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Investors give shoeboxes the boot, at stomped-down price
27 August 2006
By GREG NINNESS
Prices for so-called shoebox apartments in central Auckland have fallen dramatically and some investors have lost $100,000 or more on those they bought new a year or two ago.
Thousands of the apartments, called shoeboxes because of their small size - typically under 50sqm - have been built in high rise blocks in Auckland's CBD over the past few years. Most were sold off the plans (before they were built) to mum and dad investors who often mortgaged their family homes to buy them.
As the value of their investment units had fallen, many owners were deciding to cash up and cut their losses rather than hang on in the hope things would eventually come right.
An auction at central Auckland real estate company City Sales last week produced some typical results:
A 40sqm two bedroom apartment in the Altitude building on Kingston St was sold fully furnished for $158,000, compared with its $218,000 purchase price in December 2003, leaving the owner with a loss of $60,000. When the real estate agent's commission and legal fees are added, the total loss to the original buyer would be about a third. The apartment had a council valuation of $225,000.
A 36sqm two bedroom apartment with an outdoor car park in the Zest building on Nelson St which was completed last year, sold for $190,000 compared with its original purchase price of $253,000. It had a council valuation of $232,000.
City Sales managing director Martin Dunn said he regarded those prices as quite good. He had sold some inner city apartments for as little as $90,000 over the past few months.
A flood of sales of the units began in September last year and many owners had taken a hit on the price "big time" compared with what they paid for them, he said.
Some had lost more than $100,000 on a single unit and many investors had more than one unit they were wanting to quit.
Dunn said the one thing most vendors had in common was having bought after attending "investment seminars" run by the developers.
These had tended to be short on facts and long on slick salesmanship.
"They were never told how small they (the apartments) were," Dunn said. "All the information was up on the walls, there was no information they could walk away with. And they were stitched up on the spot."
He said City Sales had refused to sell the new apartments off the plans "because I knew what would happen", but he was happy to handle resales.
The developers who had run seminars had cast their nets wide to catch investors from all over the country.
Dunn said he had recently sold some apartments on behalf of a group of Southland farmers who had bought them off the plans.
The fall in prices had been a disaster for the original purchasers, but there was no shortage of buyers wanting to snap up the apartments at the lower prices.
At last week's auction, there were six bidders for the Altitude apartment and five for the Zest apartment.
This was because the lower purchase prices significantly improved their investment performance.
The Altitude apartment should provide rental income of $300 a week ($15,600 a year). When rates of $707 a year and body corporate fees of $1776 a year were deducted, this left net income of $13,117 a year.
At the purchase price of $158,000 this provided a yield (net income as a percentage of the purchase price) of 8.3% a year before tax, which compared favourably with many other types of investments.
At the original purchase price of $218,000 the apartment would have produced a yield of just 6%.
The Zest apartment's selling price of $190,000 provided a yield of 7.6%, compared with 5.7% at its original purchase price of $253,000.
Dunn said most of those selling were mums and dads, but most of those buying were "experienced, canny investors who see a temporary opportunity to buy a property for less than its intrinsic value".
But the best bargains may be gone.
Dunn said he had sold some apartments with yields as high as 10%.
Most of the new buyers were taking at least a five-year view of their investment, he said.
Sales were also being helped by strong demand from young tenant couples who couldn't afford to buy in the suburbs and were frustrated with high petrol prices and choked roads.
27 August 2006
By GREG NINNESS
Prices for so-called shoebox apartments in central Auckland have fallen dramatically and some investors have lost $100,000 or more on those they bought new a year or two ago.
Thousands of the apartments, called shoeboxes because of their small size - typically under 50sqm - have been built in high rise blocks in Auckland's CBD over the past few years. Most were sold off the plans (before they were built) to mum and dad investors who often mortgaged their family homes to buy them.
As the value of their investment units had fallen, many owners were deciding to cash up and cut their losses rather than hang on in the hope things would eventually come right.
An auction at central Auckland real estate company City Sales last week produced some typical results:
A 40sqm two bedroom apartment in the Altitude building on Kingston St was sold fully furnished for $158,000, compared with its $218,000 purchase price in December 2003, leaving the owner with a loss of $60,000. When the real estate agent's commission and legal fees are added, the total loss to the original buyer would be about a third. The apartment had a council valuation of $225,000.
A 36sqm two bedroom apartment with an outdoor car park in the Zest building on Nelson St which was completed last year, sold for $190,000 compared with its original purchase price of $253,000. It had a council valuation of $232,000.
City Sales managing director Martin Dunn said he regarded those prices as quite good. He had sold some inner city apartments for as little as $90,000 over the past few months.
A flood of sales of the units began in September last year and many owners had taken a hit on the price "big time" compared with what they paid for them, he said.
Some had lost more than $100,000 on a single unit and many investors had more than one unit they were wanting to quit.
Dunn said the one thing most vendors had in common was having bought after attending "investment seminars" run by the developers.
These had tended to be short on facts and long on slick salesmanship.
"They were never told how small they (the apartments) were," Dunn said. "All the information was up on the walls, there was no information they could walk away with. And they were stitched up on the spot."
He said City Sales had refused to sell the new apartments off the plans "because I knew what would happen", but he was happy to handle resales.
The developers who had run seminars had cast their nets wide to catch investors from all over the country.
Dunn said he had recently sold some apartments on behalf of a group of Southland farmers who had bought them off the plans.
The fall in prices had been a disaster for the original purchasers, but there was no shortage of buyers wanting to snap up the apartments at the lower prices.
At last week's auction, there were six bidders for the Altitude apartment and five for the Zest apartment.
This was because the lower purchase prices significantly improved their investment performance.
The Altitude apartment should provide rental income of $300 a week ($15,600 a year). When rates of $707 a year and body corporate fees of $1776 a year were deducted, this left net income of $13,117 a year.
At the purchase price of $158,000 this provided a yield (net income as a percentage of the purchase price) of 8.3% a year before tax, which compared favourably with many other types of investments.
At the original purchase price of $218,000 the apartment would have produced a yield of just 6%.
The Zest apartment's selling price of $190,000 provided a yield of 7.6%, compared with 5.7% at its original purchase price of $253,000.
Dunn said most of those selling were mums and dads, but most of those buying were "experienced, canny investors who see a temporary opportunity to buy a property for less than its intrinsic value".
But the best bargains may be gone.
Dunn said he had sold some apartments with yields as high as 10%.
Most of the new buyers were taking at least a five-year view of their investment, he said.
Sales were also being helped by strong demand from young tenant couples who couldn't afford to buy in the suburbs and were frustrated with high petrol prices and choked roads.
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