Hi Guys
It appears that the malaise hiiting Melbourne's and Sydney's CBD is now hitting Auckland's CBD according to this news item in Sat's NZ Herald.
Landlords hit rental walls
31.01.2004
By ANNE GIBSON
The bottom has fallen out of Auckland's rental housing market, going against the national trend of escalating rents.Across the city, rents are plummeting as landlords drop their prices rather than risk losing tenants.
Reserve Bank Governor Dr Allan Bollard has been warning investors against buying residential property for months. On Thursday he showed he meant it by increasing the official cash rate.
Since the housing boom took hold about three years ago, many people have clamoured to get into rental properties, often as a form of saving for retirement.
There is concern now these investors could suffer.
Some Auckland agents have a glut of houses and units to let. Despite solid advertising, the agents' phones are staying quiet. Tenants who do bother to turn up for appointments criticise the properties available and demand lower rent.
Owners of about 11,000 inner-city Auckland apartments are suffering the most, particularly those who have "studios" – shoebox units without bedrooms.
Barfoot & Thompson's Grey Lynn rental manager, Leonie Higgins, told of the owner of a small first-floor Queen St apartment who was delighted when told by a developer he could expect at least $350 a week in rent.
But because a similar unit in the same complex was being advertised for $295 a week and had been empty nearly a month, Leonie Higgins said she doubted that the unit on her books could be rented for even that amount.
"We have an overabundance of one and two-bedroom places on our books, from the central-city through to Grey Lynn, Pt Chevalier and Western Springs," she said.
"Rents are decreasing because there's just so many properties available."
She hopes the start of the university year will help.
There is still demand for larger houses, although rents there are also dropping.
"People are choosing to live in groups because of economies of scale.
"Those who pay $300 a week for a one-bedroom unit in the city can pay $120 a week instead."
Leonie Higgins is worried about many investors who have borrowed – sometimes using the equity in their family homes – to buy small apartments.
Auckland Property Investors Association president and property adviser Andrew King said he had been telling investors to avoid small inner-city apartment for more than six months and he is also worried by the emerging rental picture.
"I could see then that the industry was out of control, with a lot of cowboys which didn't bode well and the regulations didn't seem to be there," Mr King said.
Even after spending $4000 on paint and internal renovations at a Great North Rd house near Unitec, Mr King was surprised recently when he had to drop the weekly rent from $440 to $420.
"Some of those who came to look at it were very picky too, wanting two bathrooms," Mr King said of the one-bathroom house.
Leonie Higgins said she had been telling landlords to drop rents for existing tenants because flats and houses which were being re-let were going for well under last year's rates.
"My advice to landlords at Christmas was that the market was very fluid and with the increasing volume of properties, we strongly recommended keeping on existing tenants and adjusting rents if necessary," she said.
But even larger properties are going for well under last year's rents. Leonie Higgins cited four to five-bedroom houses fetching $550 to $600 a week last year now renting for $500 to $575.
This is in contrast to November 2002 when the Weekend Herald reported Auckland flat hunters queuing, bribing landlords and offering rents above the asking price.
The rental drought has spread to many suburbs. The latest Real Estate Institute figures (for November) show rents have dropped in the East Coast Bays (down $70 a week for two bedrooms), Mt Albert (down $17 a week for three bedrooms), Mt Eden (down $65 a week for four bedrooms), from Mission Bay to St Heliers (down $140 a week for four bedrooms), Remuera (down $128 a week for four bedrooms) and Glen Innes/Panmure/Mt Wellington (down $20 a week for four bedrooms).
Tenant demand is still high elsewhere in New Zealand. In Christchurch, for example, it is reported that properties are snapped up within hours of going on the market.
Massey's Centre for Banking Studies director David Tripe said this week that big borrowers in the booming housing market could be in for a day of reckoning if the market faltered.
More than $6 billion of 12-month fixed-interest home mortgages are due to be rerated before November, so borrowers are looking for longer fixed-term rates.
We are a nation of borrowers.
The average level of household debt in relation to average household income is the highest on record: 130 per cent of income, compared with 65 per cent in 1990.
Mortgage debt is concentrated in the 25-to-45 age bracket.
Housing loans by registered banks have increased by $36 billion since June 1996 to more than $70 billion.
Of 1.3 million houses and flats nationally, 359,000 are rented, according to Statistics NZ census data for 2001.
In wider Auckland, 131,000 households have a mortgage and 101,000 are debt-free. Of a total stock of 236,000 houses and flats, 116,000 are rented, according to the Census.
Real Estate Institute vice-president Howard Morley, the chief of Auckland Property Management, said rents were cyclical.
"November to January is hard renting traditionally and it's only starting to warm up now."
He cited the loss of the America's Cup and declining foreign student numbers as factors affecting rental properties.
Regards
This article is likely to be a catalyst for investment opportunities in the Auckland region.
In terms of the housing sector, this adjustment was expected. The same could be said about the abundance of low-cost “show-box units” developed in Auckland in recent years.
However, I do not feel this trend will have a severe impact on apartment developments at the higher end of the market.
Although this segment may see a short-term adjustment in capital gains, there still remains a shortage of high-end apartments – which should still attract tenants willing to pay higher rates for quality and on-site amenities.
I am not personally involved in any developments in Auckland – my views are based on research we conduct in this market.
I wanted to reiterate a couple of points noted in an earlier post which people should adhere too when considering the Auckland market:
The key is conducting sufficient due diligence and ensuring the developer adheres to strict quality controls, which will ensure your investment continues to appreciate in value – and remains tenanted.
Visit the location. When buying in a CBD you should not purchase OTP without visting the location.
And investigate other developments in Auckland – compare costs, location, tenant rates, etc which will assist in the decision making process.
— Michael
So how does it work if one buys of the plan? Do they pay upfront or upon completion?
Regards Bear
There is a generally an up-front deposit [10-15% of the purchase price] which is staged throughout the sales and construction phases.
The following example is based on a 10 percent staged deposit:
– $5,000-10,000 down payment on signing the Purchase Agreement.
– a second installment increasing the total deposit paid to 5 percent of the purchase price – due 21 days after signing the Purchase Agreement.
– a final installment increasing the total deposit paid to 10 percent of the purchase price – due on or before the fifth working day after the date the developer notifies the purchaser that all consents have been granted.
[The final installment may also be subject to the developer reaching a minimum sales target]
Deposit payments are held in an interest bearing trust account. If any of the terms and conditions outlined in the Purchase Agreement are not satisfied, the deposit plus interest accrued is/can be refunded.
The balance of the purchase price is due on the settlement date – which is either the fifth working day after the date the Certificate of Practical Completion is issued or, the fifth working day after the date the purchaser [or puchasers lawyer] receives a copy of the Certificate of Title.
If you are a savvy investor who knows the market, acquiring OTP can be very profitable with a minimal investment.
For example, upon signing the purchase agreement the buyer takes “control” of the property i.e. with a $5,000-10,000 down payment.
The buyer then has the option of finding another buyer prior to the second or third installment dates, or settlement date, and assigning the contract for a profit.
The risk increases when the buyer either does not have interested parties lined up prior to signing the purchase agreement, or he/she is not confident there is sufficient demand for the property at a higher valuation – prior to the installment/settlement date.
— Michael
Hey Guy’s
Some Questions..
What areas of NZ are better ??
Northland
Northshore
Western
Central and Eastern
SouthernAlso whilst i’m here..
Deposit Bonds.. can anyone simplify/explain the workings ( who,where,how,why)
Lease Options
Renouncable contractsAny ideas ??
“The man that thinks at 5o as he did when he was 20 has wasted 30 years of his life”
Although somewhat higher priced than most regions, Queenstown and Wanaka are recommended as the two most profitable locations – land/SFH’s when available are valued significantly higher than other regions in New Zealand, therefore an apartment
may be preferential.Alternatively, in terms of SFH’s, Dunedin and Nelson are locations worth researching.
Deposit Bonds: http://www.depositbond.co.nz
I will post another topic explaining “Renouncable Sales Contracts”.
— Michael
SFH’s ???
REDWING *Urghh??*
wil look at that site also Michael
“The man that thinks at 5o as he did when he was 20 has wasted 30 years of his life”
SFH’s = single family homes
ha what a crock, Aucklands rental prices actually went threw the roof over the last couple of years and even if they were to drop a bit I don't think it will effect to many people who own property in Auckland. A crapy 3 bedroom which you would have paid around $350 for 2 or 3 years back is now renting around $550 per week, (I'm talking about the north shore, can't really comment on other areas but I'm sure there the same) House buying prices have also gone up a bit, I was in Auckland only a few weeks ago and there was sold signs on over 50% of all realestate signs outside residential properties, every second sign I seen had sold over it.
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