Economists have warned it’s a housing market sector that’s vulnerable to price shifts as a result of Covid-19 but so far the Auckland apartment market is defying the predictions.
Daniel Horrobin, who heads up Ray White’s City Realty Group, one of the agency’s biggest earning offices both in New Zealand and Australia due to its focus on the Auckland CBD apartment market, says sales have tracking well despite the recent market upheavals.
Horrobin says the agency's auction clearance rate is rising, a sign that buyer confidence is returning to pre-lockdown levels.
He cites the strong attendance levels and sales achieved at the Ray White City Apartments auction on May 21.
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"There were multiple buyers on all properties, with around 15 active buyers and 20 registered. It was really encouraging to see strong bidding on all properties in various price ranges."
The highlight was the sale of two bedroom 65sqm apartment at 125A Hobson Street. The property, which was marketed by Judi Yurak and Michelle Yurak as a "do-up", attracted five registered bidders and fetched $490,000.
“There’s good demand from both buyers and sellers. I mean, we’re tracking along sales-wise as well as we were pre-Covid,” Horrobin says.
Low interest rates and the recent easing of the LVR restrictions, he says, will open up the market again to investors.
Ray White’s City Realty Group director Daniel Horrobin: “There’s good demand from both buyers and sellers.” Photo / Supplied
“When they brought the LVR restrictions in that had a significant impact on our market, which at the time was probably about 70 per cent investor-based. That side of the market just about completely disappeared,” he says.
“We’re now selling six to seven percent net returns, which is a really good cashflow balance for a lot of existing portfolios.”
The flip side is uncertainty in terms of what impact Covid-19 will have on the student market, with questions around when students can come back into the country.
“But at the moment we’re ticking along. We’ve had a little bit of an increase in our vacancy rate but the impact hasn’t been significant. Time is going to tell us what sort of impact, if any, it’s going to have,” he says.
The Auckland CBD market had changed in recent years, Horrobin says, to become a gateway to the property market for first home buyers.
“The banks are loosening up. Kiwibank has just come in with a good package in terms of loaning for owner-occupiers coming into the market,” he says.
“You can enter into a two bedroom apartment with a carpark that will be bank-friendly probably for $500,000 right in the middle of the city, maybe a fraction less, so we’re really starting to see that as an option gaining more and more momentum among first home buyers.”
Empty nesters were also drawn to the city for lifestyle reasons. “We’re seeing a trend that the city has transformed from just the central business district into more of an inner-city suburb with the development of the likes of Wynyard Quarter,” he says.
Danger period
Auckland Council chief economist David Norman predicts Covid-19 is likely to hit the apartment market harder than the wider housing market because the lockdown measures have cut off a key buyer group and revenue stream for the sector - foreign students and tourists.
“Apartments tend to be used a little differently to the typical house. They tend to have a higher number of tenants rather than owner-occupiers, and cater to the tourism and student markets and to some extent young professionals.”
Norman says the last downturn in the Auckland apartment market happened before the GFC. “It was the implosion of the Chinese student market which happened from ‘04, so we had a halving of the number of building consents in Auckland driven primarily by no demand for apartments because Chinese students had departed in their tens of thousands,” he says.
Auckland Council chief economist David Norman: This is not the GFC. Photo / Supplied
Norman warns that the danger period is when some of the mortgage holidays expire and wage subsidies come to an end, which will likely lead to another spike in unemployment. At that point, people who have tried hard to hang on to their properties may find that is no longer possible.
“There will be more houses on the market then and you might see another impact on prices then so my pick is you won’t see the full impact now,” he says.
Cushioning the blow in Auckland is the housing shortage and the fact that properties will still transact.
“Things that are underway will be completed but the question is, 'Will there be as many buyers with as much money or access to credit available?'
“The answer is no, there will be fewer and so people will need to meet the market. My view is in the next six months the market will be re-establishing and so you’ll have a few months where banks are waiting and seeing, developers who haven’t started their development will be waiting and seeing before they press play.”
Man-made downturn
But if the Government spends on the right projects, such as infrastructure which not only supports jobs but more downstream activity, there should be a pick-up, he says.
“I’m a little bit more positive about what I think the outlook is as we come out of this and that’s not because I’m an optimist, I look at the data.
“This was a man-made downturn that we put in place to try and prevent massive loss of life and illness.
“The Government made a trade-off - different governments have made different trade-offs - and because it was so artificial, it means that when you take the brakes off you get quite a sharp spike back in activity.”
This is not the GFC, Norman says. “We’re not going to be languishing for three-and-a half years because the fundamentals were actually quite good before this started. We were growing at over two percent, we had four percent unemployment, we had a building boom the likes of which we hadn’t seen for over 50 years, so this was a good starting point to be at and some of those fundamentals still remain.”
