Written-off homes selling for rentals
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 earthquake-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 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," he 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 on the market include a 660-square-metre hillside section in Sumner that has an asking price of $225,000. A house, which has a capital value for rating purposes of $256,000, comes with the land but it has been written off by the owner's insurers.
In Avondale, two two-bedroom townhouses for which the owners have been paid out by their insurance companies are being offered for sale "as is, where is".
One is being marketed at $149,000, which is $137,000 less than its rateable value of $286,000, and 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 secured offers on both Avondale properties.
He has found demand from investors for "as is, where is" properties and is looking for more.
"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 he was aware of sales in the eastern suburbs of properties where the houses had been written off by the insurance companies and then sold with full disclosure.
"What people are realising is that a house might have a crack through the foundation but otherwise be fine as long as we don't get another quake,'' he said.
''Why shouldn't they take the risk of paying $250,000 for the land when they can get a free house that would cost them another $300,000 to $400,000?
"It's a wee bit like buying a car that has been written off because the chassis is bent. As far as the insurance company is concerned, it's not the way it was and the owner deserves a new one, but you can take it to an engineer and get it straightened, and for all intents and purposes it will be OK.
''I have no problems with that as long as the buyer is aware.
"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.
"I would have no hesitation myself doing it."