Even when bidding was competitive at the latest apartment auctions, selling prices were below the rating valuations

Even when bidding was competitive at the latest apartment auctions, selling prices were below the rating valuations
This 98sqm, 2 bedroom apartment sold for $740,000.

It was tough going for everyone concerned at this week's main Auckland apartment auctions, with buyers playing hardball and vendors having to grit their teeth and bear it.

At City Sales' auction on March 13, four apartments were on the block, offering a reasonable selection in terms of size and style.

They included a one bedroom unit in the upmarket Connaught building near the High Court, a large three bedroom unit on a leasehold title in Parnell, a medium sized unit in a complex in Epsom and a smaller two bedroom unit near the university.

But only one of the units attracted any bids, a 38 square metre, two bedroom unit in the 96 on Symonds building in the university precinct.

Several bidders were keen on this property and bidding was quite competitive and it was sold under the hammer for $362,500.

But that was well down on its 2017 rating valuation of $400,000, although the vendor was still in the money because according to QV.co.nz it had been purchased for $292,000 in 2005.

Even so, that was only a 24% increase in price after 14 years, before allowing for selling costs. 

The remaining three properties didn't attract any bids apart from an opening bid on one that was made by the auctioneer on behalf of the vendor, and all three were passed in.

At Ray White City Apartments, three apartments had been scheduled for auction but only two were offered on the day, a 98 square metre, two bedroom/two bathroom unit with a car park in the upmarket Wakefield building at the bottom of Wakefield St in the CBD, and a 36 square metre, two bedroom, furnished unit in the Aura building on Cook St.

There were two bidders for the Wakefield unit and their bidding was quite spirited until the unit was sold under the hammer for $740,000.

However according to QV.co.nz the unit had a 2017 rating valuation of $770,000 and had been purchased in May 2017 for $805,000, giving the vendor a loss of $65,000 (-8.1%)  plus selling costs after two years..

There were two similar themes at both auctions:

  • While it is not unusual for properties to be passed in at auction, it is unusual for all of the unsold properties to be passed in with no bids, and
  • Even when there is competitive bidding on a property, it can still sell for significantly less than the price the vendor was anticipating. Buyers are prepared to go to a certain level but are not prepared to budge once they hit that level and would rather drop out of the race than pat too much.

So if vendors are not prepared to be realistic on price, they could be facing a rude shock on auction day, with buyers prepared to walk away from a property rather than pay what they see as an over-inflated price.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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94 Comments

22
up

The apartment that sold gave 24% in 14 years, a return of 1.2% a year (according to my compound interest calculations anyway). So after inflation that would be a loss.

The apartment is leasehold, you are aware that is different from freehold I assume? It renders your calculations irrelevant. The value of the property is the discounted rental value from lease expiry.

The tenure has nothing to do with the return he has calculated. It is only a reason that it may be low.

19
up

Both of the apartments that sold were on freehold titles. The leasehold unit was in Parnell and didn't sell.

17
up

Its back to the Chathams for Te Kooti. The wonder of humility.

Nice one.

Had a bit of trouble getting cpi data as David doesn't have it, surprisingly; or I couldn't find it (not surprising). Anyway, cpi index at 770 in 2005 and now at 1025 or thereabouts:
https://tradingeconomics.com/new-zealand/consumer-price-index-cpi

So inflation, as measured by cpi, was 1.66% per annum over the period. Again, my sums may be wrong. The result is surprising, to me at least, the flat lost 0.46% a year.

If we assume it was financed at 50% of purchase price on interest only, this would have reduced the rental income but increased the return on change in value to 2.4% a year, so 0.74% per annum.

Return is a function of income and capital gains, apartments have tended to have a higher income component than capital gain, whereas houses have tended to have a higher capital gain component.

Apartment prices aren’t quite so “sticky” on the way down it seems….

16
up

"until the unit was sold under the hammer for $740,000.
..... had been purchased in May 2017 for $805,000, giving the vendor a loss of $65,000 (-8.1%)"

Sounds like the most realistic picture of nowadays Auckland property market

13
up

Winter is coming.

Sorry. Not sorry.

Ginger, long time no comment! Keen for your thoughts on Wellington.. another 12 months to 2 years behind Auckland? Rents going up and up, listings going down, seems like a perfect storm for a whole bunch of people to leave?

I've kind of always maintained that Wellington is not especially overpriced. If you average out Capital Gains over the last 15 years they're not very exiting at all. I imagine that whatever flurry hit Wellington over the last few years was just the bubble expanding sideways (a lot of investors priced out of Auckland or looking for CG elsewhere since they became absent in Auckland). I've not really experienced massive rent hikes tbh. My rent is $760 per week, which is $100 per week less than I was paying in 2016/17/18.

We have a cool million in cash and saving $10k per month, plus extra in compounding interest, so for our situation, it is still better to wait. I want to build a house, so unless something truly amazing comes along to tempt me (which never has), I will hold out for the build dream. I love Wellington but the housing stock is pretty bad. Terrible access, poorly insulated, poorly designed, mouldy etc.

My prediction is that if there is a correction in Wellington it will be at the expensive end of the market, where investors are absent and there are very few potential buyers. TBH, it's the expensive houses languishing on the market at the moment. We are wanting to buy in the higher price bracket so are happy to wait for now. We love our current rental and life is good at the moment so there is no pressure to change anything.

I think for anyone wanting to buy in Wellington, it depends on individual finances and issues.

The first house we rented sold late last year for $1,070,000. It was a big 4 bed, 2 bath character villa, completely modernised, with garage in great condition. The owner bought in 2007 for $760,000 and spent a heap of money creating some flat garden epic retaining walls that required helicopters!!), decking, new bathrooms, kitchen, carpets, built an extension, created an ensuite etc. He also had a pretty big mortgage on it.

He said he was making a tiny return on it but that it would grow over time and that he would never ever sell it. Then suddenly he sold last year.

What could his capital gains even have been over 12 years considering what he spent renovating it? Not what I would consider exuberant capital gains IMO. So yeah, I think Wellington has had a bit of catch up growth, and evened out after 10 years of almost no capital gains, it's nothing special. But the RE agent behaviour and hype in Wellington atm is very off putting and that is one of the main thing that puts me off.

what if we have seen the end of capital gain on houses? at least in our lifetimes

end of real gains - possible although not very likely (my lifetime .. not yours - and I am older than you I think .. )
end of nominal gains - certainly not

perhaps it depends if this is the end of a debt super cycle or not?

what if we have seen the end of capital gain on houses? at least in our lifetimes

may not be in lifetime , but for the next 6-7 years very likely

agree with that ...

You have a million saved in cash and rent somewhere at $760 a week?

That's one of the weirdest financial situations I've ever heard. What's keeping you in Wellington?

If they are indeed paying ~$3300/month in rent, and also saving $10k/month, they can afford to be picky, and wait for the section they want, and then custom build whatever sort of house they desire. Not everyone is a single man that wants to live in a shoebox and use two beer crates and a couple scaffolding planks against the wall for a sofa. :)

We did something similar - saved and invested (not into property!) loads whilst renting at $660/week in Auckland then built a very high quality home to our design in Chch that will do us for 20+ years.

Not everyone is a single man that wants to live in a shoebox and use two beer crates and a couple scaffolding planks against the wall for a sofa. :)

I have a family (: But you're right, I don't fantasize about impressing everyone with my house and throwing dinner parties. I like to think I'm only this deep in the rat race so I can get out of it ASAP.

Different strokes for different folks.. I'd be happy with something fairly modest, but my partner has very specific ideas what she wants (but luckily is realistic), so we will compromise on something more affordable sometime in the next year or so, and look at trading up later if we decide we would rather spend more on a box to live in than in exploring the planet.

Spoken like gingerninja’s other half.....

Nope, I've dated redheads.. none of the one i dated were wife material.. Maybe gingerninja is the rare non-crazy redhead?

Don’t kid yourself, non-crazy redheads are a myth.

I don't fantasise about impressing anyone with a house or throwing dinner parties. I love houses, architecture, ecological building, gardening. I can do a lot of trades (tiling, plastering, brick laying etc) and when it comes to my own home, it's something I really enjoy doing myself, labour of love. I spend years collecting old bits of architecture and features to incorporate into renovations etc. But now I want the opportunity to build and do it on an even bigger scale. Financially there is no need to rush. It costs a fortune to buy and sell houses in NZ, so I only want to do it once!

Ok I see a bit more where you're coming from now. You're a real enthusiast, you have the means to have a "dream home", and you only want it one (incredibly expensive location).

It's still weird to me, but I get it.

I hope I can one day be saving half that a month.

I am in the weird camp too with 2 mil cash, 2 mil stocks and 1 mil bonds and renting $600pw. I would like to buy but not at the current prices.

We had a similar situation after selling our home of 20 years in 2006. For our circumstances and location, it was a rather large financial benefit to rent instead of own (two years after we sold, the home had lost 40% of its value). We rented for a year in US before moving to NZ in 2007. It was clear to me that the property market was going to be soft where we ended up settling (Hawkes Bay), so we rented until the end of 2016, where it finally became cheaper to own than rent. It was only the last year renting where the returns from the term deposits weren't paying the rent and giving us a bit of extra money in pocket. It is amusing that capital gains of the last three years in our area is about 5x (or more) the capital gains of the prior nine years. I felt a bit sorry for our landlord as she was subsidizing our choice of housing.

Yes, sometimes it is hugely better to rent than to own. It was kinda nice to just ring up when the water heater starts leaking... :)

There are always lots of housing variables. I still maintain it is far better to buy a house than rent especially if have the cash. Could have saved 140k over 3 years by not paying rent. Def better than paying tax on the compound interest.

See above for a counter-example. I've been a happy homeowner as well as a renter. In both cases I've done very well. Sometimes it is better to be the owner, sometimes the renter. It all depends on whether you are confident with market timing. The typical response is that one should not do any market timing. There are many people that have bankrupted themselved attempting to time the top or the bottom of a market. It may be just survivor bias, but I've successfully exited at the top and bought at the bottom several times in the sharemarket, as well as doing so successfully for one cycle in the property market.

Again, sometimes better to own, sometimes better to rent. Over a long enough time horizon it is almost always better to own. The annoyance is that time horizon can sometimes require multiple decades before the own returns to being cheaper than renting. It all depends on whether you buy at the bottom or the top of a cycle.

Because i'm a Trougher not a Peaker and that's how I have a million in cash in the first place.

I shared this recently, but it sums it up nicely;

https://www.irvinehousingblog.com/2008/08/11/timing-does-matter/

The kind of house we want to buy will be worth way more than a million, so we would still need a mortgage if we just bought. When you add the cost of that mortgage, rates, insurance etc and consider the return on our investments it's financially neutral for us to rent. Then take in to account the opportunity cost of the housing market slowing and us being able to negotiate on price, rather than get into some silly tender process and over pay and the fact that we have only lived in Wellington 2 years and need time to get to know which suburb to commit to, then it makes sense to wait.

I love Wellington as a city and my kids are very happy at a private school here. I wouldn't live anywhere else. I just haven't seen a house that ticks enough boxes and building a home is on my bucket list anyway so want to try and make that happen.

Build a private home "worth way more than a million" and that is worthwhile for you? From what I know, I wouldn't do that if i were you.

You know next to nothing about me.

From what I hear, $1,000,0000 doesn’t go far in Wellington these days - if you want a family home in good condition and nice location.

Apparently family-home buyers are starved for choice in Wellington - and have been for several years now.

As one of them recently said to me, “Seldom do good properties come up in suburbs like Brooklyn and Kelburn and when they do they fetch premium $$$. We’re at our wits end......”

TTP

Oh kkk. Plenty of first time and inexperienced developers have either come unstuck or have massively blown the budget

I like the link gingerninja, and consider myself a "value" investor (which is why I consider real estate to be a rather poor investment as compared to most other options). A corollary to the value investment approach is that one naturally gravitates towards being a "troupher". Been a long time since I've been to Hedgies website... a bit of a blast from the past. Cute that he pretty much nailed the amount of time that it would take for the market to return to the values that it had attained in 2006 (for those of you that didn't go to the link, it was a decade before properties returned to their prior values). Staring at a nearly 50% decline in home value is not a happy thing if one is a recent FHB.

Winter is coming for few years in housing market.

Anyone with no holding capacity should get out fast and minimize the loss.

Do not worry - Auckland market is falling by itself as anyone who understand ecenomic will know that nothing is one way street - for long term still property will be good but one should be able to hold for anywhere between 5 years to 10 years.

I feel for those FHBs who was in FOMO and now they are in FONGO, because their IOLs are about to expire.

Were there any FHBs with IOLs in Auckland?

IOL was the recommended way to buy to maximise buying potential(as per a mortgage broker I spoke to last year..)

Is there anyway these advisors/brokers get held accountable for that sort of advice?

Technically, that advice is entirely correct.

But very poor, unless they pointed out the risks adequately. But I suspect like TM2 and Houseworks and others, they themselves just ignore the risks, and focus on their immediate bottom line, which for the brokers is entirely based on the size of the mortgage they put you into.

It is very hard for you to grasp the concept of property investment and housing ownership pragmatist. Apart from trying to destabalise others I dont know why you spend so much time on here. You could be more productive evaluating shares I am sure.

No, i fully grasp those concpts. I just beleive that in a large part the property "investment" path is in its present form mostly a negative influence on our society and economy, and needs to be reigned in.

Pragmatist you greatly despise all those who invest in property, yet rent a house from someone who invests property. Oh the irony.

Wrong. But keep going, i need a laugh on this friday afternoon.

Have you changed for the better?

Have you?

No, I dont make comments like "property "investment" path is in its present form mostly a negative influence on our society and economy, and needs to be reigned in." Have great evening

You don't like the truth.. we know this. *shrug*

Sorry to disappoint you but unless interest rates went to double figures and the market dropped hugely in ChCh then We haven’t got any risks whatsoever!
Yes we are established and have great equity combined with low interest rates, but the reality is that even if the market dropped by 50%, we would still be ok!
Would,I listen to financial advisors for our own investing?
No I wouldn’t because The Man is a far more successful investor than any advisors that I have known!

Ahem, you forgot to mention that your wife is a model material..
How could you miss that (very) important point of being a successful man?

Chairman, why would I need to mention that on a financial blog?

But you did the other day! Your memory decay rate seems to be about 2 days. Ah nevermind..

IOL was offered to us by the BNZ when we bought in Auckland back in 2001 as a way to maximise our buying power. I've heard they are still offered in similar fashion.

Don't worry it was only mum n dads money anyway..

Hi Chairman Mao,

Please refrain from using more than 3 acronyms in any 2 lines.

TTP

who's Chairman Mao?

Zachary Smiths personal hero, he has a poster of him on his bedroom wall.

You wont be laughing when you see my one million social credit points.

Auckland apartments are actually not as horrendously overpriced as houses. Must be because of the kiwi attitude that everyones fat kids needs to ferried around in an SUV everywhere and have their own private cricket pitch in the back yard.

Auckland apartment prices still do seem overpriced compared to other cities around the world though.

Auckland apartment prices are expensive compare to Adelaide and Brisbane - similar size and economy. Please don't compare to Melbourne or Sydney, Auckland is nowhere close when compare to those two cities.

What is concerning is when apartments seem expensive even when evaluating alongside a known highly desirable and high-paying city such as San Francisco.

Pretty much. In Auckland dirt in the backyard has had its price exuberantly inflated. Buildings with less dirt relative to built structure did not inflate nearly as fast.

If you want a giggle. It was the official policy of Auckland Council that we should be a compact city with lots of apartments. And they somehow reasoned that if we made the cost of land really expensive then people would build apartments - I swear any cargo cultist has more grasp on reality than Auckland Council.

I gather this is because land value increases have been the primary contributor to capital gain and an apartment has less land. In fact, does owning an apartment come with any land at all or is this owned by a separate entity?

Everyone has to have an SUV in Auckland its mandatory. The bigger the better.

Our council has an unlimited budget for speed humps and so I need a vehicle which can handle that suspension travel at 50 kph.

SUVs are everywhere in NZ now, it's not just an Auckland thing.

Being on the road is the only time a lot of people feel they have autonomy and power. Hence the irrational rage against cyclists etc. It's all self-esteem. Freud would have a field day with all these four wheeled phaluses.

And the prize goes to Izuzu Bighorn.

No way, they are all falling to bits and declining in numbers. the Ford Ranger is where it is at for the middle class bogan.

Long term outlook on Auckland apartments and indeed Auckland Central suburbs is not good. As jobs and homes are spread further apart the desirability of a central location reduces, it loses relative convenience and gains pervasive congestion.

Is anyone surprised.

Now the talk should be on how much below CV and how low can it get.

Still lot of resistance as houses are not going and still agents are putting asking like old time - lhouse which will go in high 800s or may be early 900s - asking is million or million plus and houses that may fetch 800 or early 800s has been for 900plus despite knowing that much better houses are going in those or better area for much less.

Noticed that most agents who have number of listing arethose gents that are giving very high apprisal to vendor and tempting them.

Over time many sellers will either withdraw who are not serious and those who have to sell will come down to meet the market which in most cases is much below CV.

FHB should wait and not rush (no reason for them to rush)

If these units are being passed in, that is a great opportunity to be buying if the no.s stack up,and they are undervalued!
Full your boots Investors in Auckland

"Undervalued" how do you determine if they are undervalued?
Obviously their values were too high for the auction day.

The man apparently knows more about apartment values in Auckland than all the Auckland property investors and would be owners that didn't bid on them..

When people are not bidding or buying for a variety of reasons is when you should be considering buying!
I mainly buy when there are no other bidders as they are not in a position to bid, and that is where the good buys happen!

Aaaand the spruikers are starting to be a bit quieter, and no doubt starting to look are their own options for repositioning as the Auckland market slides further, and spreads to other places.

Dont knock leasehold ................ it works really well in Singapore , City of Westminster and elsewhere , where the ground -rent is reasonable

Was this lot 9?

https://www.trademe.co.nz/property/insights/address/Auckland/Onehunga/Mo...

RV 1,025,000
Sold Sep 18 for 630,000
Looks peculiar

lot 9 was the green bay property...

Ah ok that was lot 9 on Wednesday, however looks like a -38 drop from RV
Also -19.74 drop from Mar 2015 price of $785,000

Leaky building?

Homes.co.nz shows it as a s13.. non-arms length transaction, so not most likely not at market value.

Why would it go to Auction if your selling to family/trust?

The March 2015 transaction..

And some do sell at auction. Easy way to avoid family disputes of one generation ripping off another I guess.

Lol, apartment market is tanking. Watching the next few months will be interesting.