Quality apartments in Auck?

[watchful]

Good for you Terry.

I am quite a few rungs below you on the ladder but understand where you are coming from in terms of quality of life. My wife and I have the home, beach house and investment properties but the beach home is more of a beach shed .

We did have a small apartment in our portfolio but as mentioned sold that when I realised that the numbers of purchasers for it would become quite limited. That is the biggest problem I have with cheaper apartment investment. Banks are not doing first home buyers any favours (rightly so) with purchases of such apartments. This is limiting purchase to investors who as you know are often that little more savvy. Although the returns we achieved were good (supplemented by the inclusion of a carpark), the tenants were invariably students (10/12 months typical tenancies) and the apartment appeared to be aging rapidly despite the high B/C fees we soaked.

Good for some, just not for us. Am sitting tight, and watching the inner city 3-4 Bed ex-state etc market very closely though. Prices are still easing but there still appears to be quite strong demand.

Haven't been watching the apartment market at all. How are prices stacking up?

[tanmedia]

Good for you Terry.

I am quite a few rungs below you on the ladder but understand where you are coming from in terms of quality of life. My wife and I have the home, beach house and investment properties but the beach home is more of a beach shed .

We did have a small apartment in our portfolio but as mentioned sold that when I realised that the numbers of purchasers for it would become quite limited. That is the biggest problem I have with cheaper apartment investment. Banks are not doing first home buyers any favours (rightly so) with purchases of such apartments. This is limiting purchase to investors who as you know are often that little more savvy. Although the returns we achieved were good (supplemented by the inclusion of a carpark), the tenants were invariably students (10/12 months typical tenancies) and the apartment appeared to be aging rapidly despite the high B/C fees we soaked.

Good for some, just not for us. Am sitting tight, and watching the inner city 3-4 Bed ex-state etc market very closely though. Prices are still easing but there still appears to be quite strong demand.

Haven't been watching the apartment market at all. How are prices stacking up?

That raises an interesting question. From my experience, the banks in NZ have always been tighter when it comes to lending on apartments. Why is this? I first discovered this back in 2005 when they wouldn't accept anything less than 30% down on a couple of apartments in Auckland. Perhaps it had something to do with being offshore, but I still had steady income and excellent referees. I pulled out becuase it looked like too much hassle and got suspicious about the market.

[tpr2]

Good for you Terry.

I am quite a few rungs below you on the ladder but understand where you are coming from in terms of quality of life. My wife and I have the home, beach house and investment properties but the beach home is more of a beach shed .

We did have a small apartment in our portfolio but as mentioned sold that when I realised that the numbers of purchasers for it would become quite limited. That is the biggest problem I have with cheaper apartment investment. Banks are not doing first home buyers any favours (rightly so) with purchases of such apartments. This is limiting purchase to investors who as you know are often that little more savvy. Although the returns we achieved were good (supplemented by the inclusion of a carpark), the tenants were invariably students (10/12 months typical tenancies) and the apartment appeared to be aging rapidly despite the high B/C fees we soaked.

Good for some, just not for us. Am sitting tight, and watching the inner city 3-4 Bed ex-state etc market very closely though. Prices are still easing but there still appears to be quite strong demand.

Haven't been watching the apartment market at all. How are prices stacking up?

It depends which end really.

The lower end has been decimated particularly as banks refuse to lend on the smaller ones.

Once you get over 40m2 there are some funding sources so those have lost some value but not to the same degree as the sub 40m2.

Up in the 60m2 range and this is really where things start to go a bit strange. The prices can range from low $200's to as high as $550 depending on the building.

Up in the larger 100 plus m2 it has been reasonably steady but again prices can range from 500k to 1mill depending on building.

150m2 and over and well...... it really comes dow to the size of the apartment.
I know of a 135m2 penthouse for sale at 1.7 mill but then a 235m2 for sale at 1.950 and a whole floor one available at the same price.

I guess if you look at each building as its own little suburb you get a better idea of how the prices can vary so much.

[tpr2]

That raises an interesting question. From my experience, the banks in NZ have always been tighter when it comes to lending on apartments. Why is this? I first discovered this back in 2005 when they wouldn't accept anything less than 30% down on a couple of apartments in Auckland. Perhaps it had something to do with being offshore, but I still had steady income and excellent referees. I pulled out becuase it looked like too much hassle and got suspicious about the market.

Rosenesath might be able to help us with the theory behind that tan as it has always baffled me somewhat as well.

I think it could be somewhat to do with the volatility of an apartment market.

Not entirely sure because I really do like my good old concrete and steel apartments. Try putting your fist through one of those walls.

[watchful]

Thanks Terry.

I understand what you mean about many apartment blocks sitting apart from each other in the market.

Again, the problem I have with apartments (and don't get me wrong we still have one (90m2) in our portfolio) are the fundamentals behind their investment.

Let me see if I can clarify my comments.

There is no doubt that the real estate market has changed in the last 18 months. Credit is more difficult to obtain, time to sell has increased, capital gains and the potential for capital gains have eroded, many buyers are spooked, and these buyers have more time to consider their investment.

I explained this to a friend the other day. The fundamentals of selling are there are only two people who will buy your property. (+ or - a few circumstantial differences) There are only two people who will buy your property. One is an owner occupier (OO now or plans to OO later) and the second is an investor. Let's look at the former.

Up until recently, many owner occupiers have been riding the property gravy train. Everyone (considering banks were lending up to 100% of a home's inflated value) could buy and were buying. Ok, most realised that they would need to pay (and many couldn't afford to pay) their mortgages but with 12% in capital gain, who cared. The bank balance loved it, the banks were loving it and everyone, except people priced out of the market, were content.

The latter also benefited from the boom. Many Investors guided by greed driven investment vehicles geared themselves well past what would normally have been comfortable levels. However, again, although their incomes were drying up with their plethora of negatively geared properties, the draw of capital gains blinded them to the growing snowball about to swallow them.

So what has changed?

Well Mr Capital Gain is on vacation. Packed his bags and won't be seen for some time yet. Banks have accepted that they are exposed, the world is treading in uncharted waters.

So where am I going with this?

I think these fundamentals work for all property however, many particularly so for apartments. These ideas are based around apartment investment.

Low end ($50,000 -$200,000).

OOs: For apartments, banks are not interested in lending to OO's without substantial deposits and/or collateral. Capital gains in the near future are nil (or worse). Buyers spooked. Result, very few OO buyers.

Investors: (Usually) better position to buy - cashed-up?, good LVR ratio plenty of existing equity. Potential for CF+ if bought at right price and property is highly tenantable. Greater time to sell meaning more diligent buyers with stricter conditions and lower offers. High effort required to encourage and retain tenants and now seeing opportunities in house + land properties that were not there a year ago. Result: Most likely to buy. Problem: only a limited pool of these investors exist and they are diligent.

Mid ground: ($250,000 - $500,000).

OOs: Banks are more willing to lend however 20% deposit means min 50-100K. At higher end now looking at potential to buy freestanding house + land package reasonably close to city centre for the same price. Face a problem if needing to sell due to the limited pool of buyers who can take the burden off your hands. Nil capital gain to be realised. Result: Few OO buyers.

Investors: Require approx $600p/w for CF+ (incl B/C etc exps) so not realistic. Nil capital gain to be realised so reluctant to purchase as investment. Result: Few Investors.

High ground: ($500,000 +)

OOs: Hope you have a big deposit. Why not buy house + land package with better prospects for capital gain?

Investors: Only in extreme cases will rent be sufficient to cover expenses. Hope you have deep pockets.

I realise we all have different circumstances (equity, income levels etc) but I just cannot get my head around this type of investment as a means of wealth creation. \

Look forward to comments.

[CJ]

High ground: ($500,000 +)

OOs: Hope you have a big deposit. Why not buy house + land package with better prospects for capital gain?

I know of two people who have done this in the past year. They probably paid cash after selling their large home and section. The kids have left and travel is on the agenda. One floor living 9after catching the lift to the top) for those with dodgy bones and security from only being accessible by superheros.

Apartments could become the resthome of the rich.

[Keithw]

Why not buy house + land package with better prospects for capital gain?

Watchful
Quite a good summary but I am interested in why you think there would be better prospects for capital gain on house & land than on apartments.
If the assumption is that at present neither are growing, then when one starts, won't they both ?
Build costs continue to increase, but for a house the build cost is less proportion of the property value than with an apartment.
So there is a stronger driver to push up new apartment prices- higher costs & less of them being built.
With house & land, the land can easily stagnate or loose value while at the same time build costs increase, which may result in no overall increase in the total value.

[tanmedia]

Well Mr Capital Gain is on vacation. Packed his bags and won't be seen for some time yet. Banks have accepted that they are exposed, the world is treading in uncharted waters.

.

Mr. Capital Gain is in a deep coma. The doctors are split down the middle about when he will come out of it. A vocal few say he may never recover.

The Dominion did a story this morning on 130,000 home owners now being in negative equity. That to me sounds like a lot of people for a country of our size. The banks say it's "not a problem," which is probably their pulbic face speaking.

Interesting to note that some academic from Lincoln is predicting further falls of up to 20% after saying "some homes had already dropped 20-30%". What people make out of that, I don't know. However for the punter who doesn't read too deeply about these kinds of things, it would be hard to overflowing with enthusiasm.

[watchful]

Watchful
Quite a good summary but I am interested in why you think there would be better prospects for capital gain on house & land than on apartments.
If the assumption is that at present neither are growing, then when one starts, won't they both ?
Build costs continue to increase, but for a house the build cost is less proportion of the property value than with an apartment.
So there is a stronger driver to push up new apartment prices- higher costs & less of them being built.
With house & land, the land can easily stagnate or loose value while at the same time build costs increase, which may result in no overall increase in the total value.

Hi Keith. Sorry I should provide a disclaimer on house+land (can I call it H+L) close to CBD. A few reasons for my POV.

• An undersupply of apartments can be more easily addressed than an undersupply of H+L close to CBD
• Future (way in the future maybe) easing of building restrictions and less strict re-zoning (to satisfy demand) will place greater value on H+L packages much more than apartments (
• the 1/4 acre section 20 years ago)
• The fundamental kiwi attitude (for some/most) of having a bit of dirt to raise the kids on. This was our motivation to buy our H+L dwelling - our first baby is on the way!!
• The capital gain on our apartments (now only 1) were far inferior to our H+L's in the past 6 or so years so maybe that has swayed my thinking also.
• Apartment investment can often be the first step for many into property investment before they perhaps move to H+L or commercial.
• Fewer eligible purchasers and therefore much more limited market pool, less buyer competition and therefore lower gains.

Over the past few years I have certainly seen capital gain on (some) apartments just not to the same level as H+L properties I have been monitoring. Those just off the top of my head. Actually not sure about my last point, but I see that as properties get more affordable (price drops, lower interest rates, tax cuts etc) demand may shift from apartments as first investments to low-end H+L.

What are your thoughts on the matter?

[tpr2]

I know of two people who have done this in the past year. They probably paid cash after selling their large home and section. The kids have left and travel is on the agenda. One floor living 9after catching the lift to the top) for those with dodgy bones and security from only being accessible by superheros.

Apartments could become the resthome of the rich.

lol.... A rest home has actually purchased a whole floor or two in a very large CBD apartment building, very convenient. I am not sure how many floors but I think there are about 8 apartments per floor and some of those are 2 bedrooms......

you must be psychic CJ

[watchful]

lol.... A rest home has actually purchased a whole floor or two in a very large CBD apartment building, very convenient. I am not sure how many floors but I think there are about 8 apartments per floor and some of those are 2 bedrooms......

you must be psychic CJ

Great idea until there is a power cut, a natural disaster or simply the lift breaks. I am sure the old legs don't handle stairs the way they used to...

[Jalice888]

Other Apartments

I haven't seen many of the apartment buildings that Conrad properties built listed here. What about Aura, Zest, Altitude, Volte, etc.

So many variations are involved in apartment ownwership and the biggest worry is the control of the body-corp being set by the developer then (what seems like a subsidiary of the developer) a management company is employed by them that gets most of the owners rights while taking a fee overall instead of you the invester finding someone to manage tenants while you pay the bills saving a lot of extra expense.

Remember Surfures Paradise in Australia where the older apartments became worthless as new apartments were developed and I believe this pattern will happen in Auckland aswell but it will be a few years before new investment occurs by developers. Yes Ronald Trump did begin in apartments but he got in at the beginning so don't expect to get rich like him and realise that as a developer now he makes those profits out of us the 'Off the Plans Purchaser' which you need to be very experienced if you decide to buy this way!

Keep your mind clear and focused and buy to suit your own personal target as everyone is different but new people to the market need to trade in established fields.

[tricky]

I haven't seen many of the apartment buildings that Conrad properties built listed here. What about Aura, Zest, Altitude, Volte, etc.

We are talking about quality apartments and that's why the Conrad properties haven't been mentioned.

[CJ]

I haven't seen many of the apartment buildings that Conrad properties built listed here. What about Aura, Zest, Altitude, Volte, etc.

Harvad, Standford ...

These are tiny, cheaply erected (both in design and construction) and general consensus is that they may turn into the slums of the central city.

That being said, if bought at the right price, they can create good cashflow. Whether this is a long term proposition is a different matter.

That is my opinion anyway.

[Jalice888]

We are talking about quality apartments and that's why the Conrad properties haven't been mentioned.

Not so tricky, didn't you read early on the chat about Silo which is even worse by far than these?

Quality is what each of us desires as it doesn't apply to a strict ratio, is a poor healthy person less than a wealthy person full of cancer, diabetes and heart disease which is the way life is going mainly these days?