Colliers' statement that it could be cheaper to buy apartments in a complex it is selling than rent them, is unlikely to stack up for most first home buyers

For aspiring first home buyers the news yesterday must have seemed too good to be true.

Real estate agency Colliers International issued a statement which said the mortgage repayments for apartments it is selling off the plans in a proposed development at Avondale in Auckland, "may be more cost effective than renting one," even if the buyers only had a 10% deposit.

The thought of being able to purchase an apartment for less than the cost of renting it must have had hopeful first home buyers queuing up for a look.

Unfortunately many are likely to be disappointed, because on closer the examination the figures used by Colliers are not as rosy as they seem.

They were for the Flo apartment complex, a new development sitting high on the ridge behind the Avondale shopping strip, giving good views across the suburb and nearby New Lynn and out towards the Waitakere Ranges.

The development is also handily located beside the railway tracks and just a few steps from the Avondale railway station, the local primary school and the RSA clubrooms across the road.

In its statement, Colliers used the example of a two bedroom apartment with a car park in the complex which had a selling price of $570,000.

It also said that if someone had a 10% deposit of $57,000, the repayments on the $513,000 mortgage they would need to buy the apartment, could be $578 a week.

Rents on the two bedroom units in the complex had been estimated at $520 to $600 a week.

That showed that buying a new apartment "could be more cost effective than renting," according to Pete Evans, the national director of residential marketing at Colliers.

Or maybe not.

The mortgage calculation used to estimate the mortgage payments on the apartment in Colliers' example was 4.19%.

That is the lowest all of the banks' advertised rates but is only offered as a "special" by just two banks, ASB and TSB.

Unfortunately the "special" means special terms and conditions, and one of those for ASB is that it only provides the 4.19% mortgage interest rate if the borrower has at least 20% equity.

Which means it would not be available to the hopeful first home buyer with just a 10% deposit, who would probably have to settle for ASB's standard 4.75% rate for a two year fixed mortgage.

TSB Bank said it adds an additional 0.5% to any mortgage it provides where the borrower has less than a 20% deposit.

So TSB's cheapest rate for buyers with a 10% deposit would be 4.69%.

When this was pointed out to Colliers' Marketing Manager for Residential projects, Helena Charleson, she said she was unaware that was the case.

Charleson said Colliers had relied on mortgage payment figures provided by financial advisers Custom Financial, to use in its statement.

Customs Financial director Simon Rolland admitted that his company had only been able to get the 4.19% mortgage rate for customers with less than a 20% deposit "a couple of times."

And in those cases they were influenced by other factors such as the borrowers' parents having substantial amounts of business with the lender's private banking service, he said

But no such deals had been done in the last month.

"I'd never promise that we can get any rate for any client, but that was just an example they [Colliers] wanted and that was the best deal we'd had so far," Rolland said.

Colliers statement was also notable for what it didn't mention, such as the fact that buyers of the apartments would have to pay body corporate fees and rates on top of their mortgage payments, while renters would not.

Rolland said the body corporate levy on the Flo apartments was likely to be around $2000 to $3000 a year and rates around $1600, which would add another $3600 to $4600 a year ($69 to $88 a week) that would have to be paid by apartment buyers but not by renters.

And how many first home home buyers would be likely to paying the $520 to $600 a week rent figure quoted by Colliers?

According to Tenancy Services, the government agency which hold bonds on behalf of tenants and landlords, the median rent for a two bedroom apartment in the Waterview/Avondale Heights area where the Flo apartments will be located, is $410 a week. And the upper quartile rent for better quality two bedroom apartments in the area is $440 a week.

Even for a three bedroom house in the area, the median rent is only $500 a week.

Which makes it unlikely that many first home buyers would be paying the $520 to $600 a week rent figure used in the Colliers' example.

So could buying an apartment in the Flo complex be cheaper than renting.?

Possibly, but you'd need to be paying extremely high rent for the area, and it wouldn't hurt if you had rich parents who could sweet talk the bank manager to stretch the rules on your mortgage interest rate.

But others are likely to be disappointed.

There's an old saying that's just as applicable in real estate today as it's ever been - if something sounds too good to be true, it probably is.

You can receive all of our property articles automatically by subscribing to our free email Property Newsletter. This will deliver all of our property-related articles, including auction results and interest rate updates, directly to your in-box 3-5 times a week. We don't share your details with third parties and you can unsubscribe at any time. To subscribe just click on this link, scroll down to "Property email newsletter"and enter your email address.