TelferYoung Limited
Napier Apartment Market - A Convenience Or Just A Con?
13 August 2008
In August 2006 TelferYoung produced an article commenting on the Napier apartment market. We expressed concern as to where the apartment market may be heading in the medium term.
"It will be interesting to follow the apartment market, both its own value levels and the impact on other residential properties in the Napier market. TelferYoung believes there may be an impact on the wider residential market in the $400,000 to $800,000 price bracket. This market may be affected by those selling in this price bracket to complete their apartment purchase and by the apartments attracting buyers that would otherwise have bought houses in that price bracket."
"Although the apartment market has shown significant growth along with the general property market price increases since 2003, it will be of interest to observe the expected consolidation period as resales occur. The question is; will there be sufficient affluent "baby boomers" to maintain demand in these preferred locations or will demand and prices wane?"
It is fair to say that the apartment market has suffered badly in line with the general market downtown in the Napier area over the last 12 to 18 months however the apartment market would appear to be more significantly affected. With the benefit of hindsight, it appears that developers have come into the market and has sold a "lifestyle" that when considered carefully, does not exist. Napier is a provincial centre with no peak hour traffic issues of significance and within 10 to 15 minutes travel time, there are a huge range of desirable residential and rural lifestyle locations available. There is arguably little additional convenience from apartment living over standard accommodation. Certainly there is a place for the apartment market however the numbers of apartments available would appear to be significantly in excess of the demand.
Apartments were sold on the concept of low maintenance, high convenience, central position, café culture, access to bars and access to pools and gymnasiums. But do these conveniences offset the negative side? These negative issues sometimes include compact living areas, close community living, noise, less convenient car parking, and lack of private outdoor space.
It appears the market does not think so. The resale market remains very soft. There are very few transactions occurring however there is evidence of numerous properties offered for sale and a few low resales.
Sales in the Northridge Complex were quoted in 2006 between $650,000 - $980,000. We are aware of a recent sale in December 2007 at $800,000. Two similar better units have been offered for sale at $795,000 with one recent sale at $680,000.
A search of websites indicates that there could be some 40 apartments available for sale in the Ahuriri area, this mainly between the West Quay and Humber Street Complexes. Shed 5 has currently been completed with several apartments also available in this complex plus there are other smaller complexes available in Ahuriri and Napier Hill. Prices vary considerably but many are offered for sale by negotiation with vendors still optimistic of achieving their money back. In many cases the purchases have been made with a speculative element and many will be likely to come away suffering a significant cash loss.
It is interesting to question why the market so heavily invested in this sector of property. Some of the reasons are as follows:-
- The timing of the apartments hitting the market was superb with high optimism in the property market and rising property values.
- The opportunity to purchase at "today's value" through way of deposit but not to have to settle until construction was completed seemed to offer the opportunity to receive a capital gain with no significant capital outlay.
- Marketing was sophisticated and convincing.
- Pre-sales were at high levels and a naïve market did not ask sufficient questions as to the authenticity and robustness of the pre-sales.
- The concept was new and exciting.
Areas that should have caused concerns were as follows:-
- The relatively high prices of the apartments particularly when viewed against modern bedroom housing being built in the city at the time.
- The large number of apartments being built and whether these could be absorbed by the market.
- The fact that many were on leasehold land with some ground rent issues to be considered.
- Do the units and, in particular, the smaller units represent value for money due to their relatively compact size versus a relatively high value.
The limited evidence available suggests that re-sales are occurring at a slow rate and at value levels below what original purchases were made for. We would anticipate further pain in this sector particularly for the lesser quality units and the smaller units. One factor that may help apartment competitiveness is the rising fuel prices which may create some locational advantages to those well located units over those properties in more outlying and suburban situations.
For those in the apartment market who need to get out, we would recommend meeting the market presently as we do not see the market improving in the short to medium term. The market would appear to be significantly over supplied and it would appear that it will remain difficult for the foreseeable future.
There may well be opportunities for those seeking an investment to purchase at discounted levels in the near future. For those seeking rental investment returns, we would recommend viewing rental returns conservatively, and without reliance on capital growth in the near future.
We further suggest that any purchasers look thoroughly at the Body Corporate issues affecting the apartments and, in particular, the likely impact, if any, of future ground rental rises and how these may impact on capital value.
On a positive note, the apartment development has vitalised the Ahuriri location and created a vibrant and desirable location which is of benefit to the wider community. It is important that the area is supported and that Hawkes Bay people continue to take advantage of our attractive waterfront locations and enjoy the lifestyle opportunities provided to both visitors and locals alike.
Trevor Kitchin
This monthly paper reflects the views of the writer and may not represent the views of all TelferYoung staff.