Auckland apartments are proving a surprising source of capital gains, says Aaron Tunstall
“With prices of existing apartments now commonly over $7000 per square metre, the cost of a new apartment is beginning to look very reasonable” – Aaron Tunstall.
The last six months of 2014 saw some incredible price gains in the apartment market. Most of the gains are in the medium and large sized apartments, the type that most appeal to owner-occupiers.
The average two-bedroom apartment would have cost you around $250,000 in the middle of 2014, but by the end of the year it was worth around $300,000 – a massive increase of 20% in six months.
Winter, followed by a huge surge in inquiries in the few weeks following the September 20 election, was a quiet time. We can’t know what caused this sudden jump in interest, but I think pre-election uncertainty makes people put their property purchases on hold until they know which way the government is going to go.
One of our great success stories was Argent Hall, which I wrote about in April’s column, pointing out that you could buy an apartment in this previously leaky building right before it was issued its compliance certification. Those apartments increased in value by up to 50%; anyone who got in at the right time could have turned a quick profit of tens of thousands of dollars.
That’s not what anyone expects from an apartment – they’re traditionally relied on for yields, not capital gains. But that equation is looking increasingly dated in this busy local market.
Most apartments are still selling to investors, but some of the increase in prices is due to more owner-occupiers. For homeowners, an apartment can be an affordable way to get onto the property ladder, even if they only live in it for a short time, or not at all. I have heard of people buying investment apartments, then renting a lovely house in Ponsonby to live in themselves. This gives them a foothold without compromising their style of living.
The per-square-metre price of Auckland apartments has never been higher. In December, we saw an in-house record when a small Volt apartment sold for $288,000, or $7,600 per square metre. With prices of existing apartments now commonly over $7,000 per square metre, the cost of a new apartment is beginning to look very reasonable.
These have been selling at around $10,000 per square metre, but rumours abound that developers are going to increase this price. Not only is the market indicating that it could stomach higher prices, but the high cost of compliance and consent is putting pressure on developers. I would not be surprised to see the cost of a new apartment reach $12,000 per square metre this year.
To cut a long story short, if you are considering buying an apartment, don’t wait for prices to drop. I can’t see prices dropping – or even staying flat – this year. In 2012, we started a sales ‘team’ that comprised one person – and we’ve started the year with a team of seven busy sales and support staff. I don’t imagine it will stop there, either.
New Zealand is no longer merely a little local pond, but a place where international investors can see potential for serious growth. Immigration looks set to boom and the majority of immigrants want to live in Auckland.
Our economy is performing well; our Institute of Economic Research predicts growth averaging 2.5% for the next five years, describing this level of growth as “sustainable” and “durable”.
Affordability, yield, and capital gains, too; right now, Auckland apartments are looking like the investment that has it all.