Would-be Auckland developers and flippers who jumped in too late on the post-Covid property surge are quitting their properties this year – at a substantial loss.
Some are losing up to $1 million on their 2021 purchases.
South Auckland Harcourts business owner Harsimran Singh, who has offices in Papatoetoe, Papakura, Karaka and Otahuhu, said that “nature has taken its course”.
Singh said “everyone” was buying land in those suburbs in 2021.
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“They were thinking they would go into development, some with six months or more settlement so they could flip them [before they settled].
“It was a common thing, they were working full time and buying as a syndicate or with friends or family, they’d borrow from second tier lenders,” he said, adding that there were “common culprits” buyers who were gambling on paying a low 5% deposit and then on-selling before settlement on the balance of the purchase price was due.
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“The astute developers were already building, but others got tied into things, they were flipping not building, [buying] in mid-2021, hoping not to settle until into 2022.”
Singh said the experienced developers “went into limbo” in 2022, to wait out the market, finishing projects, but not starting any more. Since the beginning of this year, they’re back picking up sites for their next project.
“I do know two or three developers who are cashed up now and they’re snapping up these say 1,000 square metre [sites] in Papatoetoe for $1.2m. That same property in 2021 was selling slightly north of $2m,” he said, of a site in Fairview Road which has zoning for urban density.
“Now they’re believing [prices] won’t get any worse, it’s bottomed out. They’re not waiting any longer, the first home buyers, traders, investors, developers - though I'd not say they’re flocking.”
Not all developers who have got as far as starting to build are unscathed.
Singh has clients who are selling townhouses off the plan at deep discounts in order to get some pre-sales on their books before they kick off building.
A property in Fairview Road, Papatoetoe, that sold for $1.2m would likely have fetched $2m at the height of the market, agents say. Photo / Supplied
“They know no one is buying off the plans, but if it’s a reputable developer offering a substantial discount - $750,000 instead of $850,000 - people will buy. They’re smashing their prices to get 25% of a project pre-sold.”
However, the flippers have gone.
“The flippers are not back. The majority of these people that thought they could buy properties or be able to on sell, struggled. Some walked away from deals and some have settled deals and a lot of them are stagnant and have no room to move.”
James Wilson, head valuation for OneRoof’s data partner Valocity, said the numbers show individual properties that were bought in 2021 now selling for anything from a few hundred thousand dollars to half a million dollars below what they got back then.
"The developers have basically gone with capital growth off the table, [building] costs going up, interest rates going up, they're not playing ball any more’
“They effectively stopped transactions almost overnight, that buyer pool dried up,” Wilson said, although he added that it’s not widespread yet.
“You get developers who just say: ‘let’s take the hit and move on’.”
The upside is that first home buyers, who were blocked from developable sites, modest 1950s houses on flat sections, are re-emerging Wilson said.
- Additional reporting Diana Clement
