average house sale price to of TC3 properties in comparison with involve more work to sell, however rateable value ratio for Christchurch City Christchurch City as a whole and the many were experiencing good success, was 93.1%. This is further analysed to surrounding TC2 areas. especially in the suburbs of Fendalton, Merivale, Strowan and Parklands. 99.1% for the properties studied that • Many of the suburbs affected by TC3 would become TC3, and 97.9% for the zoning showed some recovery of their • A number of those surveyed concluded areas surrounding those properties. sale price to rateable value ratio in 2012. that it was more difficult for first home buyers to purchase a TC3 property, • In 2011, the average sale price to • The Days to Sell figure for the TC3 because banks generally require more rateable value ratio for Christchurch areas studied was longer than that of security on these properties. City was 96.1%, 94.4% for the TC3 Christchurch City. In 2011 it was 38 for areas studied, and 99.9% for the areas the areas studied, compared to 28 for • Insurance cover on TC3 property is surrounding TC3 properties. Christchurch City. In 2012 it was 34 for available where an insurer has previously • In 2012, the average sale price to the areas studied, compared to 27 for provided cover, all insurers assess cover rateable value ratio for Christchurch Christchurch City. on a case by case basis. City was 99.4%, 97.9% for the TC3 • The number of sales in the areas studied • Overall, the statistical analysis indicates areas studied, and 102.2% for the areas was 1106 in 2010, 649 in 2011, and 709 that TC3 zoned property take longer to surrounding TC3 properties. in 2012. sell and are harder to sell, but for the majority, there is no significant pricing • The information indicates that there • According to the Real Estate discount. has been a very minor effect on values Professionals surveyed, TC3 properties march 2013 KNIGHT FRANK TC3 SALES RESEARCH

The Canterbury earthquake activity of 2010 banks about any concerns they may have and 2011 has resulted in much uncertainty with customers purchasing TC3 properties. and confusion in the residential property The information gathered has helped market. to give us an understanding of how the Following the earthquake on 4 September market perceives properties in TC3 areas. 2010, the Canterbury Earthquake Recovery We also attempt to identify if there is a Authority (CERA) was formed by an Act of difference between sale prices of TC3 Parliament. CERA has divided residential properties compared with those properties land in Canterbury into two zones; the that immediately surround the TC3 areas, Green zone, which is land that is considered these being in the TC2 category. suitable for residential construction, and We analysed sales over a number of time the Red zone, which is land where repair periods to give an understanding of what would be uncertain, costly and probably is happening with values over time. The highly disruptive. periods studied include all of 2010, 2011 Land in the Green zone has been further and 2012. As well as analysing each year divided into three categories, used to separately, we also looked at values in 2010 describe how the land is expected to before the September 4th earthquake, perform in future earthquakes. The then between the September and February categories are: earthquakes, followed by the rest of 2011 after the February earthquake, and then • TC1 grey: future land damage from all of 2012. The method adopted has been liquefaction is unlikely. Standard to compare sale prices with the property’s foundations can be used as long as the rating valuations. site meets the ‘good ground’ test. The results of the study have been • TC2 yellow: Minor to moderate land somewhat surprising, with the sale values damage from liquefaction is possible in in comparison with rateable value in TC3 future significant earthquakes. Shallow areas being only slightly below that of geotechnical investigations may be Christchurch City as a whole. required, depending on damage. The following table indicates the Average • TC3 blue: Moderate to significant land Sale Price to Rateable Value Ratio for damage from liquefaction is possible in Christchurch City, TC3 areas studied, and future significant earthquakes. Site-specific areas immediately surrounding the TC3 geotechnical investigation and specific areas for 2010, 2011 and 2012. We included engineering foundation design is required. sales for the whole of 2010, in order to The focus of this research is on properties identify any trends from the data. that are in the TC3 category. We observed that there has been very little factual information to date around the sales of TC3 The overall picture is that initially the sale price properties and what effect the TC category to rateable value ratio dropped some 5% in may be having on values. We have collated actual sales information from properties the TC3 zoned sales between 2010 and 2011, that have sold in selected TC3 areas within Christchurch City. We analysed a total of recovering somewhat through 2012. The whole over 2400 sales of property; including those of Christchurch saw 3% growth per annum. in TC3 areas across 21 suburbs, as well as sales of TC2 category properties that immediately surround the TC3 areas. We Table 1 Average Sale Price to Rateable Value Ratio have compared this information with that Area 2010 2011 2012 of Christchurch City as a whole. Christchurch City 93.1% 96.1% 99.4% In addition, we have spoken to a number TC3 areas studied 99.1% 94.4% 97.9% of Real Estate Professionals about their Surrounding sales – TC2 Category 98.0% 99.9% 102.2% experiences in dealing with the sale of TC3 properties. We have also made contact TC3 & Surrounding areas combined 98.5% 97.7% 100.6% with a number of insurance companies and The following table gives the average sale price to rateable value ratio for each TC3 area studied before, during and after the earthquakes:

Table 2 Average Sale Price To Rateable Value Ratio Suburb 1/1/2010 to 4/9/2010 5/9/2010 to 22/2/2011 23/2/2011 to 31/12/2011 All of 2012

Aranui 100.2% 102.8% 93.3% 93.0% Avondale 95.9% 96.9% 92.0% 97.8%

Bryndwr 116.2% 106.1% 99.2% 106.3% Burnside 91.5% 86.2% 97.7% 106.8% Burwood 97.3% 96.7% 100.6% 98.5% CHCH Central 98.6% 98.3% 93.1% 104.9% Dallington 97.7% 89.8% 98.3% 96.5% Edgeware 95.9% 94.8% 93.2% 93.5% Fendalton 96.1% 89.3% 102.2% 97.5% Ilam 96.0% 120.3% 87.9% 117.8% Mairehau 100.3% 103.9% 100.4% 103.1% Merivale 105.7% 104.2% 107.8% 100.7% New Brighton 93.2% 96.6% 72.2% 97.9% Nth New Brighton 96.0% 91.7% 98.4% 101.0% Parklands 99.0% 93.9% 98.7% 97.3% Riccarton 89.7% 107.9% 94.7% 82.8% Richmond 99.0% 93.9% 98.7% 97.3% Shirley 96.4% 95.8% 99.1% 104.2% St Albans 98.5% 101.6% 98.6% 103.9% Strowan 96.9% 98.7% 101.5% 109.4% Wainoni 95.9% 105.9% 91.0% 93.6%

As expected, some of the suburbs we The remainder of 2011 following the studied had better results than others. February earthquake, the suburbs Prior to the earthquake on 4th September Merivale, Fendalton and Strowan had the 2010, the suburbs of Bryndwr, Merivale highest percentages, and the suburbs and Mairehau had the highest percentage, New Brighton, Ilam and Wainoni had the and the suburbs Riccarton, Burnside and lowest. New Brighton had the lowest percentage. During 2012, the suburbs Ilam, Strowan It should be noted that only Riccarton and and Burnside had the highest percentage, Burnside had figures below that of the and Riccarton, Aranui and Edgeware had whole of Christchurch. The small number the lowest. of sales for these two suburbs available for analysis would suggest this result is not particularly significant.

For the period between the two major earthquakes, the suburbs Ilam, Riccarton and Bryndwr had the highest percentage, and the suburbs Fendalton, Dallington and Burnside had the lowest. The remainder of 2011 following the February earthquake, the suburbs Merivale, Fendalton and Strowan had the highest percentages, and the suburbs New Brighton, Ilam and Wainoni had the marchlowest. 2013 KNIGHTDuring 2012, the FRANKsuburbs Ilam, Strowan TC3 and Burnside had the highest percentage, and SALESRiccarton, Aranui RESEARCH and Edgeware had the lowest. The graph below shows a comparison of the Sale Price to Rateable Value Ratio for the years 2010, 2011 and 2012, giving a comparison to Christchurch City.

Sale Price to Rateable Value Ratio Christchurch City Aranui For Indicated Suburbs by Year Avondale Source: Knight Frank Research Bryndwr 140.0% Burnside Burwood 120.0% CHCH Central Dallington Edgeware 100.0% Fendalton Ilam 80.0% Mairehau Merivale 60.0% New Brighton Nth New Brighton 40.0% Parklands Riccarton 20.0% Richmond Shirley

0.0% St Albans 2010 2011 2012 Strowan Wainoni For the year 2010, only one of the suburbs studied was below the Christchurch City average. In 2011, seven of the suburbs studied were below the Christchurch City average, the lowest of Thethese graph being Newabove Brighton shows at 82.4%, a comparison compared with theof Christchurchthe Sale PriceCity average to Rateable of 96.1%. In Value2012, Ratioten of the for suburbs the studiedyears we2010,re below 2011 the Christchurch and 2012, City giving average ofa 99.4%,comparison with the tolowest Christchurch being Riccarton City. at 82.8%. 2012 saw a significant recovery of values across all of the suburbs studied, with the majority very close to, or exceeding the Christchurch City average. The For the year 2010, only one of the suburbs Christchurch City average of 96.1%. In 2012, very close to, or exceeding the Christchurch studiedaverage was below for the all Christchurch the studied City suburbsten of combined the suburbs studiedwas well were abovebelow the the ChristchurchCity average. The City average average for all the for studied average.all three In 2011, years. seven of the suburbs Christchurch City average of 99.4%, with suburbs combined was well above the studied were below the Christchurch City the lowest being Riccarton at 82.8%. 2012 Christchurch City average for all three years. average, the lowest of these being New saw a significant recovery of values across Brighton at 82.4%, compared with the all of the suburbs studied, with the majority

Numbers... sold Page 5

The number of property sales in the TC3 zoned areas studied dropped dramatically in 2011, maintained into 2012.

The surrounding TC2 zoned areas had a Table 3 much smaller drop in numbers in 2011, Numbers Sold followed by a good recovery in 2012.The Study Area 2010 2011 2012 following table indicates the number of sales TC3 Areas Studied 760 359 356 for each year. TC2 Surrounding Areas 346 290 353 Total 1106 649 709 MEDIAN DAYS TO SELL

We gathered a snapshot of the median days to sell for the studied suburbs, for the month of December in 2010, 2011 and 2012. The purpose of this is to compare these areas with the Christchurch City median in order to see if they were taking more or less time to sell.

The following graph indicates the median days to sell for each suburb studied, with Christchurch City the first series as a comparison. This graph indicates areas that are currently taking the longest to sell and are following a different trend to the general market, they are; Avonside, Burwood, MedianChristchurch Days Central to and Sell Wainoni. These are the locations most associated with proximity to Red zones, whereas for example – St Albans and St Martins which have a lot of TC3, Webut limited gathered exposure a snapshotto Red zone proximity of the medianare less affected. days to sell for the studied suburbs, for the month of DecemberIn 2011, the Christchurch in 2010, City 2011 Median and days 2012. to sell wasThe 28, purpose of this is to compare these areas with the Christchurchcompared to 38 for City the TC3median areas studied. in order In 2012, to seethe if they were taking more or less time to sell. The Christchurch City figure was 27, compared to 34 for the TC3 followingareas studied. graph indicates the median days to sell for each suburb studied, with Christchurch City the first series as a comparison.

Christchurch City Median Days to Sell Comparison Aranui Source: REINZ Statistics December 2012 Avondale 120 Avonside Bryndwr Burnside 100 Burwood Christchurch Central Dallington 80 Edgeware Fendalton Ilam 60 Linwood Mairehau Merivale 40 New Brighton Parklands Riccarton 20 Richmond Shirley St Albans In 02010, the Christchurch City median days to sell figure was 33, compared to 37Strowan for the average 2010 2011 2012 St Martins Wainoni

This graph indicates areas that are currently taking the longest to sell and are following a different trend to the general market, they are; Avonside, Burwood, Christchurch Central and Wainoni. These are the locations most associated with proximity to Red zones, whereas for example – St Albans and St Martins which have a lot of TC3, but limited exposure to Red zone proximity are less affected. In 2011, the Christchurch City Median days to sell was 28, compared to 38 for the TC3 areas studied. In 2012, the Christchurch City figure was 27, compared to 34 for the TC3 areas studied.

Numbers Sold

The number of property sales in the TC3 zoned areas studied dropped dramatically in 2011, showed a slight recovery in 2012. The surrounding TC2 zoned areas had a much smaller drop in numbers in 2011, followed by a good recovery in 2012.The following table indicates the number of sales for each year.

Study Area 2010 2011 2012

TC3 Areas Studied 760 359 356

TC2 Surrounding Areas 346 290 353

Total 1106 649 709

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march 2013 KNIGHT FRANK TC3 SALES RESEARCH

Information gathered from Real Estate Managers and Salespersons We have spoken with a number of Real Estate Professionals to gain an understanding of any issues surrounding the sale and purchase process of properties in the TC3 category. Following is an overview of the main points raised:

• Selling TC3 properties is hard work, • One person commented that some • Another of those surveyed has had because there is a stigma associated buyers are reluctant to purchase very good success with TC3 property with them. TC3 property because there may be sales, they commented that finance and difficulties in the future if they want to do insurance issues can be overcome if the • A common comment from all of those alterations, as these may require costly property concerned is marketed with all surveyed was that one of the major foundations. the relevant details obtained before it obstacles to overcome is in relation to goes to the market, i.e. geo-tech reports, bank lending. Most said that banks are • A number of those surveyed thought building and engineers reports. Once all very cautious when lending involves that TC3 properties take longer to sell of this information is obtained, they help a TC3 property. Generally the bank’s than TC1 and TC2 properties. buyers work with the banks to ensure loan to value ratio is lower with these • One of those surveyed reported good that finance is obtained. properties, which is excluding some first success in selling TC3 properties because home buyers. • One of those that is having success with they were in a high socio-economic area, sales commented that in some cases first • A large percentage of the buyers of these with the majority of sales being over home buyers can overcome the higher properties do not require a mortgage, $500,000. Their buyers are less likely to security requirement issue by paying a and these buyers generally want a be first home buyers, and therefore less higher repayment amount for the first discount on the price because they know likely to require as much finance. five years, to get them to the required they have an advantage due to the lack security level faster. of buyers.

Information Information gathered gathered from banks from insurers

• All the banks we have spoken with deal We spoke with all of the main insurers in New Zealand to gain an understanding of the with each application on a case by case current insurance situation for TC3 properties: basis. • All insurers advised that cover for • One insurer advised they will not • One bank advised that they have properties in the TC3 category are provide cover for new customers, and approved loans of up to 85% of the value considered on a case by case basis. None another advised they would provide of the property, and another advised of the insurers surveyed would give us cover for new customers, where they they will lend up to 70% of the value. an assurance that they would definitely already insure the property. • One advised that a scope of works was provide cover. • One insurer advised they would most always required in every case, and one • All insurers will only consider providing likely decline cover for properties advised it is not compulsory, but it does cover for TC3 properties if they already with major damage, and most likely help them assess the level of damage to have existing cover in place for that approve cover for properties with only the property, and therefore speed up the property. minor damage that have a builders or process. engineers report. • Two of the insurers advised that they • Where a purchaser will have insurance always require a builder or engineers cover based on a sum insured, the bank report before agreeing to cover. will need to be sure that the sum is sufficient to cover the replacement of the home in the event of total loss. Tim Gemmell 367 A 021 987 955 Assoc. Director Valuation

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William Blake Matt Whitby Director - Valuation & Research National Director - Research Christchurch +61 2 9036 6616 +64 27 229 7427 [email protected] [email protected]

Stewart Littlejohn New Zealand Commercial Sales & Leasing Director - Valuation & Research Layne Harwood South Auckland Managing Director +64 21 572 565 +64 21 630 136 [email protected] [email protected]

Tim Gemmell Campbell Taylor Assoc. Director Valuation Director – Agency Christchurch South Auckland +64 27 433 4703 +64 21 987 955 [email protected] [email protected]

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