New Builds Heat Up
New build apartments look like fantastic buying right now, says Aaron Tunstall.
31 July 2016
What could be smarter or more appealing than a brand spanking new apartment? Thanks to a shifting market and completely overhauled lending rules, right now, buying an apartment off the plans looks like an excellent investment.
Apartments, unlike one-of-a-kind houses, can be easily compared by a per-metre-square price. Look at the cost of buying existing ‘old stock’ apartments in central Auckland right now: it’s above $10,000 per square metre. For instance, we just sold a small apartment built in 2005 for $13,000/m2.
You can buy a brand new apartment off the plans for between $12,000 and $14,000/m2, with lower body corporate fees, less maintenance – and tenants flock towards new apartments. The building will be constructed under current design and building regulations, which is a massive advantage, too.
Given the new lending environment, which is pushing borrowers towards new builds, as well as the way banks are feeling much friendlier towards apartments than they ever have, I don’t know why you would buy second-hand at the moment.
So what should you look for when you’re buying off the plans? You might be surprised to hear that there are opportunities to spot a bargain.
Get in early for your pick of the bunch – if you have a good look you might find something that’s a bit better than its price would indicate. For instance, if all the one-bed apartments on level eight are identically priced, but you can get one with a hint of a sea view, you could fetch a winner.
Winner In Theory
The trick is to know what you’re buying. It’s not always easy to tell when you’re only looking at pieces of paper, but you need to get a feel for the outlook of the apartment, who’s buying in the building, whether the view or light can be built out and where the sun’s going to be. On that note, it’s worth remembering that while a northf-acing property is always theoretically a winner, apartments can have serious overheating problems; sometimes south-facing is actually an advantage.
Because you’re at the planning stage, you might be lucky enough to be able to get the developer to include a ventilation or air conditioning unit into your apartment when it’s built. (It’s next to impossible to do it afterwards.)
The best apartment buildings are often those with plenty of owner-occupiers living in them. If you can afford to buy in one, they are usually extremely well maintained and managed, allowing you to attract and keep the best types of tenants. Do some research on the developer, too, but remember that if the company goes bust, your deposit is held safely in a solicitor’s trust account.
In addition to the advantages of a new apartment, the finances really stack up in a rising market. Investors can put down a 10% deposit and see that lump sum turn into some serious profits by the time the key is handed over two years later or thereabouts. In fact, some investors have been making superb returns this way in recent years.
For example, two large apartment buildings that have recently been completed, Urba Residences and Queens Residences, came onto the market around two years ago. The apartments were then selling for $8,500 to $9,000/m2, with a 50m2 one-bedroom apartment going for about $450,000. Now they’re selling for between $10,000 and $12,000/m2, so the same one-bedroom apartment will now fetch $550,000. No wonder 25% of the apartments had been onsold before they even settled.
It’s important to remember that this strategy requires a rising market – in a falling market that $45,000 could have turned into nothing, or worse. However, the returns on central Auckland apartments remain the best yields in the city.
Rents on those Urba and Queens buildings have risen by 10% to 15% over what they were predicted to be when originally sold. Buying and on-selling is a strategy that requires foresight, courage, and a certain appetite for risk.
But with returns still good and rents continuing to grow, I believe the greater investment is holding onto your new apartment and enjoying the rent.
Investors can put down a 10% deposit and see that lump sum turn into some serious profits by the time the key is handed over two years later - Aaron Tunstall