Apartment under supply looming

Friday 8 September 2017

Auckland is facing an undersupply in the apartment market with new Colliers International research showing there is just 12 months of supply remaining.

By Miriam Bell

The Colliers research looked at sales results from 49 new apartment projects in Auckland’s CBD, city fringe and suburbs in the first half of 2017.

About half of the 3,795 apartments surveyed are currently selling off the plans, while the others are under construction.

Colliers International spokesperson Pete Evans said the 12 months of remaining supply is low in comparison to other markets.

“In major cities with population growth we would expect supply to be anywhere between 12 to 24 months.

“Most apartment projects take two to three years to build so the current undersupply will remain in the foreseeable future.”

Auckland’s population growth, as well as banks restricting funding, is not assisting the needed supply of new apartments in Auckland, he said.

The highest number of apartment completions in more than a decade is expected in 2018 and there is a total of 138 new apartment buildings currently forecast to be completed by 2020.

But Evans said that with most of the 3,795 new apartments either planned or under construction already sold, new supply is needed to meet future housing and lifestyle needs.

The current situation stands in stark contrast to where the apartment market ended up after the last property cycle.

That cycle saw an apartment boom which led to an oversupply of apartments and a decline in apartment values.

Apartment Specialists director Andrew Murray said there was no chance of an apartment oversupply happening this time round.

“Not only is there high demand, due to strong population growth, but supply is just not coming on board to meet that demand.

“The cost of new building means that developers are simply not building as much, so in the CBD there are not that many new apartment buildings in the works.”

While there is a mix of existing apartment stock and off the plan apartments on the market, supply is limited compared to demand and that means prices are exceeding value.

Murray said it is getting to the point where people who are buying apartments this year and next year will be paying too much because high end prices are being charged for apartments that are not high end.

“The high end, premium sector of the apartment market – like the Wynyard Quarter apartments – is set to continue doing well as apartment appeal for well-off owner occupiers is growing.”

But investors should be aware there are potential dangers in other parts of the apartment market, particularly when it comes to less central suburbs.

“If you are looking at buying an apartment in Avondale, for example, and it is near the railway, that’s good. But if it isn’t, there could be problems with it as an investment.

“So think about location and nearby amenities. Also, think about prices – some are pretty much equivalent to a house and you don’t want that.”

This is particularly important for investors looking to buy off the plan, Murray said.

“People who bought off the plan around 2013-14 have done really well and that has created a false sense of security around off the plan investments.

“But people buying now with the same expectations are likely to be in for a surprise when it comes to values.”

Read more:

Weighing up apartments 

More Auckland apartments needed 

Check record before committing 

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