Apartments Lead the Way | Impression Real Estate
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Apartments Lead the Way

Posted by Aaron Tunstall on 26, Jan 2018

Apartment prices show the continuing strength in the apartment market, explains Aaron Tunstall

The end of 2017 saw record asking prices for properties, with growth of 2.3% year-on-year for the December TradeMe Property price index. The most dramatic growth was in the regions, especially Southland, Otago and the bottom half of the North Island – all up over 10%. What I found most interesting about the data was what it showed about apartments:

  • Apartment asking prices in Auckland were up 6.1% year-on-year.

  • In Wellington, apartment asking prices were up 3.3%.

  • In Christchurch, they were up 11.1%.

 

The reason that last number is so surprising is that the total property market in Christchurch had a year-on-year increase in asking prices of just 1.7%. Which means apartments are massively outperforming expectations. The average asking price for a Christchurch apartment is $463,650, only a nudge below the $481,700 average across the whole market.

In contrast, total Wellington asking prices were up 10.8%, so apartments are underperforming there. Auckland’s total market was up 3%, so apartments were tracking along exactly as you’d expect.

 

What’s the reason for this anomaly? I’m guessing it’s because the quality of apartments in Christchurch is high, because many are new, and because Christchurch has been underrepresented in the apartment market for decades when compared to the other two cities. Christchurch is building new, well-designed apartments that meet buyers’ demands. And are people who have been forced out of their old homes reassessing what type of lifestyle they want and deciding it’s an apartment? I think it’s quite possible.

 

Then there are the LVR restrictions, which as I’ve pointed out before are far less of a problem if you spend less money – by buying an apartment. While you’re now paying a similar price for an apartment in the city as you would for a three-bedroom house in a suburb, there are also other costs that need to be factored in to long-term planning. Your inner city worker-dweller is spending very little on fuel, unlike the suburban commuter, and there’s the time spent sitting in traffic. If you have kids at home, apartments aren’t great, but that leaves a lot of people for whom they’re extremely attractive.

 

What about the body corporate fees? Those usually pale into comparison with the maintenance costs on a home. A $500,000 Auckland apartment will usually have body corporate fees of $2,500 to $4,500, which include all your maintenance and often an onsite manager and security systems. The higher-end fees will also include insurance and you may have use of a pool, gym or rooftop garden for instance. Try maintaining a house with a pool and a gym for $4,500 a year including insurance. Not happening. I know what you’re thinking: ‘Yeah, but the house will increase in value a lot more’. True in dollar terms, but not necessarily as a return on what you’ve spent. Apartments have had capital gains on par with houses in Auckland for the past seven or eight years.

 

For investors, of course, it’s a great option because it’s more of a hands-off investment than most houses. Tenant demand remains buoyant – we regularly have vacancy rates below 2% and it gets as low as about half a percent in busy times, across a portfolio of over 1,750 apartments. I’m guessing the property managers in Wellington and Christchurch are having a similar experience. If you live in a region or a suburb that still has affordable quality apartments, my advice would be to snap one up (or better yet, more than one). Their popularity is on the rise and the regions are going to catch up with the cities – so this could be a great year to buy.

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