What will The Block apartments sell for?

The Block NZ returns tonight, with contestants seeking to convert a former fire station in central Auckland into apartments.

Bought by the show for $2.67 million in 2017, 516 New North Rd, in Kingsland, has building consent for five apartments, including a new penthouse on a metal deck that replaces the roof of the old building.

This is the show's first apartment development although the Australian version of the show has a long history of converting rundown buildings into high-end units, with the winners of the most recent season of The Block Australia getting A$3 million at auction for their renovated unit - A$545,000 above the reserve.

But should this season’s Block NZ contestants expect similar windfalls, when their properties go to auction at the end of winter?

OneRoof property commentator Ashley Church does not think the sale prices will break records - because the market in Auckland is flat.

Church says the amount of money couples made last year were well down on the whopping $380,000 above the reserve that the winners achieved 2016 at the height of the market.

The reserves for the renovated houses at Hobsonville Point were set between $910,000 and $940,000, while the houses sold for between $921,000 and $1.009 million, with the winners’ margin only $69,500.

“It’s not because the format is stale, it’s because right now we’re in the flat part of the cycle,” Church says. “We’ll be here for another two or three years before the market picks up. If the show is still around in 2011/22 then you can expect to see contestants start to make decent gains again.”

Dubbing the contestants “minimum wage cannon fodder for the networks”, Church points out the math: the reserves are set based on current market valuation, winners pocket the excess over that. He says that in a fast-moving market even buyers a few weeks later are paying stupid money over valuation, but that’s not the case now. Sometimes auction prices fall below valuation.

“It’s fun to watch the drama, but they’ll be disappointed because the apartment market is flat,” he says. “You really have to take a long term view of it.”

OneRoof data show that Kingsland apartment market has actually done better than many others around Auckland. Since 2015 median sales prices of all apartments have increased nearly 50 percent (48.9) from just over $582,000 in 2015 to $867,500 last year. This is mainly driven by the upper end of the market – where the Fire House is aimed- where three bed apartments have gone from $750,000 to just over $1 million, even as one and two bedders have slumped.

Colliers national director of residential project marketing Pete Evans reckons that the fundamentals are right for apartments on this part of the city fringe. His company successfully marketed a similar heritage revamp, the Botanica Heritage in Enfield Street, Mount Eden in late 2016. The sold-out development, had 13 apartments between 70 sq m and 22 sq m, starting at one bedroom for $650,000. The top price of $2.5 million reflects the property’s double grammar zone desirability as well as the clever design that earned architects Peddle Thorp a heritage award in this year’s NZIA Architecture Awards.

“Kingsland is a good area for apartments, it’s got walkable amenity and it’s attracting people to the city fringe who wouldn’t be attracted to the CBD,” Evan says. “But it still needs car parking: in this city people want to get away for weekends, or get to places where public transport just isn’t available outside of mainstream commuting.”

Without seeing floor plans or amenities planned for The Block apartments, Evans wouldn’t hazard a guess at likely prices for The Fire House, but says that heritage conversions are sought after by a different buyer from those preferring new builds, and could go for more than the average $14,000 per sq m.

“It will attract an older market, rather than first home buyers, if it is at the more expensive prices, but I think this project will lend itself to a wider range of buyers as long as the amenity is good enough.”

OneRoof Valocity data show that Kingsland are now reaching a median value is $1.165 million, $100,000 more than neighbouring Morningside. The area is in zone for Mount Albert Grammar and Auckland Girls’ Grammar schools, and both Kowhai and Pasadena Intermediate Schools.

Valocity’s head of valuation James Wilson is prepared to make a stab at a price – albeit based on data, rather than yet-to-be-revealed details of the apartments’ size, configuration and quality.

“The apartment market has been a bit soft in Auckland, although better in larger, higher end and newer properties,” he says. “Those buyers are after location – school zones, or waterfront or great views. Kingsland will struggle to hit that market at the upper end.

“That said, there’s always a good boutique market for well-converted heritage, even when the rest of the apartment market is so soft. ”

Wilson also says that it’s difficult to understand who the buyer would be in that location – he plumps for wealthier first home buyers, “ double income no kids who are prepared to pay upper $900,000 to $1.5 million prices for something in that vicinity”.

So what price? Wilson reckons they’d need to go for at least high $1.5 million both to break a profit and hit the market. But, he adds, that’s assuming the apartments have at least one carpark and are well over the banks’ ‘magic number’ for lending (at least 50 – 55 sq m at that price range).