AUCKLAND CBD APARTMENTS 2009

The Auckland CBD apartment market appears to be mirroring the general residential market, by experiencing a resurgence in activity over the last two quarters. According to sales data from the Real Estate Institute of New Zealand (REINZ) there were 244 and 291 apartments sold in the December 2008 and March 2009 quarters respectively. While activity remains much lower than what we became used to throughout the middle part of the decade, it marks a definite improvement upon the 227 apartment sales in the September 2008 quarter.

 

 

The most influential driver of activity in the apartment market at present appears to be interest rates, which is displayed in the below graph. While levels of activity in the market are still muted, relative to levels experienced over recent years, they are showing positive growth in activity, relative to 12 months previously, which is a promising sign.

The Reserve Bank of New Zealand (RBNZ) has attempted to provide economic support by way of monetary policy. The bank has reduced the official cash rate (OCR) by 5.75 percentage points to just 2.5% over seven reviews in 12 months. The accompanying statement at the 11 June review concluded that the OCR will remain low until the latter part of 2010 with a possibility of it moving modestly lower over coming quarters. OCR cuts are having less impact on interest rates as they were three months ago. The resounding opinion is that other economic fundamentals will affect interest rates over the next 12 months and little movement is expected.

 

 

Also helping to fuel activity in the CBD apartment market is New Zealand’s rising net migration. In the year to May 2009 there was a net inflow of 11,202 migrants coming to New Zealand. The increase over the last six months is a result of an increasing number of people coming into the country combined with fewer departures. This situation will be exacerbated as prospects for employment off shore worsen and New Zealand continues to look more appealing.

BNZ have forecast that the number of people arriving in New Zealand will exceed those departing by 15,000 per year by the end of 2009, and suggest that the potential for net immigration to reach 30,000 is increasing. While there are associated time lags, the flow-on effect this will have on the housing market is immense as new immigrants look to secure accommodation through either the rental market or buying property.

New Zealand has historically always had a shortage of housing stock. As a result of the Credit Crunch and subsequent economic fallout, the number of consent issued for residential property has dropped away, according to data from Statistics New Zealand (StatsNZ). While in the short term this is not likely to impact the apartment market, given the long lag between consent approval and apartment completion, it will pose a medium-term issue.

The below graph adequately displays the decline in consent issuance for apartments in New Zealand. In the year to April 2009 there were consents issued for 1,664 apartment units, 40% fewer than were issued the previous April year and 70% fewer than were issued in the peak year, 2005. The decline in new apartments coming on to the market, along with a surge in new demand by increasing net immigration, could help to underpin price growth in the medium term.

Along with the reduced number of consents being issued, a number of planned apartments have been put on hold as a result of the residential market downturn, the most dominant of these being Dae Ju’s Elliot Tower. The 67-storey tower has consent for 259 apartments for seven years from issuance, but further development has been postponed until further notice.