Auckland apartment market stumbles but far from falling
Growing concern about the state of Auckland’s apartment market grabbed headlines this week as it emerged a number of apartment projects had fallen though.
But some experts say well-heeled international players are ready to step into the void.
Two separate industry sources this week said that between 22 and 35 multi-residential projects had been axed in Auckland over the last year.
Some of them were smaller townhouse complexes but one was Flo, a 91-unit apartment planned for Avondale’s RSA site.
Despite this, CBRE estimates there are still nearly 8000 apartments due to be built by 2018, of which more than half are under construction.
That’s 120 projects which are well advanced, and 2000 apartments that have sold off the plans in the last six months.
Phil Eaton, the Property Council’s Auckland branch president, said the industry was going through “growing pains.”
“The main issue here is that the industry’s ramped up from having around 500 apartments under construction three to four years ago to nearly 5000 today.
“With that sort of ramping up, the market has got stretched.”
Building costs had “escalated significantly,” and things were taking longer. “Builders aren’t tendering these days they’re negotiating,”
But it was also a different market, with a much wider range of apartments being built in a much wider range of locations.
“It’s a bigger much broader market and the market’s trying to find its feet.”
There were also a lot more new developers, some from Christchurch, others from Australia and China. “To be honest, we need all of them”
Eaton said lending was tighter but expected the constraints to ease early next year.
“[Banks] are restricted by the capital they can lend on property and they are preserving the capital for existing clients and low-risk projects.”
When some of the big projects banks had already lent were completed, “they can recycle those funds back into the market.”
Meanwhile, CBRE says help from overseas is at hand.
Gavin Lloyd, CBRE’s head of residential projects said that while it was a shame banks here had tightened up on developer finance, new funders were coming onto the horizon, including Chinese banks and private equity.
“There’s two hedge funds here at the moment, an Australian group and an Asian group who have got $300 million of developer funding they want to put into these things.”
Overseas developers were also starting to arrive, and they did not necessarily need local funding.
One was Belgium’s Eaglestone which was building a 49-unit complex called Library 27 in Auckland’s Rutland St.
Another was an Australian company Hengyi, which wants to build a 300-unit complex in Commerce St.
Other, institutional-grade developers like Lend Lease, Mirvac and Stocklands from Australia might also cross the ditch.
They were publically leased giants with strong balance sheets, capable of overcoming the funding problems, he said.
Auckland’s apartment issues have come to light as Australia faces some major ones.
Melbourne and Sydney have been veering towards an apartment glut and last month a US think tank warned Australia’s property market was just six weeks from potentially crashing.
Australian banks have clamped down on lending to foreigners after rules preventing offshore investors from buying existing homes saw huge sums channelled into the apartment market.
John Bolton, founder of mortgage brokerage Squirrel Mortgages, said the deep amount of foreign buying in Australia had put the country’s banks in a risky situation.
“So they’ve got the added issue that they’ve got massive settlement risk with a lot of offshore buyers, mostly in Singapore and China being unable to settle on the properties.
“Which of course means you end up in a fire sale situation where you’ve got developers who have a large number that need to be sold into a softer market, and that’s dangerous for prices.”
Although New Zealand banks have imposed similar limits on foreign lending, CBRE researcher Zoltan Moricz sees no apartment crash happening in Auckland because of its housing shortage.
And this apartment cycle was also fundamentally different.
“In the last cycle, about 80 per cent of apartments were bought by investors. Now about half of the apartments are bought by owner-occupiers, so it’s quite a different dynamic.”