Warning on falling Auckland apartment values

The stage is set for Auckland’s CBD apartments to fall in value by up to 40% by the end of 2006, property analyst Kieran Trass is warning.

Friday, September 23rd 2005, 1:17PM

He is urging great caution for those considering buying “into this falling market”.

“If you buy too soon you may suffer from ‘catching a falling knife’ as values continue to fall after your purchase. It is obviously dangerous to catch a knife before it hits the ground and buying into Aucklands CBD apartment market right now is equivalent to catching a falling knife.”

Trass, of the Hybrid Group, says Auckland’s CBD apartment values are already falling because of a combination of factors, including a severe oversupply, dwindling international student numbers, lack of demand from tenants and subsequently plummeting returns.

“Now may look like a great time to buy into this distressed market as apartments can be bought at prices much lower than their inflated asking prices, but caution in any distressed market is wise. There is literally a flood of supply of apartments available to buy or rent which is resulting in a distressed market.”

He said the number of apartments in the CBD had nearly doubled from that of just two years ago. “We have seen an increase to more than 12,000 completed apartments in Auckland’s CBD plus another 4000 are under construction plus another 3000 are planned to be constructed in the next few years.

“But there are an estimated minimum of 2000 apartments on the market for sale now and, this figure could increase within 18 months to more than 5000 (the equivalent of 25% of Auckland’s entire CBD apartment stock)."

Trass says the current oversupply is having a detrimental affect on the level of achievable rents and sale prices.

“One example of falling rents is a studio apartment in central Auckland whose owners were originally achieving $350 a week just over a year ago but had to reduce the rent to $200, to secure a tenant for just three months.

“Studios of around 30sq m which were originally being sold for around $150,000 are now only worth about $100,000, if you are lucky. Local buyers have all but dried up, as increasing local concern about the ever increasing dire state of the apartment market, has become more apparent. Many banks only lend 50% of the purchase price of small apartments and some refuse to lend on them at all."

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