Auckland Apartments - Doom or Boom?

[MoneyMaker]

With the amount of information around about the apartment market in Auckland, I was wanting to know some thoughts from actual investors versus what is being published in the press.

What do you think? Is investing in the apartment market a good or bad idea?

What impact do you think the decision to raise the development contribution fund levies will have on the future saleability of these apartments?

Thank you and I look forward to reading some interesting posts.

[Julian Grainger]

Auckland Central, dominated by apartments is one of the few areas in New Zealand has not recovered from the peak in 1993 or from a lesser peak in 1998. Even after the boom of the last 5 years.

Doom

[CycleTrader]

Million $$ Question

First post - having been directed to this site and seen some interesting debate, thought it was about time I shared some views.

Re Auckland Apartments there are a huge number of factors at play.

- Inward migration to NZ generally is still positive (just) but inward migration to Auckland appears very positive.

- Unemployment is still at record lows.

- We are following a worldwide trend which has seen increasing acceptablce of apartment living as a true lifestyle choice (proximity to work and amenitiese etc)

Combination of the above factors is that there should exist sustained demand for some time for apartment occupiers, whether by owners or more likely tenants. Long term it looks pretty positive.

Having said all that the apartment market is clearly segmented both geographically (eg. Hobson Ridge vs Albert Park) and by unit size/price (eg. Viaduct vs Hobson Ridge.) Some segments have been oversupplied in the past and others have been simply affected by the perception of poor quality, poor location and less desirable tenant profiles. While these factors invariably mean that 'good' segments get tainted by the bad news ultimately the market does recognise quality - or more accurately the matching of appropriate demand with the right kind of supply.

The impact of the new development contributions regime will simply be that there is an increased minimum price that apartments can be built for. Invariably the price will rise to meet that cost however it may well take some time for that price adjustment to be accepted by the market. Could be 2-3 years away or sooner if the current stock is absorbed by tenants.

Negative influences on price remain the sustained high interest rates and most importantly the lingering negative sentiment which derives from some of the poor quality apartments and questionable selling tactics used by some.

All up, I think there are some bargains to be had at present and this will continue for some time. Also think that long term there is nothing wrong with good quality, well located apartments. For those, while prices may drop initially due to sentiment, ultimately they have to carry a price which reflects the cost of building.

My 2c. Very interested to hear other views.

[LondonKiwi]

Shouldn't it be doom or boom? Doom or gloom are the same thing.

CycleTrader makes some good points but the most important one is quality will always be sought after!


LK

[Adman]

Surely Auckland apartments are cheap now? By which I mean good value. On a pure yield basis, apartments do not tend to produce positive cashflow (absolute bargains and renovation projects aside - I'm talking about the market in general), but perhaps the rents are low as well as prices. In Wgtn rents are higher, I am sure... it's all about supply and demand again. With prices where they are now, surely developers will just stop building apartments, supply will drop, demand will recover and so too will prices and rents, at which point those who are buying decent apartments now will cash in. By the time developers see the prices back to profitable levels, it will take several years to get fresh supply back into the market and prices will continue to rise in the mean time? Surely?

I agree that apartments have a negative stigma... but it is a young apartment market in NZ. London, New York etc... apartment owners in these places have certainly had growth in values over the years... why shouldn't it be the same in NZ?

[CycleTrader]

Adman - I think your analysis is spot on. The apt market here is still so young that the market in general is only now starting to sort out what is good and bad quality - even if that should have been obvious at the outset! There is no way developers can build at the prices that 2nd hand product is presently selling at and with the lift in dev't contributions that gap will widen further. We will see that classic cycle of oversupply followed by demand absorption followed by a good few years of price catch up before new stock comes on again. So buying good product now at low prices should make good investment sense over say the next 5 years. Rising rents fuelled by simple population demographics, increasing congestion and the government bun fight next year will support that view also.

But its all about good quality, well located apartments - like any property. Don't ever buy the rubbish unless its bargain basement and you're in for the short term pick and flick.

Cheers

[NESW]

If I may slightly extend on the question posed, I have often wondered whether or not (without being local to have the proper insight) isit worth buying a couple of adjoining low priced small apartments, and reconfiguring the floorplan to make a more decent and desirable property?

Any thoughts? Anyone had a go?

[MoneyMaker]

Thank you to you all for your thoughts and opinions. Keep them coming.

And yes, the heading is wrong ... fingers working faster than brain! Should have been doom or boom!!!

[muppet]

Heading is fixed.

[jase31]

Hey All
I to am interested in appartment market. What do you think of Student apartments? Thanks

[revdev]

look before you leap

Hey All
I to am interested in appartment market. What do you think of Student apartments? Thanks

Hi Jase 31, welcome to PT.

In general, the apartment market is not well supported here on PT and low quality and small student apartments even less so.

There are some good threads discussing apartments, so have a search around.

All the best
G

[jase31]

hey revdev

Haha, ive noticed most Property smart people ive talked to arent into them. Maybe a sign haha
Im not really either, however they are a cheaper option and a good place to start ( or so ive read)

I know theres not really that much chance of capital gains but im quite young and was planning on it for long term income source.

And i thought student might be ok due to constant(ish) demand.

But any way

Thanks
Will look for appartment/ beginners threads

[Commercial Dan]

Haha, ive noticed most Property smart people ive talked to arent into them. Maybe a sign haha
Im not really either, however they are a cheaper option and a good place to start ( or so ive read)

I know theres not really that much chance of capital gains but im quite young and was planning on it for long term income source.

And i thought student might be ok due to constant(ish) demand.

But any way

Thanks
Will look for appartment/ beginners threads

Welcome Jase31

Stay away from these horrible investments and the fools that promote them as winning horse race formulas.

[jase31]

Why so?

"Stay away from these horrible investments and the fools that promote them as winning horse race formulas"

Isnt very helpful.

But i shall listen to your warning

[Commercial Dan]

"Stay away from these horrible investments and the fools that promote them as winning horse race formulas"

Isnt very helpful.

But i shall listen to your warning

Jase31, these apartment investments are poor, most are built in a shoddy way and some who bought off the plans here in Wellington cannot sell them for anywhere near their purchase price. Be careful of promoters telling you otherwise.

At this stage of the cycle they are fool's gold, watch out!