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Apartment Boom is a Win-Win

Posted by Aaron Tunstall on 07, Aug 2017

A record number of new apartments are due to be built in Auckland in 2018 – great for the city and not bad for investors, either, says Aaron Tunstall.

A record-breaking 3,840 apartments are due to be completed in 2018, following on from the 2,770 that will be finished this year, according to a recent Colliers report. The previous high was 3,600 apartments finished in 2005. On the face of it, you’d think, ‘Wow, that’s a lot of apartments. That will definitely have a major impact on the market. Probably an oversupply, prices will drop, rents will fall?’

I don’t think that’s the case, and what’s more, I think all these new apartments are going to have a positive effect on the city. First, let me give you some of the reasons why apartment influx won’t cause an oversupply:

  1. These projects represent only a drop in the bucket of the 12,000 to 16,000 (estimates vary) dwellings needed to keep up with demand. Since we keep falling short every year, that number continues to grow. This isn’t going to meet demand, or even come close, let alone cause an oversupply.
  2. As I’ve previously mentioned, a surprisingly large percentage of these apartments cost over $800,000 and up into the millions. This might help to move a retiree out of the family home, helping shift everyone up a rung the housing ladder, but it’s not doing much to increase investment stock (or helping affordability, for that matter).
  3. Not all these forecast apartments will end up actually being constructed. A few will fall foul of tighter lending restrictions, potentially increasing interest costs and steep construction
  4. Will these high numbers of completed apartments continue after the 2018 peak? Developers are feeling the pressure from all sides, stagnant pricing will make them even more nervy. It’s unlikely to be the start of a long-lasting stream of new apartments coming to market.
  5. Most of these apartments are already presold – they’re already effectively off the market

Despite pumping 6,610 apartments into the Auckland market over the next 24 months, I also don’t think we’ll see a drop in prices or a drop in rents. For investors who already own existing stock (which looks like great value compared to many of the new builds), the trick will be keeping your apartment up to scratch. That might mean a bit of a makeover – repaint, re-carpet, new interior furnishings possibly, or new appliances. You won’t spend a lot but if you can prevent your tenant succumbing to the temptation of a brand-new unit, it will be well worth it. Talk to your body corporate committee about sprucing up communal areas, too, if they’re looking shabby. A good property manager will help you do a smart refurb, and they should talk to the body corp on your behalf, too. (If they won’t, give us a call!)

If anything, the quality of these new builds is likely to help demonstrate to a larger number of Aucklanders the many advantages of apartment living.

Whether it’s a professional couple moving into a spacious and well-designed Stonefields apartment, or a retiree moving into a buzzing building with a lift and a roof garden, many of these lovely developments will be brilliant advertising for the lifestyle. As old stock gets updated and leaky buildings are gradually reclad, we’re going to see an improvement in the overall quality of the Auckland apartment stock.

There will always be a place for those small entry-level apartments that service low-income tenants, but by improving the total quality of the Auckland’s apartment stock we’re helping create a more liveable city. We’re lifting the quality of life for our residents and helping to reduce urban sprawl and traffic in many cases.

Aaron Tunstall is the general manager of award-winning Impression Real Estate, which specialises in property management and sales and manages over 1,750 Auckland apartments.

© 2017 Impression Real Estate Limited - Licensed Real Estate Agent (REAA 2008)