Just a topic for some interesting thoughts….
There has been alot of commentary about an oversupply of Auckland apartments coming online in the next year or so, especially in the cheaper end of the market. Which many economists etc feel will cause a downturn in price and rentals
What I am pondering is with the increasing cost of ownership of property in Auckland (NZ herald reporting the median price for Auckalnd at $375,000) will the apartment market drop like the predications or will it be filled by first home buyers for whom the median property range has become unaffordable?
i.e. to purchase a median property at $375,000 at 90% finance = loan of $337,500
weekly payments for a 25 year mortgage at 7.6% = $580/week or $30,168 p.a.
If the banks like your repayments to be around 30% of your gross income then to afford a median house you would need a household income of around $100,000 which is certainly not a median income level.
So while Im not altogether sure where this was supposed to be leading I guess Id like to hear other peoples thoughts on what impact this could have on both the apartment market and the suburban market also.
food for thought…………
Hi Andrew
I have been a bit wairy of buying Auckland apartments especially off the plan.
I tend to look at what happened in Sydney and Melbourne and wonder if this could happen in Auckland.
There are heaps of people in big trouble who bought on the word of the real estate agents that they would make a fortune. All they got was a big mortgage to pay every month.
The problem with apartments is the value of your place is linked to the others in the block. If one vendor gets into trouble and has a fire sale then your unit is devalued to match.
I have found that it is better to buy in an established building that one that has just been built, at least you can add value to an older place with a bit of effort.
Another thing that has me a bit concerned about the Auckland apartments situation is the builders are advertising in Sydney etc for buyers. If they were such a bargain and a good deal then there would be enough buyers in NZ without the added expense of advertising in the Australian media.
Something to think about.
Kerwyn.Yep, as soon as developers head off shore to flog apartments the warning bells should ring. I remember last year or early this year somebody on this forum was lamenting a Docklands (Melbourne) purchase they made after a slick seminar in London.
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http://www.depreciator.com.auI would liken it to buying a new car for capital gains. Nuh-uh.
HOWEVER there are some people who just can’t relate to second hand skanksville houses on the edge of town or even further. Those people who insist on purchasing brand new should (please promise me this so I can listen to you thanking me later not whining) – endeavour to purchase at least ten percent under valuation – if not 20 if they are gunny negotiators and happen to time it right with a ‘motivated developer’.
cheers-
miniHere is a press release I made in NZ yesterday
Beware of “catching falling knives” in Aucklands CBD apartment market.
By Kieran Trass (Author “Grow Rich with the Property Cycle” Penguin Books 2004)The stage is set for Auckland’s CBD apartments to fall in value by up to 40% over the next few years.
Great caution must be exercised if you are considering buying into this falling market. If you buy too soon you may suffer from “catching a falling knife†as values continue to fall after your purchase. It is obviously dangerous to catch a knife before it hits the ground and buying into Aucklands CBD apartment market right now is equivalent to catching a falling knife. Auckland’s CBD apartment values are already falling due to a combination of factors including a severe oversupply, dwindling international student numbers, lack of demand from tenants and subsequently plummeting returns. Now may look like a great time to buy into this distressed market as apartments can be bought at prices much lower, than their inflated asking prices, but caution in any distressed market is wise.
There is literally a flood of supply of apartments available to buy or rent which is resulting in a distressed market. The number of apartments in the CBD have nearly doubled from that of just 2 years ago. We have seen an increase to over 12,000 completed apartments in Auckland’s CBD plus another 4,000 are under construction plus another 3,000 are planned to be constructed in the next few years. But there are a large amount of apartments on the market for sale now and, this figure could increase within the next 18 months to more than 5,000 (the equivalent of 25% of Aucklands entire CBD apartment stock).
The current oversupply is having a detrimental affect on the level of achievable rents and sale prices. One example of falling rents is a studio apartment in central Auckland whose owners were originally achieving $350 a week just over a year ago but had to reduce the rent to $200, to secure a tenant for just three months. Studios of around 30sqm which were originally being sold for around $150,000 are now only worth about $100,000, if you are lucky. Local buyers have all but dried up, as increasing local concern about the ever increasing dire state of the apartment market, has become more apparent. Many banks only lend 50% of the purchase price of small apartments and some refuse to lend on them at all. Many large apartment projects are still under construction, accounting for several thousand more apartments yet to hit the market which will continue to impact on achievable rental levels and sale prices.
Many of the apartments were sold off the plans in the last few years whilst being promoted on the strength of the strong influx of international students who needed suitable accommodation. Many more are now being sold to investors overseas who are unaware of the current status of this oversupplied market. There has however been a dramatic reduction in the number of international students choosing to study in New Zealand over the last 2 years. Recent Department of Labour statistics reveal new student levels have dropped from 30,486 in 2003 to just 17,488 in 2005. Many of these students were being accommodated in Aucklands CBD within close proximity of many language schools, several which have since closed. Even more alarming is the large reduction in Chinese student numbers from 14,100 in 2003 to 2,700 in 2005. Many of these students were located in and around Aucklands CBD.
Every day the pool of apartments available to rent is increasing as new apartment buildings are being completed. So seeking tenants amongst a dwindling pool of potential tenants continues to get harder. Some apartment owners are now offering rent holidays or free trips overseas if tenants will sign up for just a 6 month rental term and this is attracting tenants who already live in the CBD occupying older or inferior apartments .
The short term prospects for Auckland’s apartment market look grim as the stage is set for the oversupply of apartments and the undersupply of tenants to continue. Many buyers who purchased off the plans are trying to sell their apartments before completion but to no avail as potential buyers are few and far between at current prices.
“Make sure you can survive the downside, and the upside will take care of itself!” Donald Trump
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