Apartment owners turn to private rental deals

By ANNE GIBSON

Dismal returns from the hotel rooms in the Ascott Metropolis tower in Auckland are persuading investors to withdraw their units from the hotel and tenant them privately.

Real estate agent City Sales has sold $10.4 million worth of Metropolis apartments this year but notes that all its hotel apartments have been withdrawn and are reverting to private tenanting.

City Sales spokesman Andrew Bond said his firm had sold at least 30 units in the 40-level central-city tower since Christmas. Investors were finding it more lucrative to rent the units privately rather than put them in the Metropolis hotel guest room pool.

All the units being sold by City Sales were outside the hotel arrangement, he said.

But hotel general manager Frank Delli Cicchi said hotel returns were above the projected 4 per cent, investors who left their rooms with the hotel were getting good returns and the hotel ran at 80 per cent occupancy in the first quarter of the year.

Despite that, he said, the hotel had only 262 Metropolis rooms, having started out with 315 when it opened about two years ago.

The trend for the units to sell for about 30 per cent less than their original sale price was continuing, he said, noting last week's sale of three one-bedroom units - No 2415 was auctioned for $212,000, 2315 for $194,000 and 2301 for $191,500.

This month No 2201 - a one-bedroom, south-facing unit - was sold after the auction for $180,000; 2213 - a larger one-bedroom unit with a carpark - went for $240,000 and 2515 - a one-bedroom west-facing unit - went for $190,000.

Martin Dunn of City Sales said he had a waiting list of tenants wanting to rent apartments in Metropolis.

"We feel that the bargain prices must surely have bottomed out."

He warned investors to be wary about possible tax liabilities when switching a Metropolis unit from hotel management to private rental.

"There is a major hook in the buying of these hotel apartments. I am horrified at the lack of understanding our clients have of this issue. All suites we sell are sold free of the hotel lease. There is a major GST implication for a person who buys a suite in the hotel guest room pool, then cancels the lease."

Dunn said apartment buyers who withdrew from the guest room pool arrangement were liable to pay one-ninth of the purchase price to Inland Revenue.

"Obviously at a purchase price of $300,000, this will involve the purchaser then paying the considerable sum of $33,000 to the tax department. I don't believe buyers are sufficiently aware of this trap.

"All sales of Metropolis apartments by City Sales are being conducted with vacant possession, that is, the hotel lease has been broken and the vendor is accepting that he or she - not the buyer - is now liable to pay Inland Revenue the GST on the sale price."

Citysales

The Ascott