Apartment sales in Auckland central city have become more
popular over since 2010. A value increase for apartments has occurred,
indicating an increase in apartment demand. Apartment popularity can be
expected to rise further with LVR restrictions.
Since the decline of the 2010 recession apartment values
have risen significantly within the Auckland region. This is true for houses also.
House values still out perform apartments in terms of values with an increase
of 33% in comparison to apartments with 24% (QV, 2014) .
House values within Auckland city are much higher than
that of apartments. House values have an average of $961,000 in comparison to
apartments with $405,000. With the LVR restrictions set in place it is expected
that a trend of switching to a more affordable type of housing. Apartments can
be expected to rise in popularity and therefore an increase in apartment values
can be anticipated (QV, 2014) .
Apartment values have increased since 2000 in a steady
trend. Apartment values since 200 have risen
43%. Medium and large sized apartments have grown in value at a high
rate. Smaller apartments sized less than 40 square meters have dropped in value
by 13% leading up to the property market peak in 2007 (QV, 2014) .
During the recent apartment popularity and value increase
Almost 18% of apartment sales were to first time property buyers, compared to
only 7% of house sales. Most apartments have been sold to multiple
property owners responsible for 47% of apartment sales, compared to 37% of
house sales (QV, 2014) .
Buying a house in the
current property with debts has become very expensive. This is a direct result
from the Reserve Bank initiating restrictions on low equity mortgages in
October last year. The Reserve Bank restricted the mortgage market, making
mortgages with a deposit of less than 20% difficult to get. This impacts first
home buyers who are mostly unable to purchase property. The LVR has affected
mainly the lower value properties in the market (ONE
news, 2014) . The Reserve Bank initiated this restriction in an effort
to control the market for the country’s long term benefit. This is
macroeconomics as it adjusts the market behaviour directly (Reserve
Bank of New Zealand, 2013) . Therefore with LVR restrictions first home
buyers will be deterred from purchasing a new house without proper funding.
Prospective first home buyers will look cheaper alternatives for housing.
With first home buyers looking to secure a
place of their own smaller apartments may become more popular. As LVR reduces
the options for new home buyers the cheaper apartments may become a wise
alternative for the market to explore (QV, 2014) .
My advice to Welly Real Estate would be to create business
in the area of apartment sales. This area of the property market shows promise
as a profitable area of investment. LVR restrictions are likely to cause a surge
in an already growing trend of apartment sales in central Auckland. Apartments especially in the smaller area
section provide a low cost alternative for purchase; this would benefit any
potential buyer, especially one that is impacted by the new LVR restrictions.
ONE
news. (2014, April 24). LVR taking a chunk of low price sales out of housing market. Retrieved
May 1, 2014, from ONE news:
http://tvnz.co.nz/business-news/lvr-taking-chunk-low-price-sales-housing-market-5939958
Reserve
Bank of New Zealand. (2013). Loan-to-value ratio restrictions. Retrieved
April 26, 2014, from Reserve Bank of New Zealand:
http://www.rbnz.govt.nz/financial_stability/macro-prudential_policy/5393159.html
QV. (2014, March 7). Are
Apartments becoming more popular. Retrieved March 31, 2014, from QV:
http://www.qv.co.nz/resources/news/article?blogId=146
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