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Interesting Times

The Unitary Plan panel is recommending smaller apartment sizes be allowed in Auckland – a potential opportunity for investors that raises interesting issues, writes Aaron Tunstall.

By: Aaron Tunstall

31 August 2016

“May you live in interesting times”. Whoever put this apocryphal curse on the property market has a lot to answer for. Just as you’re becoming comfortable with new rules and regulations, they are tweaked, scrapped or totally overhauled. If, however, uncertainty means opportunity for the savvy investor, there should be no shortage of opportunities right now.

One recent development has been a reopening of the debate about minimum apartment sizes. The Unitary Plan panel recommends removing minimum sizes, once again allowing small apartment sizes in the city. The panel believes there is a place for smaller apartments, which would provide more options at the least expensive end of the market. An Auckland Council staff report disagrees, asking for this change to be rejected, presumably to maintain the current limit. This raises a number of interesting issues, including:

Minimum Living Standards

Would I live in a 20m2 apartment? No. But that doesn’t mean nobody wants to or that there is no quality of life in a small space. Design improvements have gone a long way to making smaller apartments airier and lighter. You also need to think about international students – they want a crash pad to sleep in between studying and socialising.

It’s unfair to assume that a small living space is necessarily causing a low quality of life, even if the media will insist on calling them ‘shoebox’ apartments.

Affordability

I favour having a wide range of accommodation choices in the city, which small apartments provide. They’re cheaper to rent and to buy. But they’re rarely, if ever, going to be purchased by owner occupiers so these are an investor purchase.

An influx of small apartments would bring down the average rent and the average cost of property, but this won’t necessarily help first-time buyers much.

In my view, the cost of building also needs to be addressed. Apartment buildings are extremely expensive to construct and apartments of all sizes should be less costly to build if we’re trying to address prices.

Finance

It’s all well and good for the Council to give the green light to smaller apartments, but that won’t help you get a loan from the bank. Banks have a better attitude to apartments than ever before, but they’ll still baulk at anything below 35m2.

In the past lenders have usually required a 50% deposit on sub-50m2, which is only 10% more than you’re going to have to put down anyway – which is why apartment buyers are among the least concerned about the new lending restrictions.

But criteria vary from bank to bank and they may outright refuse to lend on anything they feel is too small.

Yields Excellent

We have older stock apartments in the small size bracket and we have no difficulty finding tenants for these. We could probably fill several hundred more. Investors get excellent yields from these apartments too, so I feel we wouldn’t have much difficulty selling them either. The potential risk factor is with the tenant quality.

Across the rental market you’ll find the lowest priced properties attract the trickiest tenants and apartments are no exception.

The Bottom Line

From a property manager’s perspective, the problem is not about the size of an apartment. The problem is a dark, dingy, dated apartment of any size. We do have low vacancy rates, but the few empty apartments are those where the owner hasn’t spent much (or any) money on renovation and maintenance.

We’ve recently turned down the management on a few apartments where we just don’t feel they’re in suitable condition to put on the books. If your apartment is light, bright and feels airy, you’re not going to have a problem.

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