Sunday, October 09, 2005

Apartment prices plunge in Auckland, New Zealand

Sep 27, 2005

The stage is set for Auckland's central city apartments to fall in value by up to 40% over the next few years with prices already falling amid an oversupply, according to a property analyst. Kieran Trass, who's also a director of investment mortgage brokers Hybrid Group says buying into Auckland's CBD apartment market now is equivalent to catching a falling knife.

Auckland's CBD apartment values are already falling because of factors including a severe oversupply, dwindling international student numbers, lack of demand from tenants and subsequently plummeting returns, Trass says. A flood of supply of apartments available to buy or rent is resulting in a 'distressed' market, he says. 'Now may look like a great time to buy into this distressed market as apartments can be bought at prices much lower than their inflated asking prices, but caution in any distressed market is wise.'

The number of apartments in the CBD has nearly doubled from that of just two years ago to over 12,000, with another 4,000 under construction and another 3,000 planned in the next few years, Trass says. He says the number of apartments on the market for sale could increase within the next 18 months to more than 5,000, or 25% of Auckland's CBD apartments.

The current oversupply is forcing down rents and sale prices, Trass says. For example, a studio apartment in central Auckland whose owners were originally getting $350 a week just over a year ago had to reduce the rent to $200 to secure a tenant for just three months. Studios of around 30 square metres which were originally being sold for around $150,000 are now only worth about $100,000, if you are lucky, he says."

Buying off-plan seems like easy money... and it is for a while. But once the market turns it's a quick way to lose a lot of money. You have just got to know where you are in the property cycle (not too late!) for your particular market when you buy apartments off-plan - or you'll just have no-one to sell on to. There are plenty of developers and property dealers still pushing apartments as a good investment so take care.

Chris Bell

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