Residential investment update – March 2023

Here at Bayleys Canterbury, I head up the residential investment team. We help investors build and grow property investment portfolios, as well as valuing portfolios, and advising investors on exit strategies. As we come to the end of summer, there are interesting developments in Canterbury’s residential investment market.

The investment market has slowed because of election uncertainty

The interest deductibility law change hasn’t come into full effect and some investors see property as a less attractive long-term proposition as a result.

Although the Opposition have indicated they’ll return landlords’ ability to deduct interest off investment properties, some investors are selling now because they don’t want to take the risk of waiting until October. Others are holding onto properties and gambling on the election.

Older investors are selling off property portfolios

In an interesting turn of events, we are seeing a number of older investors selling investment properties they’ve owned for 20-40 years. They’ve made money, and now they’re selling up to enjoy life with fewer responsibilities. This creates opportunities for new investors to add to and grow their own portfolios.  Our job here to is work with both sides of the investor relationship and add value to both.

Rents increasing due to rental property shortage

Recently we’ve seen a transfer of investment properties to private homes, and this has put pressure on the rental market. There are only 500 properties available for rent in Christchurch, when normally there would be 1,500-1,800. As a result, competition is pushing rent up and investors have an opportunity for strong return.

Borders reopening have fuelled rental demand

As the borders re-open, we are seeing overseas students coming back to Christchurch. Additionally, companies are looking to lease or buy accommodation for migrant workers now that visas are being granted. In some instances, businesses are looking for a range of property to accommodate 50+ rooms.

Rents have increased substantially in student accommodation areas, partly due to stronger demand, and partly to student rentals being transferred back family homes. In Ilam, Upper Riccarton, and Sockburn, rent used to average $140 for a bedroom. Now we’re seeing rents as high as $200.

Opportunity to upgrade properties for greater return

With interest rates rising, we see this is a good time to extend properties to improve rental return. Some investors are buying properties and adding more bedrooms through building sleep outs and/or converting garages. If these renovations are done well, good rents can be achieved and this improves cash flow.

From a first home buyer point of view, the sweet spot seems to be the $500,000-$550,000 price bracket.  From an investment point of view, focusing on that market can be tough because you’re competing against first home buyers. However, there are still properties offering opportunity realised through refurbishment. We’re still talking to people selling ‘as is where is’ properties. So, if you’ve the appetite and resource to refurbish, there are always opportunities to be had.

Interest rate rises are balanced by rising rents

Although returns and interest rates are rising, rents have gone up too, so, on balance, investment property prices have seen little change, and investors aren’t losing much value when they sell.

Property is still a good place to grow your wealth and long-term investment rules still apply. Buy property to hold for five to 10 years because it is hard to predict the market in the short term.

Get in touch to discuss your property investments

Here at Bayleys, we can help you understand the nuances of Canterbury’s real estate investment market and build an investment portfolio that meets your lifestyle goals.