Apartment smarts

There are lots of good reasons why people want to buy apartments. Generally speaking, they are more affordable than houses so they appeal to young buyers and empty-nesters wanting to downsize and make the most of the city's leisure options. The rejuvenation of the inner city means it's suddenly a great place to be. Walking to work, strolling to the cafes and bars, no more gardening or home maintenance. The appeal is easy to see.

But some of the gloss of apartment living has been tarnished in recent weeks with media reports of apartments failing to sell or vendors being forced to accept prices way below what they paid for them. That city lifestyle suddenly doesn't look so attractive if it's going to cost you big bucks.

So, is the apartment market really done for? Well, yes and no.

The problem at the moment is simply one of economics: supply and demand. A large number of apartment developments have come on to the market so there's more supply than demand from buyers. This inevitably leads to a fall in prices. It won't always be that way. As prices fall apartment building will slow because there will be more profitable options available to developers. In the meantime, as Auckland expands and the motorways increasingly resemble car parks, demand from buyers will increase. Prices will rise again. The fundamental benefits of living in town are real and inescapable.

Of course this is of little comfort if you are looking to buy an apartment now. Most of us can't afford to simply sit out economic cycles. We've got lives to get on with. So, how can you buy smart in this troubled market? How can you protect yourself from buying a pig-in-a-poke?

For a start, remember that key word "market". Media commentators lump all apartments together to analyse price trends. The reality is that there are lots of markets. The one that is most vulnerable and likely to be hardest hit by the current oversupply is the market for basic apartments. Apartment developments that have been designed to appeal to investors are a risky bet right now. Investors are the first to exit the market when resale prices stumble and interest rates rise. These buildings have often been constructed as economically as possible in order to be sold comparatively cheaply and therefore maximise the investor's yield. Otherwise they would not buy them. As a consequence, they often lack character or any sort of enduring, unique qualities to set them apart.

Apartment buildings that are populated by renters also tend to lack a sense of permanence and community - not what you want when trying to appeal to the hearts as well as the minds of potential buyers in a difficult market.

Smart buyers should be looking for apartments that are not just commodities. An apartment that has unique (or at least rare) characteristics is in a different market. For example, apartments smack in the Viaduct or in a landmark or character building. There are a finite number of these properties, when there seems to be an infinite number of the bog-standard variety. There will always be a buyer that will want these unique qualities in an apartment and will be prepared to pay for them regardless of market conditions.

Not everyone can afford a penthouse overlooking the Viaduct Basin, so what other options are there to consider?

Buy in a building that is primarily inhabited by owner-occupiers. In the United States, developers impose strict rules on the number (if any) of apartments that can be sold to investors. They recognise that owner-occupiers are essential to the long-term personality and success of a development, rather than just trying to make a quick buck by selling as cheaply as possible to price-obsessed investors.

And buy an apartment with a car park in the building. If you don't have a car park you will limit severely the number of potential buyers who will even consider buying the property when you choose to sell.

Okay, you've found the perfect apartment. Sea views, nice neighbours, secure, two minutes to the Viaduct, his and hers car parks. Before you make an offer, get a copy of the minutes of the last body corporate meeting. This will usually reveal any issues that you can't see, like leaky walls, noise problems or poor maintenance.

The inner city is a great place to live and its long-term future looks bright. Buying an apartment that is special, even though it may take some time to find, will pay big dividends when it comes time to sell.

STEPHEN HART - homefinder

Stephen Hart is co-presenter of TV2's House Call and principal of Where to Live in Auckland - HomeFinders. www.aucklandhomefinders.co.nz