march 2013 of TC3 properties in comparison with Christchurch City as a whole and the surrounding TC2 areas.

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research march 2013 KNIGHT FRANK TC3 SALES RESEARCH Executive summary of information Gathered In 2010, the average house sale price to rateable value ratio for Christchurch City was 93.1%.

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

2 march 2013 KNIGHT FRANK TC3 SALES RESEARCH The Canterbury earthquake activity of 2010 and 2011 has resulted in much uncertainty and confusion in the residential property market. Following the earthquake on 4 September 2010, the Canterbury Earthquake Recovery Authority (CERA) was formed by an Act of Parliament. CERA has divided residential land in Canterbury into two zones; the Green zone, which is land that is considered suitable for residential construction, and the Red zone, which is land where repair would be uncertain, costly and probably highly disruptive. Land in the Green zone has been further divided into three categories, used to describe how the land is expected to perform in future earthquakes. The categories are: TC1 grey: future land damage from liquefaction is unlikely. Standard foundations can be used as long as the site meets the good ground test. TC2 yellow: Minor to moderate land damage from liquefaction is possible in future significant earthquakes. Shallow geotechnical investigations may be required, depending on damage. TC3 blue: Moderate to significant land damage from liquefaction is possible in future significant earthquakes. Site-specific geotechnical investigation and specific engineering foundation design is required. The focus of this research is on properties that are in the TC3 category. We observed that there has been very little factual information to date around the sales of TC3 properties and what effect the TC category may be having on values. We have collated actual sales information from properties that have sold in selected TC3 areas within Christchurch City. We analysed a total of over 2400 sales of property; including those in TC3 areas across 21 suburbs, as well as sales of TC2 category properties that immediately surround the TC3 areas. We have compared this information with that of Christchurch City as a whole. In addition, we have spoken to a number of Real Estate Professionals about their experiences in dealing with the sale of TC3 properties. We have also made contact with a number of insurance companies and banks about any concerns they may have with customers purchasing TC3 properties. The information gathered has helped to give us an understanding of how the market perceives properties in TC3 areas. We also attempt to identify if there is a difference between sale prices of TC3 properties compared with those properties that immediately surround the TC3 areas, these being in the TC2 category. We analysed sales over a number of time periods to give an understanding of what is happening with values over time. The periods studied include all of 2010, 2011 and As well as analysing each year separately, we also looked at values in 2010 before the September 4th earthquake, then between the September and February earthquakes, followed by the rest of 2011 after the February earthquake, and then all of The method adopted has been to compare sale prices with the property s rating valuations. The results of the study have been somewhat surprising, with the sale values in comparison with rateable value in TC3 areas being only slightly below that of Christchurch City as a whole. The following table indicates the Average Sale Price to Rateable Value Ratio for Christchurch City, TC3 areas studied, and areas immediately surrounding the TC3 areas for 2010, 2011 and We included sales for the whole of 2010, in order to identify any trends from the data. The overall picture is that initially the sale price to rateable value ratio dropped some 5% in the TC3 zoned sales between 2010 and 2011, recovering somewhat through The whole of Christchurch saw 3% growth per annum. Table 1 Average Sale Price to Rateable Value Ratio Area Christchurch City 93.1% 96.1% 99.4% TC3 areas studied 99.1% 94.4% 97.9% Surrounding sales TC2 Category 98.0% 99.9% 102.2% TC3 & Surrounding areas combined 98.5% 97.7% 100.6%

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

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

4 march 2013 KNIGHT FRANK TC3 SALES RESEARCH 140.0% 120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% Sale Price to Rateable Value Ratio For Indicated Suburbs by Year Source: Knight Frank Research Christchurch City Aranui Avondale Bryndwr Burnside Burwood CHCH Central Dallington Edgeware Fendalton Ilam Mairehau Merivale New Brighton Nth New Brighton Parklands Riccarton Richmond Shirley St Albans Strowan Wainoni The graph above shows a comparison of the Sale Price to Rateable Value Ratio for the years 2010, 2011 and 2012, giving a comparison to Christchurch City. 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 these being New Brighton at 82.4%, compared with the Christchurch City average of 96.1%. In 2012, ten of the suburbs studied were below the Christchurch City average of 99.4%, with the lowest being Riccarton at 82.8% 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 average for all the studied suburbs combined was well above the Christchurch City average for all three years. Numbers sold The number of property sales in the TC3 zoned areas studied dropped dramatically in 2011, maintained into 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. Table 3 Numbers Sold Study Area TC3 Areas Studied TC2 Surrounding Areas Total

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

6 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, because there is a stigma associated with them. A common comment from all of those surveyed was that one of the major obstacles to overcome is in relation to bank lending. Most said that banks are very cautious when lending involves a TC3 property. Generally the bank s loan to value ratio is lower with these properties, which is excluding some first home buyers. A large percentage of the buyers of these properties do not require a mortgage, and these buyers generally want a discount on the price because they know they have an advantage due to the lack of buyers. One person commented that some buyers are reluctant to purchase TC3 property because there may be difficulties in the future if they want to do alterations, as these may require costly foundations. A number of those surveyed thought that TC3 properties take longer to sell than TC1 and TC2 properties. One of those surveyed reported good success in selling TC3 properties because they were in a high socio-economic area, with the majority of sales being over $500,000. Their buyers are less likely to be first home buyers, and therefore less likely to require as much finance. Another of those surveyed has had very good success with TC3 property sales, they commented that finance and insurance issues can be overcome if the property concerned is marketed with all the relevant details obtained before it goes to the market, i.e. geo-tech reports, building and engineers reports. Once all of this information is obtained, they help buyers work with the banks to ensure that finance is obtained. One of those that is having success with sales commented that in some cases first home buyers can overcome the higher security requirement issue by paying a higher repayment amount for the first five years, to get them to the required security level faster. Information gathered from banks Information gathered from insurers All the banks we have spoken with deal with each application on a case by case basis. One bank advised that they have approved loans of up to 85% of the value of the property, and another advised they will lend up to 70% of the value. One advised that a scope of works was always required in every case, and one advised it is not compulsory, but it does help them assess the level of damage to the property, and therefore speed up the process. Where a purchaser will have insurance cover based on a sum insured, the bank will need to be sure that the sum is sufficient to cover the replacement of the home in the event of total loss. We spoke with all of the main insurers in New Zealand to gain an understanding of the current insurance situation for TC3 properties: All insurers advised that cover for One insurer advised they will not properties in the TC3 category are provide cover for new customers, and considered on a case by case basis. None another advised they would provide of the insurers surveyed would give us cover for new customers, where they an assurance that they would definitely already insure the property. provide cover. One insurer advised they would most All insurers will only consider providing likely decline cover for properties cover for TC3 properties if they already with major damage, and most likely have existing cover in place for that approve cover for properties with only property. minor damage that have a builders or engineers report. Two of the insurers advised that they always require a builder or engineers report before agreeing to cover.

RESEARCH New Zealand Valuation & Research William Blake Director - Valuation & Research Christchurch +64 27 229 7427 William.Blake@nz.knightfrank.

7 RESEARCH New Zealand Valuation & Research William Blake Director - Valuation & Research Christchurch William.Blake@nz.knightfrank.com Stewart Littlejohn Director - Valuation & Research South Auckland Stewart.Littlejohn@nz.knightfrank.com Tim Gemmell Assoc. Director Valuation South Auckland Tim.Gemmell@nz.knightfrank.com Australia Research Matt Whitby National Director - Research Matt.Whitby@au.knightfrank.com New Zealand Commercial Sales & Leasing Layne Harwood Managing Director Layne.Harwood@nz.knightfrank.com Campbell Taylor Director Agency Christchurch Campbell.Taylor@nz.knightfrank.com David Sylvester Director Agency South Auckland David.Sylvester@nz.knightfrank.com Knight Frank 2013 This report is published for general information only. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no legal responsibility can be accepted by Knight Frank Research or Knight Frank for any loss or damage resultant from the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank in relation to particular properties or projects. Reproduction of this report in whole or in part is allowed with proper reference to Knight Frank Research. Simes Ltd t/a Knight Frank Christchurch, Licensed Agent (REAA 2008) KFNZ Ltd t/a Knight Frank South Auckland, Licensed Agent (REAA 2008)

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