Why investing in apartments is on the rise

Luke Parker
Why investing in apartments is on the rise

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.

SEE ALSO: Wandering eye? Aucklanders looking elsewhere to invest

“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.”

Lindsay Hill

Lindsay Hill

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.  

Pull out quote Lindsay Hill

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.”

SEE ALSO: Wandering eye? Aucklanders looking elsewhere to invest

6 things to consider before buying an apartment

Maintenance Plan

How well is the apartment complex managed? Does the Body Corporate have an active Long Term Maintenance Plan that shows they have planned for ongoing building maintenance? Regular maintenance can help avoid larger unplanned expenses in the future.

Long Term Maintenance Fund

Does the Body Corporate have sufficient funds in their Long Term Maintenance Fund (Sinking Fund) to cover future proposed works?

Body Corporate Levies

How much are these? Have you budgeted for them along with the rates and loan payment expenses?

Size

Is the apartment size sufficient to meet the bank's lending criteria? Different banks have different requirements on minimum sizes for apartments so you'd need to check those rules before making any unconditional offers.

Weather Tightness

Has the apartment complex had any weather tightness issues? Check the pre-contract disclosure statement for this information, and also the Body Corporate minutes to identify any other issues the complex may be having. If you are serious about proceeding, get a Builders Inspection Report done.

Carpark

Does the apartment come with a carpark? If not, paying for parking or buying a carpark separately can add an unplanned expense to your apartment purchase.

Property ambitions?

Navigate the house hunting process with handy tools and info from Westpac:

 

Tags:
, , ,