Apartment warning

[Marc]

Hi all,

News just in...

Apartment warning
05 October 2005

Property investors should buy assets with land rather than apartments, investment expert and author Martin Hawes says.

Auckland property specialist Hybrid Group last week forecast a 40 per cent slump in prices for small central city apartments in the next few years due to massive over-supply.

Mr Hawes said he had never favoured apartment investments, except at the top end of the market. Low inflation over the past 10 to 15 years meant the increase in property values had largely been driven by the land value.

"If you own an apartment, you only own a tiny sliver of the land. Investors are actually better to concentrate on buying things where there is a significant land component."

Auckland property developers were beginning to advertise apartments further afield. "Investors are wising up to falling rents and falling capital values."

Advertising in Wellington for Auckland apartments worth as little as $169,000 has included a lure of deposits as low as $1000. Investors have also been offered a guaranteed rate of return, usually for a year or two.

The guaranteed return came from the developer's marketing budget, Mr Hawes said. "It is simply a marketing ploy."

News Source

Cheers

Marc

[tricky]

Apartment warning
05 October 2005

Property investors should buy assets with land rather than apartments, investment expert and author Martin Hawes says.

....

Mr Hawes said he had never favoured apartment investments, except at the top end of the market. Low inflation over the past 10 to 15 years meant the increase in property values had largely been driven by the land value.

"If you own an apartment, you only own a tiny sliver of the land. Investors are actually better to concentrate on buying things where there is a significant land component."

This has got me thinking - do apartments have less capital gain than houses? Does the lack of land reduce the value of apartments to a noticeable degree?
Has anyone got any figures extending over 20-30 years where we can actually measure the capital gains of both?
Kieran or Muppet (or anyone else) - maybe you might be able to enlighten me with some stats.
I know apartments come in all different sizes and locations as do houses so maybe some careful selection of the data might be needed to compare like with like.
I suspect most people would wager that houses would blow the doors off apartments in capital gain. So we would expect a 30 year old apartment to be worth almost nothing now? But when I walk along Oriental Parade in Wgtn and look at these 30 year old apartments, well, I'm not sure I could afford one.
So what's going on here?
Does the lack of land hold back the capital gain on an apartment?

[kieran]

Tricky,

Your observation that apartments should be worth nothing if they dont have similar capital growth is the same one that I came to some years ago.

As I have said on another thread (about Minor Dwellings) "I believe their capital growth rate will be equal to any other property/ies in the same location as property values are generally relative to each other within any specific location, UNLESS a specific segment of the market becomes significantly oversupplied or equally is lacking in demand."

I will soon be releasing to the media further details on Aucklands CBD market which will highlight the suppressed capital growth rate of Aucklands CBD over the last decade created in the main by consistent periods of oversupply and erratic demand.

Interestingly, I am relatively optimistic of the future capital growth prospects of the CBD apartment market but we clearly have an oversupply situation at present that looks set to impact on any capital growth prospects over the next couple of years.

P.S. It could be argued that apartments do have a land content as a strata title effectively 'creates' a 'space' of land but instead of being a 'space' of ground (like a section is) it is defined as a 'space' of air with all the same rights attached to a 'space' of land.

This brings a new perspective to the phrase "they aren't making land anymore..." We have been 'making' land for a long time (in the sky!) and will continue to do so.

[tricky]

I look forward to reading your media release, Kieran.
tricky

[CJ]

And remember, a quarter acre in the CBD is worth alot more than a quarter acre in the 'burbs which is worth more than a quarter of an arce of farm land.

Your small slither (as you do own a 1/XXX) share of the land is still worth quite a bit.