The Government’s recent announcement that exempt new builds from changes to investor tax regime is already being felt by large scale developers.
With seven large-scale development projects encompassing hundreds of new apartments and townhouses under his management, Barfoot & Thompson projects manager Matt Baird has already seen an upside.
Having a portfolio spanning Kiwibuild houses in Pukekohe in Auckland’s south, apartments on the inner city fringes of Eden Terrace to luxury residences in cityside St Marys Bay and Hobsonville Point, Baird is well-placed to spot the trends.
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“It’s only been six weeks and the dust hasn’t settled, but we’ve already seen a 20% increase in enquiry across the projects from investors and owner occupiers.
“Kiwibuild disappeared a bit because the market price has risen, but we've got buyers from $575,000 to nearly $5 million. In one week alone we sold $8m [worth] of property in Wynyard Quarter.”
But Baird says ahead of a more detailed announcement of policy – what the definition of a ‘new build’ is, whether it expires after a certain time – he's not yet seeing more developers emerge to fill the already-burgeoning pipeline.
Developments like Urbizen, Mount Eden, meets the demand for affordable and close to town, selling out quickly. Photo / Supplied
Instead of huge projects of 100 or more units, he’s seeing a trend to smaller terrace developments, anything from 10 to 20 or 30 units.
“Some of them, like one we did at Christmas at Rosier Park, Glen Eden were 80% sold in the first six weeks. Another Urbizen, in Mount Eden, aimed at the ‘missing middle’ of good density, close to town and transport, sold out like hotcakes.
“The agents were fizzing, all these millennials who could buy a nice little place, close to town. They don’t want to live in Takanini, it was neat to see first-home buyers getting in.”
Baird says that with the new deductibility rules, new builds might begin to target investors, not just their traditional owner-occupier market.
That might require some sharper pricing to meet investor yields.
Barfoot & Thompon has seen a 20% pick up in enquiries for developments like the Rosier Park, Glen Eden. Photo / Supplied
“Yields are obviously low on an expensive apartment that sells for$12,000 per square metre – that's $1.2 million for 100 sqm apartment. They’ll need to be cheaper and smaller, that’s a different type of property. But a new apartment doesn’t require maintenance, so it’s cash flow neutral.
“At the moment re-sales for capital gains are very project-specific – some make significant gains of 20%, others just 5%, but investors who haven’t considered new builds before are starting to consider them now.”
Even without fine-tuned detail from government, Baird says bank lending policies are the major brakes on people buying new builds, especially their minimum size requirement of 50sqm.
“A 40sqm apartment, well designed, could be $100,000 to $150,000 cheaper, but banks are still making that restriction. That’s making people find massive money to pay for a house instead.”
Small scale luxury apartment developments like XXXII at St Marys Bay are selling out fast too. Photo / Supplied
Baird is pleased to see the intention of creating density through the Auckland Unitary Plan is working, with developers now fitting 10 or more three-bedroom terrace houses onto a traditional one-home quarter acre plot, and selling properties at the end for $650,000 to $800,000.
"They’re looking for gaps that they can afford, it’s crucial to hit the price point.”
But Baird says with so many new developers hitting the market, it is crucial to check builders’ track records, designs and all the structural underpinnings that bring the home to Homestar 6 energy ratings, not just the minimum building code.
“There are a significant number of projects coming to market in the next quarter, some 100 to 150 homes. You want them to be good quality, in good locations close to transports and amenities, with developers and builders who can deliver."
He adds that demand is high in the upper priced apartments too: a 10-unit development called XXXII at 32 Shelly Beach Road, St Marys Bay, has already begun construction with only the premium sub-penthouse, asking $4.995m, still on the market.
Catalina Bay, overlooking the water at Hobsonville Point, had already sold 30 of the 80 one, two and three-bedroom apartments, two- or three-bedroom townhouses and three- or four-bedroom penthouses. They will be ready to start construction by the end of this year or early 2022.
