Industry warning: buy while you can! Could this type of property disappear from the market within three years?

Several construction industry experts have recently raised concerns that financing difficulties and the persistently subdued property market are adversely affecting developers’ new projects, potentially reducing the supply of new apartments in New Zealand over the coming years. They also warn buyers that, as more developers shelve new projects, newly listed apartments could become increasingly scarce!

 

Bayleys national director of projects Suzie Wigglesworth said frankly that, apart from premium apartments, the new-build market is struggling, particularly at the lower and middle ends. Many projects have been shelved as developers wait for the market to recover.

The Elevation apartment development on Lake Road in Northcote is still under construction

 

Some apartment projects are nevertheless continuing. Bayleys has recently been marketing TLC Modular’s Elevation development in Northcote. The project uses prefabricated construction, with the main structural components shipped to New Zealand from a manufacturer in Vietnam and then craned into place. Wigglesworth said the project was now nearing completion, and both prospective buyers visiting the show apartment and actual sales had picked up somewhat over the past six weeks.

 

She noted that prospective buyers become more enthusiastic as apartment developments approach completion. Many have enquired about the project countless times and waited a long time, and have finally reached the point where they can make a concrete decision. Wigglesworth believes one factor preventing developers from starting new projects in the current market is that construction costs are rising rapidly while house prices keep falling, leaving developers unable to pass their costs on to buyers. Although construction cost increases have now stabilised compared with earlier levels, some materials, such as concrete, remain very expensive.

 

Colliers national director of projects Pete Evans shares this view, saying the standstill in new apartment developments will create a three-year lag in apartments coming to market. The firm currently has only a handful of apartment projects under construction. YIJU previously reported on Domain Collection, the well-known apartment development on Carlton Gore Road in Newmarket marketed by Colliers (Click to read: YIJU property tour: Domain Collection — a once-in-30-years opportunity for an ‘artwork apartment’ beside a central Auckland park）

The well-known Domain Collection apartment development on Carlton Gore Road in Newmarket is now 70% sold

 

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Evans said the greatest difficulty developers currently face is the traditional financing model. Under this approach, developers buy land, assess the investment’s feasibility, take the project to market and try to achieve 60% in presales. They then approach a bank with a large bundle of contracts to borrow the money needed to complete construction. In the current subdued property market, however, most developers cannot make their projects stack up financially, let alone meet presale requirements. Buyers will therefore have to contend with an insufficient supply of new apartments coming to market. Evans said plainly that the current lack of activity in the apartment development market could delay the next wave of apartment construction by around three years. For developers, however, now may be a good time to buy land at the right price.

 

 

Apartment developer Martin Cooper of Cooper & Associates said rising building material prices had been a persistent challenge for their new One Saint Stephens apartments in Parnell, with costs now far above the original construction budget. Like the other experts, Cooper had seen prospective buyers’ interest in apartments recover over the past six weeks. He said 22 of the Saint Stephens development’s 27 apartments had now sold, showing that projects under construction still held some appeal for buyers.

 

 

Cooper reminded prospective buyers that the supply of new apartments is currently extremely tight across the entire market, from affordable housing to premium apartments. Those who do not buy into projects already under construction may have to wait another 2–4 years before new stock comes onto the market.

 

 

CBRE associate director of residential research Tamba Carleton said as many apartments were currently being built for social rental housing as for sale. This suggests developers may be accessing an alternative source of funding for rental apartment developments. Such financing is easier than the traditional approach because apartments built for rent do not require presales.

 

The data shows that 61 apartment projects in each of the categories available and unavailable for presale began construction in the first three months of 2023. In the fourth quarter of 2022, the corresponding figures were 73 and 58. This trend suggests developers see potential in apartment projects, particularly as the number of Kāinga Ora projects continues to rise steadily, from 33 in the fourth quarter of 2022 to 35 in the first quarter of 2023.