Professional Investment Services

The cream

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...

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...

April Real Estate

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...

House prices start to bounce back

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...

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...

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...