Apartments claw back value at auctions
Inner city apartments may be one of the last sectors of the Auckland property market where buyers can still find a bargain.
Recent auction results suggest apartments are providing investors and owner-occupiers with very good value compared with other types of residential property, and may even be undervalued.
Four apartments went under the hammer at a regularly scheduled auction conducted two weeks ago by apartment specialists City Sales. Three were so-called shoeboxes, small apartments usually purchased as investments, and one was a larger apartment of a type that could also appeal to owner-occupiers.
First up was a one bedroom apartment in the Scotia Building, just off the top of Queen St.
With a floor area of just 30 square metres it was shoebox material, but it also had plenty of pluses. The building was finished to a high standard which gave the apartment features such as timber floors. And it had an excellent location, down a side street away from the Queen St traffic but still only a short stroll to Aotea Square and the CBD.
But best of all was the fact that it had Myers Park as its backyard, which gave it attractive views over the park to the Karangahape Rd ridge and a nice sunny aspect.
It was offered for sale fully furnished and attracted spirited bidding before selling under the hammer for $158,500.
It was vacant so there was no rental figure, but according to Building and Housing's Bond Centre records, the average rent for a one bedroom apartment in that area is $331 a week.
If that was all it was rented for, and its location and standard of finish might see it renting for more, it would achieve a gross yield of 10.9 per cent for its new owners.
Once rates and body corporate fees were deducted the net yield would be 8.6 per cent (these yield figures make no allowance for periods of vacancy or repairs and maintenance).
If the rent was closer to the upper quartile figure for the area of $370 a week, the net yield would rise to 9.8 per cent.
That's getting close to double the return you could get from having your money tied up in a bank term deposit for five years, and takes no account of any tax deductions a property investor may be able to claim.
It is also more than investors are getting from some of the multimillion dollar commercial property syndications that are popular at the moment.
Next up was another one bedroom shoebox, just 27 sqm in the Forte building on Symonds St. Located in the university precinct it was definitely student flat material so wasn't flash.
But it was rented for $320 a week until June next year, giving a net yield of 8.3 per cent on the selling price of $160,000 (furnished).
This was followed by a 40 square metre, one bedroom unit in the Vibe building, part of a complex of buildings built around a private grassed area on the edge of the harbour's Viaduct precinct.
This was also built to a good standard, but like most buildings at the Viaduct was on a leasehold title, with ground rent set at $2937 a year.
It was rented at $420 a week and sold for $138,000, which after ground rent, body corporate fees and rates were deducted gave a net yield of 9.3 per cent.
An old rule of thumb was that leasehold properties were good for owner-occupiers but unsuitable for investors because the ground rent made the yields unattractive, but as this sale showed, prices of leasehold units have fallen so much over the past few years that the old rule no longer applies.
The ground rent on this unit is due to be reviewed next March and it's likely that bidders on the property factored in a risk margin to the prices they were prepared to pay. Even so, the $138,000 selling price appeared to be particularly good buying.
The final apartment offered was a more substantial, 80 square metre, two bedroom apartment in a low rise block on the corner of Pitt and Hopetoun St on the CBD fringe.
This came with a car park and its size and location - a short walk in one direction to Western Park and the cafe strip along Ponsonby Rd or an equally short walk in the other direction to Queen St and downtown, made it the type of property that would appeal to owner-occupiers.
A possible negative was its location on a very busy intersection and across the road from the Central Fire Station, which may have made noise an issue for some buyers.
It passed-in at auction, but a property website subsequently reported it had sold post-auction for $372,000. It was rented at $420 a week that produced a net yield of five per cent, much closer to the returns from stand alone dwellings in the suburbs.
That suggests the market for owner-occupied apartments performs very differently to that for investment units. Prices are firmer and they are likely to produce less attractive rental returns.
But they are still likely to represent good value.
The latest REINZ sales data suggests a buyer looking for a reasonable house in the suburbs for around the same price, would probably have to head to Manurewa or Papatoetoe in south Auckland where median prices are around the $380,000 mark.
City Sales director Martin Dunn said with apartment prices still being relatively affordable, compared with the general housing market, most of the people buying them as investments were purchasing multiple properties and building up a portfolio.
The big drop in prices that was evident in the auction of the Forte apartment, which was originally purchased for $199,500 in 2003 and sold last month for $160,000, was not so much a drop in value as a return to true value, he said.
That was because many such apartments were sold through the infamous Blue Chip group or similar property spruiking outfits, at inflated prices to naive investors.
Dunn said such apartments were never worth what they were originally sold for and consequently their true or underlying value is only revealed when they are resold.
Those underlying values are now starting to rise, he said, although not back to the inflated levels promoted by the former spruikers.
But that gives investors buying at underlying value the prospect of some capital gain as well an attractive income stream, he said.
- © Fairfax NZ News
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