The cream

2

Many think that the most desirable apartments in a high-rise are on the top levels.  Most apartments are originally priced to reflect this (mis)conception.  Supported by our work on buyer preference and analysis of resale prices, we challenge this line of thought and put forward the need to value and price high-rise apartments differently.

Too few projects reach their full potential          

Nearly every new apartment project must pre-sell enough product to obtain development finance.  It is usually the most desirable apartments which sell first.  Often these apartments are the most affordable as well.  More often than not the apartments remaining for sale offer the least value.  Usually, the new apartments left after building settlement have to be discounted to allow development profits to be realised.  The net result often gives a gross realisation well below a development’s potential.

Our analysis of apartment project settlements shows that it is often the lower level apartments which sell first.  Contrary to popular opinion, high-rise apartments do not always sell from the ‘top down’.

Existing pricing methods

Most new apartment developments are priced under the assumption that apartments at higher levels embody a higher value than those closer to the ground.  Typically, prices escalate between $2,000 and $3,000 per floor.  Over a 30 storey building this can translate to a price range of $90,000 for an identical apartment.

Is this process justifiable?  Does the market place greatest value on the highest apartments?  Our primary research conducted with the market would suggest otherwise.

Buyer sovereignty

In the course of conducting qualitative research, buyers explained to us that the most desirable location in many high-rise developments was often between levels five and ten, assuming views were not blocked by other buildings.

Despite the often panoramic views up high, the lower level apartments are more popular because they were high enough to achieve a view but close enough to the ground to not distort ‘human scale’.

Matusik approach

Our approach allows for a more even distribution of pricing, with higher prices for the more desired apartments – often those located between levels five and ten.  We narrow the price range so there is a smaller price variation between apartments on the lower levels and apartments on the top floors.  This often ensures that the higher apartments offer better value for money, thereby creating greater market acceptance earlier in the marketing campaign.  This approach helps to increase the potential sales revenue from the development.

This approach does not only apply to high-rise developments but to lower density projects and residential subdivisions as well, where current pricing strategy is based on outdated industry practices and not what the market really wants.

“This report is republished with permission of Matusik Property Insights.”

 

We don’t have expensive housing in Australia – we have expensive land

Let’s face it, we don’t have expensive housing in Australia,  we have expensive land.  The average  cost of residential  land  overtook the median cost of constructing a dwelling,  across all Australian  capitals, about five years ago.  The  difference between the two is now considerable and  growing.  Volume builders in Queensland are constructing  quality new detached homes for well  under $1,000 per square metre.

The proof is readily available.  Across the south-east corner of Queensland, for example, the price  of vacant land per metre is now 2.3 times (230%) what is was a decade ago.  Established house  prices (which include the price of land) also increased, but at a lower rate – they are 1.5 times (150%) the price a decade ago.  The cost of new project homes, which exclude the cost of land, are just 0.65 times (65% higher) what they were a decade earlier.

Land is expensive because we have a shortage of it.  To the rest of the world, such a statement would be bordering on lunacy. Australia is one of the most spacious countries – based on total land area per capita – in the western world, after all.  And yet, ironically, we are one of the most urbanized places on the planet.

Over-governance, green politics and town planning tomfoolery are corralling us into a handful of already crowded places.  This has created a shortage of land, driving up its price and resulting in fewer economically feasible developable sites.  Land now accounts for about two-thirds of the cost of a new home in our major capitals and close to half in our regional centres.

There is no better place to illustrate how out of whack the system is than on the Gold Coast.  The Queensland Government and the local council are doing everything they can to make housing on the Gold Coast unaffordable, and in turn, undermining employment.

Despite what we read in the daily press, the Gold Coast market – in terms of total stock – isn’t oversupplied.  There is just way too much of the wrong stock and too little of that which is in demand.

The oversupplied stock consists largely of apartments, mostly in high-rise towers and priced over $800,000.  By default, this targets a short-term tourist market, which for the most part cannot afford to pay the tariffs.  In contrast, apartments under $600,000 are undersupplied but are suffering collateral damage, so to speak, given the negative commentary about the apartment market in general on the Gold Coast.

There isn’t enough new detached housing or new townhouse development on the Coast.  The SEQ Regional Plan (which covers a time period from 2008 to 2031), expects 77% of new development on the Gold Coast to be “infill” i.e. medium and high-rise dwellings.

However, just three years into the plan, only half of the new starts are in “infill” areas.  The demand for detached housing is rising and is currently about 70% of the overall demand.  It can only be provided, and at an affordable price, on “greenfield” sites.  There are plenty of these sites available on the Gold Coast.

There is little government can, or should, do about the price of “infill” real estate.  But there’s a lot they can and should do about affordable housing in “greenfield” areas.  This is where there’s an infinite supply of land available and a housing industry ready, willing and able to build top-quality houses at unbelievably low prices.

The Gold Coast doesn’t just need a new police helicopter, the Commonwealth Games or even a light rail system; what it needs is jobs.  Close to 25% of the region’s economic growth comes from new construction, with over 30% of its workforce employed (directly and indirectly) in the building trade.  It needs much more new detached housing.

It also needs to open up its industrial land bank to new business.  It must incentivize new operations to move to the Coast.  It should be all about permanent jobs and industries which have higher employment multipliers, rather than one-off feel-good events, white elephants and election stunts.

Thousands of people are being denied the opportunity to replicate what those now running the show were able to do, i.e. to get a start in the housing market.  This is not only socially and economically unsound, but morally wrong!

Michael Matusik is Australia’s leading property analyst and this report is republished with permission of Matusik Property Insights.


We don’t have expensive housing in Australia – we have expensive land.

April Real Estate

foreclosure
Recent comments from BNZ’s confidence survey results issued at the end of March around the property market included:
  • Real estate appears weak with few buyers;
  • Things appear to be on hold until the budget in May due to the tax changes;
  • The comments from the survey in general suggested that the economy was improving slowly.

There is a large volume of houses on the market for sale but this is not translating into higher sales volume.  It is believed the low sales volume, although higher than the record low in January 2010, is “fluctuating” as many people simply do not know where the property values are going and so are reluctant to commit.  It is believed this reluctance is due to a fear that they will over commit themselves, especially if mortgage interest rates increase. Those buyers in the market are believed to be owner occupiers

Property Cycle Indicator
The Mike Pero mortgages – Infometrics property cycle indicator (“PCI”), for February fell to 3.97 (5.22 in January).

The PCI provides a value between -10 (strong downturn) and +10 (strong upturn) in the housing market.  As its base data it measures the number of houses sold, the time it takes houses to sell and the changes in prices

The number showed an easing in the housing market.
Auckland market a dog
A report put out by BERL economists and The Institute of Public Policy looking at the Auckland economy stated that there was too much conflicting information on the Auckland housing market and simply described it as a “dog’s breakfast”.  The only real conclusion was that there was so much conflict in the numbers coming from different sources that the only certainty was the uncertainty of the housing market.

House prices start to bounce back

CB025587

House prices in Auckland and nationally are up and agents say a rosier picture of the market is finally beginning to emerge.

Auckland prices rose from a median $420,000 in September to $433,000 last month and the national median nudged up from $330,000 to $335,000.

Real Estate Institute figures out yesterday showed price rises in five out of the 12 regions surveyed nationally. But the country’s national median price is still well under the $350,000 reached in October last year.

Agents selling houses in Northland, Taranaki, Hawkes Bay, Wellington and Southland all enjoyed better prices last month than in September.

“Despite all the negative stuff and people talking about a 30 per cent price drop, this is really good,” said institute vice-president Peter McDonald.

Most Auckland suburban areas showed big price rises.

Waitakere’s median rose from $360,000 in September to $390,000 on the back of 173 sales last month.

Manukau’s was up from $397,000 to $416,000 based on 281 sales.

Papakura recorded 50 sales last month and its median price rose from $293,000 to $301,000.

Agents selling places in the Auckland City Council boundaries recorded 465 sales and a median price rise from $450,000 to $472,000. Sales in the Franklin area pushed up the median from $365,000 in September to $367,000.

North Shore bucked the trend. Based on 249 sales last month, prices dropped from $445,000 to $420,000.

Agents in Rodney district made 97 sales but this area’s median dropped from $440,000 in September to $435,000.

ASB economist Jane Turner said the housing data showed mixed results. “While turnover remains weak at very low levels, the median house price and the median number of days to sell showed some slight improvement.

“Typically, we avoid reading too much into monthly moves in house prices, as the sample is subject to compositional shift.

“However, surprisingly, the median number of days to sell also implied some improvement in the housing market, falling from 56 to 51.

“The number of days to sell is generally a fairly reliable barometer of the balance between supply and demand in the housing market, and the fall is consistent with an improvement in prices.”

4:00AM Friday Nov 14, 2008
By Anne Gibson

Boom about to happen?

I read the following article in todays Herald. This kind of news is exciting if you are an investor.

The amazing thing is that in a city with 1.4 million people we only have 34 developments under construction. That is amazing and spells an upcoming shortage of space.

“quote”

Herald

Downturn puts a stop to projects

4:00AM Wednesday Dec 03, 2008
By Anne Gibson

The economic downturn has caused “a substantial number” of large Auckland building projects to be put on hold.

Zoltan Moricz of consultants CB Richard Ellis said 50,000sq m of commercial and industrial building work in Auckland’s CBD had been shelved.

He said the CBD had the most development activity on – just over 190,400sq m, of which 82,700sq m was now under construction.

“A substantial number of projects is on hold especially in the CBD (50,000sq m) and CBD fringe (59,800sq m) due to the difficult market which developers are currently facing,” he said in his Auckland development monitor.

Some of the big projects involved include Cooper & Company’s waterfront hotel, the Soho Square project in Ponsonby and Rhubarb Lane in the CBD, although Kellands is still marketing it. That site goes up for auction next Wednesday.

Moricz has classified projects according to:

* Long-term potential, meaning they could be developed in periods or over time.
* Early feasibility: only vague plans for development.
* Planning pre-building consent: projects which have clear plans and the intention is to build.
* Planned building consent issued: construction likely to be imminent.
* Under construction: earthworks have started.
* On hold: buildings planned but not proceeding as originally envisaged.

“Our Auckland databases have captured 212 new developments in the Auckland market across the industrial and office markets.

“Of these, 66 are in the long-term potential or early feasibility stages and do not have definite plans in the near future,” Moricz said.

“The remaining 146 new developments range in stage from projects that are planned but have not yet received building consent (39), to projects that are planned and have a building consent (11) through to projects that are currently under construction (65).

“There are a large number of projects on hold making up the remaining 31 developments.”

His report was produced for building owners, investors, occupiers, developers and their consultants to help them to make decisions.

About 69 per cent of the office buildings and 85 per cent of industrial buildings have precommitments by tenants.

Moricz tracked industrial projects in the East Tamaki area where 40,800sq m of new building work was planned, Penrose where 26,500sq m was planned and Airport Oaks with 13,700sq m.

These areas have good transport links and are near Auckland International Airport and the Southern Motorway.

“Many of these projects require precommitment before commencing,” Moricz wrote.

“Speculative construction is expected to be limited to multi-unit developments. A smaller percentage of developments are on hold in the industrial sector than in the office sector.”

AUCKLAND’S FUTURE?

* Developers have 212 projects in the pipeline.
* 66 are without definite plans.
* 39 planned but without consent.
* 11 have building consent.
* 65 now under construction.
* 31 have been put on hold because of downturn.

“end quote”

Articles posted here are not the views or opinions of Terry Rota or Professional Investment services. They are posted to provide a snapshot of the reading Terry does with his professional development requirements

Sharks Circling

Well it’s been a miserable few months for investors in some finance companies and of course even sadder is the fact that many of those who invested were people who could ill afford to lose their savings. 18 months ago I had written in the Kiwi Property Investor magazine that any Finance company that took security over second hand cars purchased on no deposit could be considered unsecured personal loans and were unlikely to go the distance, in addition, car dealers no longer take recourse on car finance so the risk is compounded in that it takes another avenue of responsibility away from the lender when things go wrong. This is not to take away from some well run finance companies of which there are many but it begs the question, does Real Estate remain the best long term investment? I think so, but then I’m a Real Estate salesman with a passion for my product and a passing interest in making you rich so of course I’d say that, but it also hurts when I see people suffer for the investment decisions they make, particularly when they genuinely believed they were doing the right thing.

Let me give you two examples of common financial illiteracy that most of us can put our hand up for although rarely mentioned in intelligent company. I have just bought (through Trade Me) a 2003 Audi allroad diesel for $40,000. The owner woefully mentioned that he had paid $120,000 for the car 4 years previously and was selling because he had just purchased a new BMW. Now normally I would shed a tear or two for someone who was about to dump $80,000 plus, but I suddenly realized that he was not only prepared to lose his shirt on this car, he was also prepared to repeat the process in another four years time, it’s stories like this that makes me wonder why we weren’t so designed to kick our own butt. In another, albeit leftfield example, you may remember a freezing worker who had forgotten about $500 he had left in a Government Super scheme of the day and now found after 25 years it had grown to $13,000 or thereabouts. Predictably it made the idiot news for the easily entertained at six o’clock that evening and he and his mates at the bowling club were reportedly drunk for a week. I was discussing the article with my brother at Law Real Estate in Hunters Corner recently so he ran a comparison analysis on a Manurewa home sold in 1975 for $20,000 and ended up with a 2007 market value of $358,000. The fun part was that, in the preceding years, had a purchaser borrowed the full amount the tenant would have repaid the principal sum through the rent and the IRD would have contributed to the interest, all resulting in the freezing workers Superannuation return looking like the kids allowance. This is not covered wagon economics, its established data and is easily accessed by anyone that is interested enough. What I’m trying to say here is, most of us give scant regard to blowing money on cars, boats, over seas holidays and almost any other feel good venture we care to name, but as soon as we experience a correction in property values we fall over ourselves to bale out at any cost, usually to an experienced investor who will never sell.

At an AGM recently somebody mentioned that the apartment he had purchased was now worth $50,000 less that what he paid for it 12 months earlier. Well sometimes that happens, but the truth remains, you will only lose money when you sell, up to that point either the car or the apartment will provide you with exactly the same level of service or return that it did on the day of purchase. While I accept that the recent increase in interest rates messes with the validity of the above statement, we still need to keep things in perspective, after all, a 2% increase in interest on $200,000 is approximately the cost of a Friday night at KFC washed down with a mid range Chardonnay, do you feel better now?

Robert leads the team and Impression Real Estate the top CBD property manager. If anyone knows the market Robert does!

Source property forward magazine. Issue 7

Robert Hodason

What was Blue Chip doing?

There are so many nasty things to say about this Blue Chip fiasco, I have met personally with 2 clients who have lost nearly $1.5million between them because of Blue Chip.

The story getting to the media about Blue Chip investors is terrible, but what about the Blue Chip clients? They have already settled on properties that are worth hundreds of thousands of dollars less than what they paid for them and they have no way of paying the mortgages because they are either on pensions or lower incomes.

One of the annoying things for me about the Blue Chip debacle is that they have tarnished the good name of property investing.

For over a decade we have helped our clients select property that is appropriate for their needs and have helped them create many millions of dollars of wealth for their retirement. Property is an excellent vehicle for creating wealth when appropriate and when it is part of a long term fnancial plan.

Unfortunately many people and organisations have used it to create elaborate scams.

With all good scams there is a lot of truth and very good theory. Which is why they work so efficiently, people beleive what is being told to them because most of what they are being told is the truth, it is only in the detail that things start to get murky.

And thats where the Blue Chip saga rankles! They took a fantastic product and combined it with some very well known and fundamental financial services products to create something that looked just fantastic.

This is one of the ways they sold property. (Article from the NZ Herald)

Blue Chip sold investors apartments – many not built – via numerous methods and schemes.

It even engaged in “apartment futures” trading using a daredevil method it called Premium Income Product.

Here, the mainly older investors entered agreements with Blue Chip to buy an apartment at a guaranteed price at a future date.

But in a high-risk exercise, Blue Chip was to sweep in just as the unit was being finished – and buy the place back, paying the elderly a profit and netting the gain expected to automatically accrue between when the place was planned and when it was finished.

The older investors are now the ones left to buy those places.

Without Blue Chip, developers are fully expected to hold those investors to the terms of the original contract, forcing one Waihi couple to face parting with $1 million for two apartments in the Stadium development, rising in Auckland’s Quay Park.

A distraught older woman called the Herald, astonished to find she had unwittingly become an apartment futures trader – set to buy Stadium apartments for $450,000 each, when Blue Chip was meant to buy them back from her just before the structure was finished.

Barrister Daniel Grove put her in touch with a group of 20 other “apartment futures traders” at Stadium, all attempting to escape the deal they never expected to occur.

source: Anne Gibson – NZ Herald

My advice to those investers is to go and see a financial planner!

My experience at the moment is that the people advising these clients are providing bad advice. Advice such as just hold on and ride it out, or just wait and see what happens, or there is money coming from the liquidators.

This advice is dangerous.

Go and see a financial planner, someone who understands lending, real estate and financial planning so that they can help you work out a strategy to exit these deals (if that is appropriate) without loosing too much money.

You can call us for a free reveiw of the situation. We will let you know in writing our advice is and if we can help you.

Terry Rota

akl@nzpis.com

093033305

(Terry Rota is the head of the Advisory panel for the Financial Gain Group of companies and is the director of Financial Planning practices, mortgage broking firms and the principal of a Real Estate Agency.)

Will Rents Rise

The median national weekly rental has risen 7.1% in the last year, a survey of rental information by Massey University has found.

The survey for February showed the median rental rising 3.4% to NZ$300 a week from NZ$290 in November. The biggest rises in Auckland were in the North Shore, where the median rent rose 11.1% in the last year, while Waitakere rose 8.3% and Manukau rose 6%.

Rents in Invercargill rose 18.7% and were up 15.3% in Lower Hutt. Napier rents rose 12%.

The prospect of falling house prices and higher mortgage rates appears to be forcing many landlords to consider rental increases to bring yields back up to acceptable levels in the absence of capital gains.

Source – INTEREST.CO.NZ

Image?

How will the Auckland CBD go over the nex few years?

Since producing an in-depth report on this market in 2005 and updating it in August 2007 the property cycle Slump phase has arrived in earnest.

So the question that everyone is asking now is this…

“How will the CBD Apartment market fare throughout the property slump of the next few years.”

Interestingly the CBD Apartment market looks set to prove to be one of the least volatile or vulnerable markets during this property slump in spite of the oversupply of apartments which remains apparent.

Yes that’s right one of the least volatile or vulnerable markets because the values of CBD apartments have already experienced a major correction over the last few years of 50% in some cases (NZ Herald 6th March 2008 )

So what does this mean for CBD apartments? Will values fall from current levels?

Evidence suggests this markets trends are now relatively positive, not that it wont still suffer to some degree whilst the oversupply situation remains. However we expect it to suffer only a limited further downside, in part due to the relevant speed of this markets recent further deterioration. It is most likely this market will suffer less than most other suburbs of Auckland .

Source: Kieran Trass

Why Invest In Auckland

Two things that makes us different to all the others is that we do not restrict ourselves to location or type of investment and we do not have stock that we then try to “fit” our clients into.

This same philosophy extends to our selection in Residential Investments.

Each client will have different criteria that will determine what type of property and to a degree what location they should invest in.

Only after detailed analysis of our clients situation has been completed do we seek out appropriate property for our clients. This means the property that we show our clients is sourced for them and their specific long term goals.

So we do not sell property only in Auckland however for many people there are strong arguments to invest in New Zealands largest city.

In economic terms, New Zealand is a relatively young country particularly in relation to its population density, the way people live and the transport infrastructure – but in the new millennium this is changing.

Auckland is following in the footsteps of her sister-city, Sydney in Australia, where in 1970-2001 similar growth and expansion occurred. This resulted in a exponential growth of apartments, townhouses, terraced housing and semi-detached dwellings.

As Auckland has matured it has now begun to exhibit the same growth characteristics as Sydney with a significant increase in volumes of medium density housing.
Key factors driving this growth are:

* Between 2001 and 2026 there will be, on average, 22,260 more people living in Auckland each year, so that by 2026 there will be 556,500 more people living in Auckland
* By 2021 the number of households will have increased by 420,000
* Auckland Regional Council has closed the suburban boundaries of greater Auckland, so less vacant land is available for residential development
* Renters will account for 42% of the Auckland residential property market by 2016.
* Households are becoming smaller with one person and couples without children households becoming the dominant family type.

(Source: Auckland Regional Council and Statistics of New Zealand)

Another Site By Big Tez and Total Web Design Hosting $5.35 PM at Essential Internet Tools