Re luddite or visionary article

[Dean@Massiveaction]

While developers rapidly move on to the next project when code compliance is issued, it is investors who are burdened with the numerous inadequacies of modern apartments. Landlords are unwittingly obliged to work through issues as best they can or suffer the consequences of disgruntled tenants who simply bail out at the first opportunity.

I think it sad that Julie Carter, who I assume is a property journalist, takes this view. The inner city developments are a disgrace in many cases and investors who do their research would have thought twice before buying properties like these. A wise investor wouldn't buy an inadequate apartment. There is no shortage of good property to buy in Auckland. No one holds a gun to an investors head to buy a property. Greed motivates some people into these types of investments. They should learn to be wiser, not blame developers and local politicians, in my humble opinion

[Josko]

Re: Re luddite or visionary article

Hi Dean,

sadly you are correct in stating that greed motivates some people in these type of investments, however you should include developers and more rarely politicians in that statement.

It is not a gun held to these peoples heads but if you have ever seen one of these presentations you would be aware of how it is presented. It is marketed in such a way that even an astute investor would look at their financial data and be enticed.

Disappointingly it is the people who have saved hard and watched their friends and watch the media talk about how easy it is to make money through investing, they are cautious then they invest and enter the market at the wrong time thinking it is a sure thing, a lot of decent people get burnt this way.

Many companies are adopting "corporate social responsibility" policies, development companies should join this trend.

Regards,

[kieran]

Hi Dean,

I have enjoyed reading your recent posts and feel the need to reply to this one on a few points.

Julie Carter, who I assume is a property journalist

Julie is a real estate agent specialising in the Auckland inner city apartment market.

Julie is the only real estate agent truly 'telling it like it is' in respect of the apartment market. She also is the agent who 'discovered' the innovation of wall beds to enhance the usable space in small apartments. (I say 'discovered' because whilst, wall beds. are not new they are a new addition to many of Aucklands tiny apartments to make them more attractive to rent. Julies idea!)

I applaud her for the article she has written as she again 'tells it like it is' but also gives some clear suggestions of how to improve the current set of circumstances.

A wise investor wouldn't buy an inadequate apartment

I'm interested in your interpretation of 'inadequate' and I think you are referring to floor sizes being too small. I think you will find that many 'wise investors' would still buy small apartments... including me!
But only at the right price... which is a lot lower than 'current' prices.

They should learn to be wiser, not blame developers and local politicians

Whilst I agree 'they should learn to be wiser', I just wish it were that simple. But I'm not sure many people simply know how to 'learn to be wiser'?

Here is my favourite quote on wisdom...

"To acquire knowledge, one must study; but to acquire wisdom, one must observe." Marilyn vos Savant

My suspicion is that most people will be very wise about the apartment market in about 2-3 years... but first they must observe that market and it's progression over time.

And if they had truly observed the pending oversupply of apartments over the last few years they probably wouldn't have bought at the prices they formerly agreed to pay.

Many investors seem to do much of their observing through the eyes of the media... and that may be half the problem because the media is driven by sensationalism!

In my experience I have found many (sometimes even very experienced) property investors simply don't know what to observe. They will often do their homework and observe as much information as they can but often they unwittingly fail to observe the correct information.

I believe the correct information to observe is not just the more obvious observations like achievable rents, comparable sales, body corporate costs etc,etc but includes observing:

1) The progression of the property cycle through it's phases
2) The likely implications of such a progression
3) The impacting factors on supply and demand in the specific property market you are considering buying in (ie inner city apartment market in this case).

This is exactly why I wrote my property cycle book so I could teach others how and what to observe (ie teach them the pathway to pi wisdom) so they can 'learn to be wiser'.

[Dean@Massiveaction]

Agree with you mostly Kieran and thoroughly endorse your book, one of the best resources I have, but I believe there is less and less excuse for ignorance amongst investors. Josko's point is sadly true that the people who get burnt the most are the people getting free advice from friends and family and that is most unfortunate. Also those who attend a seminar and decide they're instant experts, but that's another story!!
And I was in no way trying to run down Julie. My point was that there is too much blame gaming and finger pointing in New Zealand in the property area. We need to be encouraging people to get educated and get good advice so they don't become a statistic, not blaming Dick Hubbard for making investors pay the price for poor decisions. I'd like to see more journalism telling people to take responsibility for their future and invest in the right information and assistance to ensure they will succeed. I'm sure you agree personal responsibilty is a key to success, not finding some third party to blame.
You and I know when to buy where and for how much by doing the research. Any successful investor needs to do the same or else pay someone such as yourself for that info.
PS have got the 2 Pakuranga North properties I told you about under contract, 9.5% and 10.8% yield!!

[kieran]

Thanks Dean,

That all makes good sense.

I agree there is less excuse for ignorance but also conscious of the fact that the large majority of 'property investors' only have 1 investment property. So they are not really serious about investing and will not 'invest' adequately in learning but of course will complain the loudest when it all goes wrong for them!

Your comments re blame are also sensible and yes I am all for taking full responsibility for the result of ones own actions without blaming others.

Well done re Pakuranga North!

[captaincrab]

I'm curious, people talk about an "oversupply' of apartments. But is there going to be? If they all get rented then where is the problem? Last week AUT were looking for an extra 80 beds. It looks like the Reserve Bank is done with increasing rates so maybe we will see the dollar decline, which is good for students.There is a shortage of hotel space so we have seen the rise of short stay corporate accomadation like in the Waldorf Julie has been selling for Legacy Corp. Property in the suburbs have risen in price, probably above what first home buyers can pay, many houses that were rented have been removed from the rental market, been refurbished and converted to family homes.The city is becoming a cheap alternative to rent and to a certain extent the only alternative for many.I dont think size is the issue. Its more location and quality and specifically does the location suit the occupant? If you are a student, then you are not going to live in Hobson street cause its too far to go back between lectures, but if you are first home buyer or young professional, the sea view and proximity to the viaduct may be more important. There are a lot of variables. Appreciate the groups thoughts.

[Dean@Massiveaction]

I think the apartment market is going through the

awkward teenager

stage to quote Kieran. Give NZ some time and apartments will in the long term be a great investment. However there's a lot of potential for crash and burn during puberty.
Demographically Aucklands population trends would indicate an increased demand for apartments. More dinks, more gay relationships, lower birth rates etc etc all auger well for apartments long term

[fudosan]

Add to that: continued inflow of migrants from regions as well as overseas (about 70% of them settle in Auckland), and ever-increasing traffic jam.

[kelster]

I also remember the ARC publically indicating their preference for determined city and regions boundaries which will have a profound effect on property value. Bob Hargreaves of Massey University has publically commented on a national shift in population north and east, (no doubt to towards a mystical and rarely seen heobject refers to as the sun)

[Josko]

But Martin Dunn of apartment specialist City Sales is revolted at the concept, saying it will have drastic physiological and health effects and cause more crime.

"The people who would live three to a studio unit are exactly the ones I don't want in the city," Dunn said.

He said the concept should be banned.

Having lived in one of these, without the space saving bed, I can imagine having the energy to move the bed out of the way every day, almost a gym in your room concept.

Maybe that’s what he meant when he said they might be suitable to shift workers.

I am with Martin Dunn.

[kieran]

Hi Captaincrab,

I'm curious, people talk about an "oversupply' of apartments. But is there going to be? If they all get rented then where is the problem?

Have you observed how many CBD apartments are available to rent right now (not to mention the several thousand that will soon be finished and then made available to rent)?
Have you observed the recent falling of rents already in that market? (ie you can now get a studio for under $200/week)
Have you observed the impact of housing new zealand tenants on some of the blocks of flats?
Have you observed how many apartments are on the market for sale right now? (I believe it's in the thousands...)
Have you observed the volume of purchasers who have defaulted on their purchases? (this stock has to be resold by the developer)
Have you observed how keen the developers are getting to get rid of their unsold stock? (I was recently offered some 'developers stock' at a 30% discount).
Have you observed over the last year the aggressive marketing campaigns in Australia by local developers to sell our apartments to Australians? (this ocurred when the local markets buying momentum ceased)

If you want to know whether there is/will be an oversupply in the apartment market then just try walking the City streets to consider the 134 apartment buildings we now have in Aucklands CBD. And talk to lots of agents about their listings, time on the market, available rentals in the CBD... etc,etc,etc

Personally I am convinced we have a large correction in values in this market (which is already in the process of ocurring).

"The people who would live three to a studio unit are exactly the ones I don't want in the city," Dunn said. He said the concept should be banned.

Spacesaver beds will not change that because some studios already are lliving 3 to a studio! (I have seen a studio with 3 'beds' being used - 1 on couch, 1 on floor & 1 on bed).

Ivi

Having lived in one of these, without the space saving bed, I can imagine having the energy to move the bed out of the way every day, almost a gym in your room concept. Maybe that’s what he meant when he said they might be suitable to shift workers. I am with Martin Dunn.

Ivi, I must say I haven't personally lived in one, so can't comment from that perspective. But I visited a block that Julie Carter has installed spacesaver beds in and they are very efficient and also add plenty of storage space as they have cupboards built into the cabinet which houses the spacesaver (storage space is sadly lacking in most small apartments). It certainly enhaces the usable area of a small unit. So I am all for the spacesaver beds and you certainly dont need a lot of strangth to move them!

I have visited plenty of the new apartments and I think they still have merit but only at a price point which the market hasn't reached yet.

I think Martin's point re shiftworkers was that they could take 'turns' at using the bed/s???

Anyway I think Martin is a clever agent and I notice his company is also selling small apartments (but I think they will only do re-sales i.e. hasn't sold them off the plan).

[Josko]

Hi Keiran,

I love this independent & free forum.

Your above post on the whole is slightly contradictive, though if you believe, that fundamentally the market will decide that three, two or one living to a studio with space savers or whatever, and in the process the commercial interactions that will result out of that activity is an opportunity to profit and the result will create its own segment of the market which has its own pocket of cycle, then I can see how one would see some value in these sort of investments.

I maintain my stand that anything bellow 50m2 as living quarters for one, does not promote a healthy life style or an effective sense of community. There is a concept of ethical investments in fund management circles, and this is how I chose to contribute to standards with my investment funds, call that whatever you think.

It’s not my market and I won’t support it even if it made business sense.

Regards,

[kelster]

Despite Martin Dunn's obvious involvement in the industry, he deserves kudos for speaking up.

[donna]

Hi All,

Here's Julie Carter's reply:

The fact that there are imprudent investors around does not give license to local authories to fail in their planning and inspection responsibilities.

Developers by nature test the planning envelope and accordingly, ratepayers rely on local authorities to maintain acceptable standards.

Hence, problems facing inner city Auckland should not be ignored on the basis of "caveat emptor" as dysfunctiuonal apartments blocks create a negative impact on the entire city and its international reputation.

Regardless of who is to blame, massive oversupply of undersized apartments looms. Huge new developments dominate the skyline of Auckland City, so every effort should be made to address the issues rather than dismissing the problem with demolition rhetoric.

Cheers,

Donna :P

[Josko]

While I am spinning on a focal point;

With all due respect to Julie Carter the recognition of imprudent investors is what is in the developer’s envelope.

The council has drawn a line in the sand so it is now up to associated parties in the investment profession not to propagate the developer’s contents by encouraging two or three individual sleeping arrangements in a studio apartment.

There is no blame here, just a clear indication as to your understanding of the wider issue.

There should be a ban on these spacesavers from this style of living quarters.

Let me rephrase that, a ban on more than "one" of these in a studio apartment.

All the best,