Christchurch houses judged by insurance companies as too damaged to repair are being snapped up at bargain prices by savvy investors who are then renting them out for a high return.
Real estate agents say they are seeing a growing number of sales where property owners have taken a cash settlement from their insurance company for the rebuild of their quake-damaged home and are then selling their property for the value of the land only.
Investors are buying the properties and, in many cases, renting the houses out until they can realise their long-term development potential.
Christchurch-based Real Estate Institute of New Zealand (Reinz) director Tony McPherson said that many properties deemed by insurance companies as uneconomical to repair were still habitable.
"There's definitely a market for those - you're buying the section and the house is a bit of a bonus," Mr McPherson said.
"Ultimately if it [the house] has to be demolished, it will at the new owner's cost, but quite often they are habitable.
"What an insurance company deems as uneconomic to repair may, with some remedial work, be fine for the next few years, after which it can be redeveloped.
"And, of course, in the interim they [the investors] can get quite a good return by renting it."
Examples of such properties currently on the market include two two-bedroom townhouses in Avondale for which the owners have been paid out by their insurance companies. They are being offered for sale "as is where is".
One is being marketed at $149,0000 - $137,000 below its rateable value, while the other is being offered by negotiation over $145,000. Before the quakes it had a rateable value of $277,000.
Real estate agent Phil Jones, of Ray White, has already secured offers on them.
He has uncovered real demand from investors for "as is where is" properties and is looking for more properties of that kind to list.
"This particular market is driven by investors because you have to have cash because the banks won't loan on them," Jones said.
There were some risks to buying such properties but the potential returns were significant if the houses could be rented out.
"You could get a 20 to 25 per cent return on your investment," Jones said.
Mike Pero, of Mike Pero Real Estate, said: "As an investor you could buy a five-bedroom house in Queenspark that had been written off by its insurers, make it safe, and put tenants in it . . . and you might be able to get $1000 a week.
"You've got to know the risks though and know you won't get insurance and you won't get a mortgage on it," Pero said.
"I would have no hesitation myself doing it."
- © Fairfax NZ News
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