Saturday, June 12, 2010

The New Zealand Residential Apartment Market

Up to the end of 2005 the apartment market more or less reflected the overall confidence in residential property generally with an abundant supply of prospective purchasers willing to accept short to medium term guaranteed returns from the developers. Properties of all shapes and sizes sold well off the plans.
A combination of world financial crises, problems with weather tightness, a drop in migration and legal issues with companies such as Blue Chip very rapidly undermined purchasers’ confidence.The NZ apartment market saw a rapid reduction in the number of purchasers competing for properties. Prices fell substantially.
The Auckland market saw the most rapid and negative change simply because of the ‘fly wheel’ effect. The size of the city, its attraction to both Asian and provincial migration and the momentum of developers cashing in on the positive factors made it vulnerable to the negative changes. As an added factor, the delay in response time between the time that developers are able to sense a market change and the time to complete developments on stream and to cease new developments, meant that some developments became available in an already saturated market, whilst some bank foreclosures saw partially completed blocks sitting idle, thereby undermining confidence even further.
The banks responded by greatly tightening their lending criteria, requiring much larger deposits and increasing minimum floor size requirements. Purchasers began to move out of the Auckland CBD.
There is a compelling argument that the fall in average value in the NZ apartment market is actually a reduction from falsely inflated values to something more sustainable and realistic.
With new blocks being completed there is a great probability that there will be an oversupply for some years to come, despite many positive financial, economic or migration indicators.
As a point of irony, this is likely to be followed by a period of shortage as there is a long delay between the point at which confidence is sufficient for developers to proceed with new ventures, and the lengthy process of planning, gaining of Local Authority consents and the long construction phase. This is likely to create yet another distortion in the NZ apartment market with some investors once again over paying based on false confidence.
As a lifestyle choice, there is now a growing group of New Zealanders for whom apartment living is a realistic option. It can only be hoped that Local Authorities have the foresight to ensure the poor quality, shoebox sized apartments are relegated to the past decade.
If the apartment of the future is of solid construction, adequate size and the design meets aesthetic and lifestyle needs, there is no reason that from an investment point of view, apartments should be no lesser desired than quality free standing homes.
(ArticlesBase SC #1836395)

Simon Damerell - About the Author:
Simon Damerell is one of the co-principals at Ray White Ponsonby, Auckland New Zealand. Having lived in the greater Ponsonby area, on and off, for the past 40 years, Simon's respect, dedication, and knowledge of the area is unparalleled.
Ray White Ponsonby : New Zealand Apartments