KEY POINTS:
Owners of many inner-city Auckland units are taking a big price bath when they sell.
In one auction of four units last week, two owners lost a total of $169,000 - the difference between what they paid in 2004 and 2005 and what they got last Wednesday.
One owner at the City Sales auction lost $90,000 on a Hobson St unit in the student-oriented Stanford.
Another lost $79,000 on a unit across town at The Cube on the eastern fringes of the CBD in Beach Rd.
The glass is either half-full or half-empty, depending on your outlook.
Goldman Sachs JBWere economist Shamubeel Eaqub says the outlook for the inner-city apartments remained poor, citing high interest rates, a speculative building boom and a rising number of mortgagee sales lately as reasons for concern.
He also suspects a high national residential vacancy factor hovering around 8 per cent in Census06 was caused by a glut of CBD apartments, because the figure has been nearer 2 per cent in previous decades.
The downturn in Asian student arrival numbers, high volumes of low-quality units and the mis-match between high residential prices and extremely low and static rents are further reasons for concern, he says.
Ian Mitchell, an apartment data specialist and analyst of consultants DTZ in Wellington, says the construction of units in Auckland has slowed dramatically.
The cranes have almost disappeared from the Auckland skyline.
After putting up around 2000 units last year worth around $600 million, developers are now only building a handful of units.
Mitchell said the sector last boomed in the mid-1990s, then prices dropped by around a third in the next five years.
This boom started around 2001.
He believes that as long as people acknowledge the boom-bust cycle typical of this sector they can benefit from the downturn.
Savvy investors can pick the best buildings and could pick up bargains right now, he said.
To hold value, apartments must have some point-of-difference: character space, high internal stud heights or maybe a waterfront view are factors which will help, he says.
He found the city had 11,500 apartments in 2005 and 13,500 by early last year.
He believes values will rise again but will depend on external factors like a rise in immigration, an improvement in the housing sector or changes to mortgage interest rates.
UBS senior economist Robin Clements says building consent data for new apartments in Auckland is "lumpy" and peaked around 2004.
Applications for new blocks still looked soft, he said.
Barfoot & Thompson apartment specialist Jason Buckwell is selling units in the Gore St/Fort St 40-level giant Harbour City where vendors are feeling real pain. Two-bedroom units which fetched $500,000 off-the-plans are now only drawing $445,000.
A level-36 unit originally went for $290,000 but has just sold for $230,000.
Australian hotel chain Oaks Smartstay has many units in the building, he said, and renting out the units was no trouble.
But finding buyers to cough up the cash paid a few years back is impossible.
Martin Dunn, head of City Sales which auctioned the four units last week, believes apartments are selling too cheaply and prices will soon rocket.
"We're selling units for about half their intrinsic value," Dunn said. New apartments cost $8000 to $10,000 per square metre to build, yet Dunn's said his firm was selling units for $4000 to $5000 per square metre.
"So we're selling for about half what it costs to build a unit," he said.
The finance company sector collapse could lead to a stampede of investors rushing to the more-solid property sector, he reckons, and prices will come up pretty soon, he said.
The agency holds fortnightly rapid-fire auctions in the Hopetoun Alpha on Beresford Square. It auctioned 14 units in one particularly hectic session last month.
Last week's showing was fairly scant. And although only half the stock sold on the day, post-auction negotiations were being made on the unsold units.
Other agents have reported similarly soft sales.
Damian Piggin, an apartment sales specialist at Ray White City Apartments, supplied a list of Auckland unit sales this year, showing some unit owners taking a big hit.
Of 14 sales, five apartments were sold for a loss, totalling $381,000.
The other nine - which were in the more desirable blocks made a profit - totalling $664,000.
Owners has held these units for between 18 months and five years, Piggin said.
Any price drops reflected an historically over-priced market earlier this decade, when buyers were enticed to pay large amounts often for units bought off the plans. This happened when the industry was in its infancy. But buyers were now far more savvy and would only pay a big premium for places where residents owned the units, the blocks were well-maintained and standards were high, he said.
Investors in blocks mainly around the western edge of the CBD precinct were suffering the biggest price drops.
As one source put it: "If you're a farmer from Invercargill looking for a big return and your block is infested with part-time prostitutes who are students on P, you're stuffed."
Piggin said the biggest value increases at two blocks were for good reasons.
"The Statesman and Dilworth are both hugely desirable buildings and the purchasers on most occasions have been owner occupiers," he said.
"Most of the increases have applied to units purchased by owner/occupiers. Prices of houses in the suburbs are probably pushing up the value of good-quality owner occupier apartments in the central city."
Units in Columbia and Harbour City were probably over-priced when they originally sold, hence the drop on re-sale, he said.
"These are probably just falling into line to where they should have been."
