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Drop in apartment investment

Investor activity in the Auckland apartment market has dropped off significantly, according to a new report.

Tuesday, December 15th 2015, 1:00PM

by Miriam Bell

The latest City Sales Apartment Report shows that investor activity has dropped by 35%, following the introduction of the new LVR requirements.

Traditionally, the Auckland apartment market has been dominated by investors – although increasing number of owner-occupiers are moving into the market.

This means the drop in investor activity is significant.

However, City Sales director Martin Dunn believes many investors are simply taking some time out.

He said the figures suggest an observation period, rather than a permanent withdrawal of investors.

“It is more about sentiment and confidence, which has collided with a slowdown. The current lull in the market is necessary, but it is being exacerbated by market gossip and sensationalist comment.”

The combination of strong population growth and ongoing supply issues mean demand is not going to let up for long, Dunn said.

“With bank deposit rates heading lower, investors will be back in droves seeking the 5% nett returns plus capital gains which are currently possible from apartments.”

Apartment rents have not, historically, kept pace with prices, but the City Sales figures show growth of more than $100 per week on average in the last 12 months.

This is likely to be due to high demand, particularly from people arriving on student visas, and the continuing shortage of supply across Auckland.

Despite the increase in rents, apartment investors have had to accept that increasing prices are eroding gross returns, Dunn said.

“But, to offset this, there is growing confidence that capital gains, once a rarity in the apartment market, may be sustainable long term.”

The City Sales figures show the apartment market has enjoyed extremely strong price growth of late.

The dollar per square metre value of apartments has gone up by more than $1,000m2 over the last year, with prices now edging close to the $8,000m2 mark.

Dunn said the price growth would continue.

“If you study Auckland residential, it’s obvious that the $m2 rate will continue to climb to near new build rates, then new builds will climb as land and building costs take their toll.”

Further, while increased construction activity was helping grow supply, it won’t dent the shortage yet, he added.

“We need an extra 400,000 dwellings built over the next 30 years. We’re not even close to this target, so we will continue to see a shortfall for some time now.”

For investors, this means ongoing price growth, but Dunn warned that it will eat into their returns.

“It could be worthwhile to take advantage of the current lull in the market – which is more favourable to buyers.”

 

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ANZ 5.19 4.05 3.95 4.49
ANZ Special - 3.55 3.45 3.99
ASB Bank 5.20 4.05 3.95 4.39
ASB Bank Special - 3.55 3.45 3.89
BNZ - Classic - 3.55 3.45 3.99
BNZ - Mortgage One 5.90 - - -
BNZ - Rapid Repay 5.35 - - -
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China Construction Bank 5.50 4.70 4.80 4.95
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Credit Union Auckland 5.95 - - -
Credit Union Baywide 6.15 4.95 4.95 -
Credit Union North 6.45 - - -
Credit Union South 6.45 - - -
Finance Direct - - - -
First Credit Union 5.85 3.99 4.49 -
Heartland 6.70 7.00 7.25 7.85
Heartland Bank - Online - - - -
Heretaunga Building Society 5.75 4.80 4.95 -
HSBC Premier 5.24 3.35 3.35 3.35
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 5.15 3.18 3.18 3.20
Kainga Ora 5.18 4.04 3.95 4.39
Kiwibank 5.80 ▼4.14 ▲4.30 4.64
Kiwibank - Capped - - - -
Kiwibank - Offset 5.15 - - -
Kiwibank Special - ▼3.39 ▲3.55 3.89
Liberty 5.69 - - -
Napier Building Society - - - -
Nelson Building Society 5.70 4.25 4.15 -
Pepper Money Near Prime 5.64 - 5.44 5.44
Lender Flt 1yr 2yr 3yr
Pepper Money Prime 5.18 - 4.98 4.98
Pepper Money Specialist 7.59 - 7.39 7.39
Resimac 4.50 4.86 3.89 3.94
RESIMAC Special - - - -
SBS Bank 5.29 4.85 5.05 5.49
SBS Bank Special - ▼3.55 3.39 3.89
Sovereign 5.30 4.15 4.29 4.55
Sovereign Special - 3.65 3.75 4.05
The Co-operative Bank - Owner Occ 5.15 3.49 3.59 3.89
The Co-operative Bank - Standard 5.15 3.99 4.09 4.39
TSB Bank 6.09 4.35 4.25 4.69
Lender Flt 1yr 2yr 3yr
TSB Special 5.29 3.55 3.45 3.89
Wairarapa Building Society 5.70 4.85 4.99 -
Westpac 5.34 4.15 4.09 4.49
Westpac - Offset 5.34 - - -
Westpac Special - 3.55 3.45 3.99
Median 5.34 4.04 4.09 4.39

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