With hundreds of fixed term rental agreements on Auckland CBD apartments about to expire, investors are worried about the potential for rising vacancy levels and falling rents

With hundreds of fixed term rental agreements on Auckland CBD apartments about to expire, investors are worried about the potential for rising vacancy levels and falling rents
This apartment in the Zest building on Hobson St in Auckland's CBD sold for $287,000.

A dark cloud of uncertainty hangs over Auckland's CBD apartment market heading into the New Year, with the fixed term tenancies of hundreds of inner city apartments about to end, and concerns about their ability to attract new tenants.

Smaller inner city apartments, sometimes referred to as shoeboxes, are particularly popular with overseas students.

However overseas student numbers are continuing to decline due to COVID-19 restrictions on international travel.

The number of people in this country on student visas declined by more than 17,000 between March and November, while the number of new student visas issued is down by 90% compared to last year.

That has CBD apartment landlords worried about rising vacancy rates putting downward pressure on rents and those same concerns are making investors re-evaluate how much they are prepared to pay for such properties.

However larger apartments that are more likely to appeal to owner-occupiers and are often located in the suburbs, are not facing the same pressures.

Investor caution is evident at the main Auckland apartment auctions, where prices for smaller CBD apartments are often well down from previous highs and many are being passed in, as a widening gap opens up between the prices buyers are prepared to pay and the prices vendors are prepared to accept.

Fairly typical was a one bedroom apartment in the Forte building on Symonds Street, auctioned by City Sales on December 16.

Located in the heart of the university precinct it was standard investor fare with a floor area of 24 square metres and the bonus of a functional balcony that afforded views across Grafton Gully and the Symonds St cityscape.

According to Propertyvalue.co.nz the unit had been purchased for $246,500 in 2005 and had a current (2017) rating valuation of $290,000.

However, although there were multiple bidders for the property, it sold under the hammer for just $260,000.

Buyers were similarly cautious at Ray White City Apartments' auction on December 17, where 17 apartments were offered.

One of them was a two bedroom (37 square metre) apartment in the Zest building on the Hobson St ridge, which had good views looking over Freemans Bay to the Harbour Bridge.

According to Propertyvalue.co.nz it had been purchased for $175,000 in 2012 and had a rating valuation of $330,000.

There were multiple bidders for the property and it sold under the hammer for $287,000.

Also of note at the same auction were two units in the Unilodge on Beach complex on Beach Rd in the CBD.

This is a managed student accommodation facility and both units were studios, one of 17 square metres the other of 19 squares, but there was one important difference between them.

One was under management contract to the hostel operator, while the management contract on the other had expired, allowing it to be rented out on the open market.

The 19 square metre unit, which was not part of the hostel pool, had a rating valuation of $220,000 and attracted just a single bid of $85,000 before it was passed in.

But the 17 square metre unit that was still under management contract, attracted a single bid of just $20,000 before it too was passed in.

By the end of the auction just four of the 17 units offered had sold.

Details of all of the properties offered and the results achieved at both auctions, as well as those for many other auctions, are available on our Residential Auction Results page.

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37 Comments

Aye shoe boxes, even rabbit hutches if you like. Who wants to be holed up in the CBD if it is virtually a dead end, not fit for much enjoyable purpose. Same in Christchurch. Building near to plywood apartments.You can live there but not your car. Can’t live there either for the social come night life. The apartment owners complain about the noise!

Traffic noise, noisy neighbours, noisy plumbing, water leaks, floods, dysfunctional body corporates, cramped/dark living areas, endless REA "open homes", 3.00am fire-alarms, illicit drugs, police call-outs, "no pets allowed" rules, inadequate parking, broken lifts, cooking/marijuana odours, litter, graffiti, vandalism and violence are some all-to-common shortcomings of inner-city apartments. (You're welcome to add to the list.) In my view, these horrid little shoeboxes are grossly over-priced. They're a blight on the cityscape.

But, should you fancy a serious dose of the "bolthole blues" then go right ahead and buy one. With the savage drop in overseas student numbers, there'll be heaps to pick and choose from. (-:

Give me a stand-alone house with freehold "fee simple" title any day.

TTP

19
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Gotta get all the immigrants (from around the world and the regions) crammed in somehow, otherwise, what do we do for "growth"?

Ah yes, Nationals Rockstar economy. Driven by immigration , working holiday and student visas...

That market is about to tank

Sorry to break your bubble here, in NZ solely FIRE economy - If that natural prediction is to eventuate? The country simply can't afford to see what happens next.
RBNZ & govt, are there to safeguard the flame.

Nothing tanks anymore. I'd be shocked if they declined in value much. Or in any great number.

If they did start to, Orr and Robertson would jump in to the rescue.

They can't, they have pretty much used everything. Anymore actions to push housing price will sabotage our economy.

Borders are closed to international students for at least all of 2021. Those graduating this year, or not renewed for next year will be heading home soon. Investors will find it hard to replace them in January.

Increased LVR to investors will limit sales of apartments. Over supply and under demand means market is about to tank.

The way our wonderful system is set up many of these students are destined to transfer their student visas to an essential worker visa. So as long as serving liquor or coffee or setting up a "massage" business pays enough to cover the rent a lot of investors will retain their tenants. With unemployment predicted to hit 7% and underemployment 15% next year is this really in the interests of NZ?

Won't happening Karl, in case you've forgotten the 'unemployment mandate' has been shifted by Lab govt 2018 to RBNZ - which means, it's just simply more clever accounting on their part.
Give more QE numbers to the govt, which in turn provide it as subsidy to buffer the constant stream of that numbers/trickling as income/wealth circulating back to the OZ Banks.
The way it is in NZ, extend & pretend. Soon, for any natural disasters.. such as more earth quake/tsunami/volcanoes eruption/waves of pandemic/bush fires/cyclones. The first responders will always be the RBNZ stimulus (the plan is only via increasing of housing cost, the guys on the field will be more motivated.. just like hurling carrot to donkey principle).. until major realisation.

Might be some good buying opportunities in 2021 in Auckland's CBD, although I wouldn't touch a shoebox with a barge pole.

Looks like they will be used as Emergency Housing.

There is a massive need and hotels & motels are very poor environments for family groups.

They already are being used for emergency and social housing - which is exactly why you don't want to buy into one of these buildings. You will have zero luck trying to get and keep a normal tenant. Look at all the problems with the brand new Vincent St apartment block.
https://www.nzherald.co.nz/nz/covid-19-coronavirus-auckland-vincent-st-a...

12
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The Auckland central apartment landscape is a sad indictment of the short-termism plaguing NZ. I can't even think of a Western city where the central area was used to develop what is really little more than overpriced poor quality dormitories all for the lure of a quick buck. And the ruling elite sat back and did nothing to allow this to happen. It's not all bad. The Metropolis is at least livable and a role model.

Knock them all down and do it again...properly.

Hi J.C.,

We've had some differences of opinion in the past - but we're in complete agreement on the issue of Auckland's inner-city apartments/bolt-holes.

Auckland Council has a lot to answer for in turning significant parts of the inner-city into an eyesore. It's made some monumental errors in judgment/planning.

I look at the gorgeous old character houses/buildings in areas like Freemans Bay and think they should never be (or have let been) ripped down and replaced with the concrete monstrosities that we've seen mushroom over the last 2-3 decades. (And these ugly abodes have also served to multiply Auckland's social problems.)

Like you, I'd like to see a demolition order for all the shoebox/dormitory apartments across Auckland's CBD and central-city suburbs. Let's return the cityscape to its former glory so we can all be proud of it again.

TTP

Nobody learns anything if everyone agrees with each other. Questioning our own attitudes and beliefs is usually the biggest challenge.

If not mistaken census 2013, stated the Asians population ethnicity is around 400k, by 2018 census reported around 700k. Impressive 300k increases in about 5years.
Around about? the same population of Wellington city or Brunei country size late 80's - Around the same time of mushrooming this shoe box appearances, from that time we've self declared a rock star, based on this influx of incoming to beef up the GDP numbers (people movement inward=capital movement inward), students, hospo/resto workers etc. - Can't turn back the clock now.
Good luck with the past memory, the future is here and it can always be bought with cheap money from overseas. AKL council is just one of many structures being bulldozed by it.

Thanks for the reference to Freemans Bay
Many years since I've been there visiting friends. Was a nice neighbourhood
Just did a google-maps street tour of the place
Good grief - how on earth did that happen
50% of Aucklanders probably wouldn't even know

Hi iconoclast,

Freemans Bay / St Marys Bay / Herne Bay - "the northern slopes" - are all great places to live (and, no doubt, to invest in real estate).

But let's make sure they continue to be great places - by making changes that enhance them. Grubby little apartment boltholes won't achieve that. They ought to be banned/demolished.

TTP

Freemans Bay / St Marys Bay / Herne Bay - "the northern slopes" - are all great places to live (and, no doubt, to invest in real estate)

Yes. I lived on Curran Street in the early 90s. Fantastic place to live. But let's remember, this is really a microcosm of society in terms of the socio-economic make-up of Auckland.

For sure, J.C., only a privileged minority get to live/invest in these three exclusive suburbs......

But that's hardly a reason for allowing them to degrade. All cities have their exclusive and not-so-exclusive suburbs - and that's unlikely to change. It's a reflection of society at large.

TTP

22
up

The city market will be the first to crash followed by suburbs maybe . Just ask ANZ , they have data they are not releasing to media as they fear buyer confidence will drop. They try to make it sound like 40% LVR is to help first home buyers, that’s the funniest thing ive ever heard, the banks don’t give a damn about inequality and social issues. Profit at all cost it what they live for . The only reason they are implementing the 40% LVR is because they can see the risk of crash getting higher and higher

11
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Starr... I think you have it summed up perfectly. I suspect the banks have known for some time things will almost certainly end very badly. What I believe has changed is that they now feel things could well go South far further and far sooner than they thought.
And of course the banks are an organized cartel who are averse to real competition and discussed the 40% LVR before the ANZ announced it. All other foreign banks will follow suit as was no doubt agreed between them prior to the ANZ announcement. In the current environment, I would love someone to (try to) justify the Govt agreeing to delay new bank capital requirements when there is currently such unprecedented fragility in the banking system.

Banks. The biggest NZ gang

Technically big Aussie gangs.

Don't worry, stability is the key word by CB & govt. definition - so, sit back & relax enjoy the break as for 2021 those AKL CBD apartment owners will receive a different version/wording of hand out for sure. There's no way any wobble house of cards footing will be allowed in NZ, unique.. and must be in the 'good way' to be shown.

Stability? The govt removed LVRs this year with a promise not to touch for at least a year, but they went back on their word and reinstated it for fear of house prices overheating. That doesn’t scream stability to me.

Or was it by design all along? If it was, then I’d be very worried because they knew that blowing the bubble to dangerous limits would ensure it would pop.

I really think they are preparing for a global synchronized slowdown which is about to start in January 2021 in the USA, when millions of evictions are about to happen. ANZ full well knows that NZ investors will panic, and try to offload their empty apartments en masse (over supply). Rather than hiring more people to facilitate these transactions (and get bigger slices of the pie) they are actually making it harder for investors to take out loans with the 40% LVR therefore reducing demand, to ensure the crash happens as quicky as possible. Blink then you miss it. That’s how crashes happen.

One possibility - the return of Vendor Finance and Solicitors Mortgages

It's Ok if it wobbles upwards. Not downwards. Not ever downwards.

I thought we had a homeless problem.

It's not a homeless problem. It's a mental health problem.

Lets try and follow this through. Apartment investor/s default on mortgage. Bank re-possesses. Puts up for sale and has to accept fire sale price or holds on for re-sale later in the knowledge that student immigration returns in 2022. Latter definitely on the cards. Labour will allow as vaccine by then.
Astute investor with low mortgage and other income to pay mortgage will hold on the very likelihood student masses will return. Other investors able to buy in the next few months at much lower prices either from investors forced to sell or from mortgagee sales
What's the fuss? All back to normal by early 2022.

Correct on all points...
Government will bail out investors... small business support and all that... property in aotearoa is too big to fail. Immigration flood gates to be opened shortly...
we are a country of one economy... houses

50% deposit if you're lucky on small apartments. That's why they never increase in value.

Kiwis generally refuse to sell at a loss

Take a look at the Sydney and Melbourne apartment market, its tanking, and tanking fast. A friend just had to cut the rent on his inner city harbourside Sydney apartment from $680 a week to $435k a week, just to get some enquiries. Its now losing money, but at least in Australia the tax man helps out with negative gearing. NZ investors have no such cushion.