KEY POINTS:
Many Auckland apartment investors are taking big price drops, a trend one agent has blamed on units having been over-priced in the past.
Martin Dunn of City Sales said the sector had been dogged by overly optimistic valuations and wild rental income predictions.
Buyers - including Southland farmers - had been lured into Auckland's once-booming apartment market by promises of big money, but Dunn said investors were experiencing large losses when they found the rental predictions were far too high.
These people were now leaving the sector sorely disillusioned.
"The main market is quite buoyant but there is still the fallout from the spruikers and appalling valuation practice by some valuers," Dunn said.
Damian Piggin of Ray White City Apartments said prices in most apartment categories had risen in the past six to eight months, although the bottom end of the market was still stagnant.
He is selling eight 75sq m Quadrant apartments beside the Hyatt on Waterloo Quadrant for Melview Developments, asking $499,000 each.
Dunn said ill-informed investors had bought units off the plans and relied on valuations and income projections from developers which had been proved wrong, he said.
The investors had often attended seminars or been swayed by investment or financial advisers, promising big personal income tax deductions via apartment investment, Dunn said.
But rising interest rates and lower-than-promised rental returns were forcing many people to sell and causing financial hardship.
He cited the example of a "very plain two-bedroom unit" at 36 Eden Cres up for auction today.
"The owners bought it about three years ago for $266,000 and were told it would rent for $500 a week. This was never going to happen. The tenant is paying $310 a week. The reserve has been set under $150,000," Dunn said.
The vendor could lose $116,000 on that unit, he said. Even if bidding reaches the reserve and the place sells for $150,000, the vendor will still lose a large amount of money, Dunn said.
Sale and auction costs of $15,500 would mean the vendor's total loss could be nearer $130,000.
City Sales was getting units like this offered for sale daily, Dunn said.
"It never fails to amaze me how the public deal so readily with salespeople who are not real estate agents and that this practice continues. It would not happen if the valuation profession had not prostituted itself by allowing the intellectually dishonest practice of comparing one off-the-plan sale with another, completely disregarding the existing market and blindly regarding the purchasers as informed."
He said a basic principle of valuation was to deal with a willing vendor using prudent marketing and a willing and informed buyer.
Yet he said many buyers were grossly uninformed.
"A Southland dairy farmer at a spruikers' tax seminar is hardly informed on Auckland's apartment market, I can tell you, because they end up coming to me," Dunn said.
City Sales sold a two-bedroom unit in the Railway Campus in Auckland's Quay Park precinct without any reserve this month because Dunn said the units were so hard to sell.
An investor had bought the unit for $76,000 in December but got only $44,000 for it this month.
That amount was reduced further because City Sales charged a minimum $11,500 commission plus the $4000 auction fee. Dunn said these properties were hard to sell.
A disadvantage of the Railway Campus units was that they were on leasehold land with ground rent reviews coming up in 2011. Returns on these units are low and many investors in this complex have had big losses.
Ian McGowan, a director of the valuation practice of Seagar & Partners, also said many apartments had dropped in price.
"Over the last three or four years, the apartment market has been dominated by people selling off the plans, which has created a two-tier market. Prices paid for off-the-plan units were at a premium over and above the secondary market."
Glenn Clark, chief executive of the Property Institute, whose members included valuers, said the Auckland apartment market had not been discussed at a national level.
GOING DOWN
* Eden Crescent unit: Investor paid $266,000, could suffer a $130,000 loss.
* Railway Campus: Investor paid $76,000, got back only $44,000 this month.
* Another Railway Campus unit fetched just $55,000 late last year at auction.
