It’s a great time to own property in Auckland. It might not seem that way when prices are flat, but that’s only because we’ve been spoiled over the 2010 to 2016 period – it’s been an incredible run. From our point of view, after five storming years, we’re back to normal, yields are reasonable, prices are not far off their peaks and interest rates are rock-bottom.
The Auckland CBD apartment market has been flatter than the wider residential property market, which is not too surprising because apartments are traditionally more volatile when it comes to pricing. Vacancies did rise recently, peaking at 4.5% in April this year. That’s higher than we’ve been used to for a while, but once again we’ve been spoilt by five years of vacancy levels below 3%. Looking back to 2005 we’d sometimes see vacancy levels up to 15% in the CBD, so even 4.5% is impressively low. Happily, that vacancy rate has dropped down below 3% again now – this is the new normal.
That high level of demand has helped the central city to soak up all the new apartment buildings that have been completed over the past two or three years. We were concerned that the influx of brand-new residences would reduce rents and prices; it seems to have slightly lowered prices but had negligible impact on rents. Over the past five years, owner occupiers have been influential in taking some of the smarter apartments out of the market (particularly brand new ones), which has helped to prop up prices. Tony Alexander at BNZ believes Auckland still has a shortage of housing and what we see in the market every day supports that idea.
For apartment investors, the flat market means you have the luxury of being picky. You don’t need to rush, you have ample time to do your due diligence and be certain that you’re not buying a lemon. Most of our buyers are looking for yields in the 6.5% to 7% range – not a massive yield compared to the heady days pre-2010, but a significant improvement on the 2% or 3% you’ll get from a typical term deposit at the bank.
You might get a slightly higher return on Airbnb, although you’ll certainly have to work for it. With the Auckland Council’s bed tax hitting hard, a lot of the wind has been knocked out of the sails for Airbnb hosts. Ironic, really, when the America’s Cup pre-races start next year and there should be serious demand for properties. We’re still running some very successful short-term rental properties, but they can be marginal once the bed tax is paid so you’ll need to do your numbers on any individual property.
Overall, apartments in Auckland are well-priced right now with plenty of choice and solid yields. As an investor, you have your pick of apartments and you should expect to see strong long-term capital gains. There’s more demand for smaller property types than there has ever been, alongside a continuing affordability squeeze. And Auckland itself could not be more appealing as a place to invest your money. The city is growing, its economy is robust and the lifestyle is world class. The government and local council are putting money into the city to keep improving it and we have the America’s Cup coming here to showcase our gorgeous harbours and tourist-friendly downtown precinct. It’s a great time to invest – and live – in Auckland.