BUYERS’

First-home buyers should act now, or they could find themselves waiting along timefor abrand-new apartment, say specialists. DIANA CLEMENT reports on the state of the new development market.

HE SUPPLY of new apartments is likely to dry up over the next few years as financing woes and atepid housing market take their toll on developers.

Apartment specialists told OneRoof that the new-build sector was feeling the squeeze as aresult of the market downturn, and warned buyers that new stock could be become scarce as developers put projects on hold.

Suzie Wigglesworth, national projects director at Bayleys, said the new development market for anything other than highend apartments was tough right now.“Wherethe developers arestruggling alittle bit is at the medium to lower end [of the market].Alot of those projects have been placed on hold, pending the market improving,” she said.

Anumber of apartment developments arestill proceeding, though, including TLC Modular’s Elevation project inAuckland’s Northcote, which Bayleys is bringing to market.

The development consists of ready-made pods, which areshipped to New Zealand from their manufacturer in Vietnam and then craned into place. Wigglesworth said the project was close to completion and she noted that sales and visits to the show home in the last six weeks had picked up.

“It’s getting closer to completion. Buyers have been on the journey with us for avery long time. Lots of them have been to see us numerous times, and arenow in aposition to actually purchase. So, it’s starting to get some real traction.”

One of the factors holding back newdevelopments has been the rapid escalation in construction costs coming at the same time as falling house prices, meaning costs can’t be passed on. However, Wigglesworth said, construction costs have started to plateau.

“Concrete is still fairly up there. But for timber,for example, costs havestarted to decline. So, it depends on what it is that you’reconstructing it out of,” she said.

Colliers national director Pete Evans said the stalling of new projects meant therecould be alag of up to three years for new stock to become available.

Colliers is marketing inAuckland the Domain Collection, aprestige development on Carlton Gore Road, in Newmarket, which is about 70% sold; Elementum, amid-market project in Long Bay; and the Onehunga Mall Club, in Onehunga. Beyond that, new apartment projects have all but dried up, Evans said.

“The hardest thing for developers is the traditional finance model. Theymight buy asite, do their feasibility,take it to market [and] try to get 60% of itsold. Then they’ll go to abank with awhole heap of contracts. The bank will fund the construction and it gets built.”

Currently,however,most developers can’t get beyond feasibility,let alone get the sales. “So, we’re just seeing supply justdrying up. New supply is almost non-existent.”

Evans said the current lack of activity in the apartment development market was likely to delay construction of the next wave of apartments by about three years. “It’s only acouple of developers who don’t need all those things in place who say,‘OK, now’s the best time to go and actually buy land at the right price’,” he said.

Evans said that buying was best when the market was flat, as it was now.“At the moment [the market] certainly is very close to the bottom, if not at the bottom.”

Developer Martin Cooper,ofCooper &Associates, said materials inflation had been an issue for his build of One Saint Stephens apartments in Parnell. New buildings after this one would cost more, he said.

Like other apartment specialists, Cooper hasseen interest in sales start to pick upagain over the past six weeks. He said 22 of the 27 apartments at OneSaint Stephens weresold. “Thereisquite abit of life in the marketnowthatconstructionisunderway.”

Hefeltthatpotentialapartmentbuyerswouldbe takingnoticeoflastmonth’sannouncementbythe ReserveBankofNewZealandthattheOfficialCash Ratehadhititspeak,at5.5%.“They’llbethinking,‘If themarketisgoingtobethesameforthenextcouple ofyears,thendo Iwanttowaittwotofouryearsto thenmake adecision?Oram Ijustgoingtogetonwith itnow?’ Ithinkthere’sanelementofthatcominginto playinthemarket,”hesaid.

Coopersaidthatnewsupplywouldalsotighten. “That’sacrosstheboardfrombothaffordableand luxury.Ifyou’renotbuyingsomethingnowthat’s alreadyunderway,youcouldbewaitingtwotofour yearsbecauseit’sgoingtotakethatlongforthe capacitytocomethrough.”

CBRE’sassociatedirector research TambaCarleton saidthenumberofbuild-to-rentprojectsforsocial housinganddeveloper-heldinvestmentwasequalto thenumberofapartmentbuildingsdestinedfor theopenmarket.