TelferYoung (Wellington) Limited
Wellington Newsletter - September 2007
20 September 2007
Commentary on the residential, apartment and commercial market in Wellington
TelferYoung (Wellington) Ltd welcomes Jason Lochead to their team. Jason has practised in residential and commercial valuation for a number of years, specialising in the Hutt Valley region. While focusing on residential valuation, Jason also has experience in suburban commercial, light industrial valuations, lifestyle blocks and general consultancy. Jason brings a breadth of experience and knowledge of the property market in all sectors throughout the Wellington region to complement our practice.
Residential Market
Following a period of strong market activity and turnover volumes and consistent value growth, the residential property market in Wellington has entered a phase in which demand is more in balance with supply. Since the onset of winter we have detected an easing in demand, although there have been some good results recorded; particularly for properties with special merits like waterfront aspects, and high quality design, and presentation factors. Premium prices were frequently recorded as a consequence of competition, although there are now clear indications that buyers are becoming a little more circumspect and analytical. It is inevitable that the successive rises in the official cash rate will result in a flattening of prices in the residential market in the coming months. Prices are therefore unlikely to fall significantly unless there is a downturn in the economy and an increase in unemployment.
Apartment Market
The Wellington apartment boom began in 1993 with the Queens Wharf office building conversion and since this time there has been a phenomenal growth in the market. The apartment market gained momentum due largely to the local authority relaxing strict CBD rules that allow building owners to transform under-utilised or vacant older commercial buildings in inner-city locations into residential apartments. A number of these buildings throughout the Wellington central city, have been attractively reformed into inner city apartments.
The majority of the large scale apartments that have come onto the market in the last year have been purpose-built apartments. They make up approximately 48% of the apartment stock. There are currently around 3861 apartments in the central business district, with a further 2,403 in the Courtenay Place/Te Aro Precinct. The majority of the existing apartment stock (approximately 29%) is of 2-bedroom configuration, followed by 1-bedroom apartments at 21.6% and studio apartments at 15.78% of the total.
While the apartment market has seen above average sales volumes and a significant increase in the average apartment sale price, we detect a softening in the market as interest rate hikes take effect, combined with a seasonal downturn.
Strong demand has been evident with the release of a number of better quality developments in the last six months. Examples include the Chews Lane development (containing approximately 90 apartments) which sold within two weeks with the NZ Property Investor reporting that 54 apartments in the complex were sold within four days. Also the Piermont development in Wakefield Street (which contains 72 leasehold apartments) sold the majority within one week.The concentration and vibrancy of the Wellington central business district combined with the continued re-development of the waterfront, (amongst other initiatives), has seen an increased desire to live in the inner city.
Looking ahead, we anticipate a continued softening in the apartment market demand over the next few months and a plateau in values. Certain sectors may see a correction in values, particularly those apartments catering for the rental market, given purchaser’s demand for post-financing returns.
Proposed District Plan Change 56
The much talked about Plan Change 56 responds to concerns regarding the variable quality of in-fill housing in Wellington’s residential areas. The plan change amends a number of the District Plan rules in order to avoid the worst effects of poorly designed in-fill housing.
Key changes include a reduction in the bulk and scale of in-fill housing and a requirement for each dwelling to have an area of outdoor open space attached to it. Additionally, the Council seeks to have greater discretion over the sub-division process for in-fill housing. Under the District Plan changes, in-fill sub-division will be a discretionary restricted activity.
New sub-division rules include:
+ open space within the Outer Residential zone will be a minimum of 50 m2 per household unit, with a minimum width of 4 metres which is to be directly accessible from the dwelling.
+ open space within the Inner Residential zone will be a minimum of 35 m2 per household unit, with a minimum width of 3 metres.
+ the height of the second household unit which is outside the ‘footprint’ of the existing dwelling and on a fee simple site area of less than 1,000 m2 shall be 4.5 metres restricting it to a single level.
The proposed District Plan change is subject to submissions that closed on 13 August 2007. The likely effect of the Plan change on property values is unclear, as the returns to developers for less intensive sub-divisions may be offset by higher values achieved for better executed developments.
Commercial Market
What Lies Ahead
Property cycles have always been with us, whether influenced by political decision or market activity. Investors seldom see the effect of property cycles in advance. Their influence on poor property decisions continues long after the peak of boom or well into the trough of the ‘bust’.
It is well accepted that property cycles follow sharemarket cycles in New Zealand. Property is the last to reflect a change in economic fortunes. Because of property’s inertia, a ‘smoothing’ effect takes place. The business economy must recover first, before there is an increased demand for premises. There is then a lag between demand for premises and the new building supply. This lag varies among property types.
What we are seeing now is still strong demand for commercial property across most sectors of the Wellington regional property market. Yields are now lower than they have been for some time and it is clear that purchasers must be factoring in some level of perceived rental growth in relation to the yields being paid. Whilst there are no signs of prices falling or rents dropping we are, however, now seeing certain sectors of the market showing some vacancy where none has shown previously, and some properties are sitting longer than has been typical. The next few months should prove quite interesting for the Wellington property market.
As in the past, well researched property advice is the key to being successful in property investment into the future.
Back issues of the newsletter can be obtained from TelferYoung (Wellington) Ltd
Level 9,
85 The Terrace,
PO Box 2871,
Wellington.
Ph: 04 472 3683,
Fax: 04 478 1635
www.telferyoung.com
email: telferyoung@wellington.telferyoung.com
+ Adrian Brady + Chris Barnsley + Martin Veale + Jerome McKeefry + Lindsay McAlister + Graeme Kirkcaldie + Stephen Batt + Jason Lochead
Opinions expressed in this newsletter are of a general nature and should be used as a guide only. TelferYoung should be consulted before acting on this information.