A few years ago the thought of buying a city apartment as a first home buyer seemed a foreign concept to many, but fast-forward to mid-2015 with its unpredictable property market and the mood has certainly changed.
The Kiwi dream of owning the freehold house with neatly mown back yard is evolving, especially for young Auckland couples desperately trying to clamber onto the property ladder before it may be too late, a trend of which Squirrel Mortgage Adviser Lindsay Hill is keenly aware.
“Apartment prices seem to have recovered from the falls that occurred around 2007-2009," he says, "with apartment sale prices reflecting higher demand following soft encouragement from the Government for first home buyers to consider purchasing apartments in lieu of buying a home.”
But it's not just first home buyers, as Lindsay believes any increase in demand can be put down to a number of factors.
“These include the new migrants to New Zealand or returning expats who may be more open to the apartment living concept, and the fact that apartment quality has also increased recently, with larger floor areas, and better amenities, which make them a more attractive living option.”
He says CBD apartments can also be attractive for investors as greater yields may be achieved over standard residential property.
“There are definitely capital gains occurring in Auckland’s current apartment market, but still nothing like what is being experienced for residential property.
“When considering buying an apartment for an investment, consider the long term yield rather than capital gain, because the apartment market itself can be quite fickle.”
Leaky apartment fiasco
Moisture ingress issues, and the costs associated with them, are one of the biggest concerns when buying an apartment.
Lindsay says apartments built after 2005 should be built to the new building code and therefore have less potential of attracting leaky apartment dilemmas. One of the easiest ways to monitor this before purchase is to check the Body Corporate AGM minutes to confirm if any issues in the complex have been identified, and if you are serious about proceeding, a Builders Inspection Report will confirm this.
He says re-clad costs can often be covered via remediation with Council and Government, and the original building contractors. However, legal fees to get to a conclusion of any remediation requirements can be quite expensive and need to be covered by the Body Corporate, which means the costs are passed on to apartment owners.
“It’s important to complete your due diligence prior to entering into an unconditional contract to purchase to ensure you avoid any future unplanned Body Corporate levies.”
A word of caution to buying off the plan
Lindsay says people need to be aware to not get ahead of themselves with the current large growth of new apartment buildings.
“I have some clients that are buying apartments off the plan with the intention to sell them upon completion and capitalise on any capital growth that has happened since the original contract has been signed.
“The risk of this is that other buyers may have similar intentions and if a large number of apartments all hit the market at the same time, or have to be sold in a hurry because the purchaser does not have the ability to settle when settlement is due, it could result in a price drop which would affect all apartment owners.”
Navigate the house hunting process with handy tools and info from Westpac: