The cost of buying an apartment in Auckland has increased by a third in the last five years, but the cost of renting one has barely budged, according to a leading apartment real estate agency.
City Sales, which specialises in the sale and management of apartments in Auckland, has analysed all of its sales over the last five years and found that the average price per square metre has increased from $4,141 in May 2009 to $5,522 in May this year, a 33% increase.
City Sales director Martin Dunn said working out the price of the apartments the company had sold in the last five years on a per square metre basis had been a time consuming undertaking, but it provided a common measure of price movements across the market.
However sales of apartments on leasehold titles had been excluded, so the figures only related to freehold sales.
The figures also included adjustments to remove balcony space from apartments' floor area measurements and the selling price was adjusted in the calculations if a car park was included in a sale.
That meant sales were compared on an apples with apples basis, he said.
The rise in price has helped investors who purchased shoe box apartments in Auckland's CBD, often from property spruiking outfits such as the infamous Blue Chip companies, claw back much of the capital they lost after the 2008 market downturn.
Dunn said most of those apartments were sold off the plans and mostly at hugely inflated prices, which fell back to earth with a catastrophic thud for their investor-owners after the Global Financial Crisis.
Many people bought studio shoe box apartments for around $240,000 10 years ago, but but their value halved after 2007, in some cases leaving their owners with negative equity.
"We are now getting about $210,000 to $220,000 for them, so they are nearly getting their money back, but it's still only nearly," Dunn said.
However while selling prices had been steadily rising, rents had barely budged over the five years and that was showing up in the falling yields (the yield is a property's annual rental income expressed as a percentage of its purchase price) that were being achieved.
In May 2009 the average yield on sales handled by City Sales was 10.98%, but by May this year that had fallen back to 6.9%.
Dunn said buyers' enthusiasm, and their willingness to pay higher prices relative to rents in a low interest rate environment had driven prices up and yields down.
But he warned that could be about to change and rents could be about to face a another round of upward pressure.
"With prices going up, yields going down and rents staying the same, something's got to give and I think it will be the rents," he said.
11 Comments
Real and actual numbers, like price per square meter, then and now, I can understand. good to see actual info to base the debate on. Excellent. So thanks.
As for rents that have been static (useful to know) But rents will have to rise.That only tells us what one person thinks.
If the rent is already at the max ppl can stand, then no rents dont have to rise they cannot (overall). There is more than enough evidence to support such a theory btw, take oil, it is dawning on the oil megas that there is a limit that ppl can or will pay, that seems to be $110~120, so we have "peak demand".
regards
The old 'landed property' sq meter argument is interesting.
If you look at the intrinsic value of property, it more or less lies in shelter at a given location.
The extra sq m of land only has present day value in terms of an area for entertainment, pets, kids to run around in that is private as opposed to an apartment next door to a public park. This definately has real intrisic value. But to say the this value should be considered equal or even anywhere near the value of the same sq meterage of undercover, habitable space is not reasonable.
The extra sq m in land needs to be valued differently, so take 200 sq m of covered space in your house at 5000 per sq m gives 1 million for that, plus 500k for the privalage of having privately owned outdoor space with associated development potential, valued at say 1k per sq m... obviously both hugely dependent on area of which the sheltered sq m and landed sq m are located in. 50 sqm of shelter on queen street is always going to worth a lot more than 50 sq m of shelter in birkdale.
Likewise no appartments in the depths of Mt Roskill
My point is you are not comparing like with like. Accomodation in popular inner city centres can not be compared with accomodation in the middle of the suburbs.
Have you compared the cost of your 'landed properties' in Mt Roskill with the cost of housing in Raehiti. Does a 2 bed house with 1000m2 freehold for 60K make your auckland houses a rip-off?
http://www.bayleys.co.nz/Listings/Central-North-Island/Ruapehu/Raetihi/…
Yes, we get an LVR and the house price rises stop, an artifical limit on what ppl can pay. In effect a monopoly / rentier price has been achieved. Yet even with this clear case the same cannot be said for rents apparantly they will double according to some.
Meanwhile chch where things like food is more expensive than Wellington and the wages less is going to see the same level of rents. Meanwhile, insurance for homes and businesses? up significantly.
Houses are going to be over-priced in the medium and longer term in chch suggesting a price freeze if not a downright slump there.
So less wages, more expense, less work, why would (or how can) ppl stay and pay?
regards
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