Leasehold properties have been out of favour with investors over the last few years although for people with the nerve to take them on, there can be good money to be made.
One of the apartments auctioned last week by City Sales was a leasehold unit in the Hudson Brown building near the historic former Central Railway Station building at the bottom of Auckland's CBD.
Like many leasehold apartments in the city, this one appeared to have originally been sold at a greatly inflated price that took no account of the effect that market ground rent payments would have on the property's value when they eventually kicked in.
According to QV.co.nz the unit had originally been purchased for $598,000 in 2006 but it sold at last week's auction for $235,000.
It was rented at $580 a week which would provide an investor with a gross rental yield of 12.8%, which would reduce to 9.2% after deducting rates and the body corporate levy, which included ground rent payments.
That's around double the return that investors buying some suburban freehold properties are achieving, although the new owners would have to factor in likely future increases in ground rent and how they would compare with increases in rental income from the unit's tenant.
However someone else had made even more money from the unit because there was another owner in between the original purchaser and last week's buyer.
According to QV.co.nz, this in-between owner picked the unit up for just $186,000 in 2009, which means they would have realised a $49,000 capital gain (before selling costs) when it was sold last week for $235,000 and if they had rented it out as an investment they would also have received a very generous rental yield off it for six years they owned it.
So although the original owner took a bath on the unit, subsequent buyers appear to have done well out of it.
The gross rental yields on other apartments sold at last week's auctions ranged from 6.7% to 8,7%, while a large Placemakers outlet in Taupo sold at a net yield of 5.7%.
The full results of last week's apartment auctions by City Sales and Ray White City Apartments and the commercial properties auctioned by Colliers, are listed below.
Auctioned by Ray White City Apartments on April 2:
- 1005/53 Cook St. Aura building. A 49 square metre, two bedroom, furnished apartment with 4 square metre balcony. Vacant. Sold for $320,000. Body corporate levy $4819. Rates $1072. According to QV.co.nz the unit was last sold for $289,000 in 2008. The agent was Dominic Worthington.
- 2B/4 Rendall Place, Eden Terrace. Memphis building. A 65 square metre , two bedroom apartment with two car parks. Vacant. Passed in at $370,000. Rates $1411. Body corporate levy $3786. According to QV.co.nz the unit was last sold for $290,000 in 2005. The agent was Dusan Valenta.
- 1012/22 Nelson St. Heritage Tower. A 42 square metre, furnished studio, rented at $420 per week. Sold for $250,000. Rates were $894 and the body corporate levy $4471. According to QV.co.nz the unit was last sold for $178,500 in 2012. Gross rental yield 8.7% reducing to 6.6% after deducting rates and body corporate levy. The agent was Victor Liu.
- 308/37 Symonds St. Forte building. A 49 square metre, two bedroom, furnished apartment, rented for $395 a week. Sold for $305,500. Rates were $1104 and the body corporate levy $3347. According to QV.co.nz the unit was last sold for $349,500 in 2005. Gross rental yield 6.7%, reducing to 5.3% after deducting rates and body corporate levy. The agent was Lorraine Garnet.
- 9a/18 Scotia place. Nova en Scotia building. A 44 square metre, one bedroom apartment overlooking Myers Park. Vacant. Passed in at $310,000. Rates were $959 and the body corporate levy $3500. No sales history available. The agents were Mitch Agnew and Ryan Bridgeman.
Auctioned by City Sales on April 1:
- 5K/205 Hobson St. Hobson Gardens building. A 110 square metre, fully furnished, two bedroom, two bathroom unit with one car park. Vacant. Sold for $570,000. Rates were $1180 and body corporate levy $4419. No sales history available. The agent was Habeeb Urrahman.
- 221/57 Mahuhu Cres. Hudson Brown building. Leasehold. An 81 square metre, two bedroom furnished unit, with one car park. Rented for $580 a week. Sold for $235,000. Rates were $1298 and the body corporate levy $7229 including ground rent. According to QV.co.nz the unit was originally sold for $598,000 in 2006 and then for $186,000 in 2009. Gross rental yield 12.8%, reducing to 9.2% after deducting rates and body corp. The agent was Steve Kirk.
Commercial properties auctioned by Colliers International:
- Unit E, 3 Tait Place, North Harbour. A clear span warehouse with 5-6 metre stud and a good quality office at the front. Sold for $910,000. The agents were Jimmy O'Brien and Matt Prentice.
- 66 Crown Rd, Taupo. A new, large format Placemakers outlet with two street frontages, leased for nine years to Fletcher Distribution, with initial rent at $305,000 pa plus GST. Sold for $5.35 million, providing a net yield of 5.7%. The agents were Mark Brunton and Andrew Hooper.
Our free Property email newsletter brings you all the stories about residential and commercial property and the forces that move these huge markets. Sign up here.
To subscribe to our Property newsletter, enter your email address here. It's free.
5 Comments
In 10 years whats the land rent going to be? Land rent based on land valuation, land values in auckland have been going up at a fair rate of knots over last few decades. Thats why people are fearful.
You miss out on one of the best things about property invesment, land ownership. They arent making any more of it and the stuff that does come online (via council rezoning) is both more distant and at too slow a rate to respond to increased demand like we have seen last few years.
I'd rather buy a shoebox that had a share of the CBD land underneath the building
Watched a thing on property in China on cnbc on the weekend. Some food for thought.
China has recently had a crack down on corruption by property develoopers where the developers would get the land from the govt. somehow (details werent described, but they dont buy the land in an open market like in NZ).
The developers in china used to think 'so long as we can get the land, we will make money', and they went nuts building dozens of sky scraper apartments next to each other even though no one in the city/district could afford them.
Corruption, and how these developers get this land seems to be a big thing over last couple of years, with billion dollar developers vanishing overnight as a result of investigations.
Relevance to NZ? I'm not sure. But if they have been stopped getting access to chinese land to develop but have made billions from their developments over last 5 years, it wouldnt take a lot of imagination to see that they are bringing at least some of that money and 'get the land, will make money' ethos over to NZ
Having dealt with _generic_ Chinese producers in a couple of different industries and having some "on the side discussions" it's probably alon gthe lines of:
(1) The land is provided under a development grant - exactly the same kind of deal Premier Key gave to Sky Casino to make the Conference Center.
(2) the consortium that got the land, also owns the development interests _especially_ the project management and infrastructure roles. Pretty similar in fact, to how Premier Key handed the keys to Sky Casino.
(3) The project management fees are the milk, and the market up in volume of counstruction is the milk. The fees paid to the quality inspectors (again supplied by friends of the consortium, often for respectful acknowledgement of business - remember in such countries you do business with friends not with outsiders) is the cookies. Surprisingly enough this is the same kind of keeping your plate in order that the top levels of Sky Casino and Key government do.
Just as they do in the other industries in China, they don't make the margin at point of sale, they make the margin in their factory, or in the supply of raw materials to the factory - that way the retailer really is doing the best price for their customers... it's every other step in the project management that makes the profit.
(4) The government foots the bill for the signed off project, after budget extensions and proofs that retail cortsortium isn't being inappropriately profitable or cutting corners. That's one reason there was a recent crackdown on "backroom" factory inflations where many Western countries got pinged for pushing up their backend pricing.
(5) The profits are quickly laundered into something safe, preferrably infrastrucutre or off shore assets that the government inspectors won't see as dishonorable and thus seize. Just like the "eyesore" hype that Premier Key and Casinos wanted to make about the Convention Center.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.