The NZ apartment market is highly polarised around one city, and one district of that city. I am of course referring to Auckland City. Out of the total of 3,900 apartment sales across the whole country in the past year, more than 2,000 of them were in this tight geographical district.
Apartments, just as with all other segments of the property market have witnessed strong sale price growth over the past few decades. In the past 15 years the median sales price for apartments in Auckland City has risen from $220,000 to $545,000. More than doubling. However, that’s not quite keeping pace with the overall housing sector, and certainly not attaining quite the same capital growth.
An Auckland house bought in 2004 for the median sale price at the time of $342,000 would if sold in December 2018 at the then median sale price of $911,000 have gained $447,692 allowing for inflation. Equating to a 130% return on investment.
An apartment in the Auckland City purchased back in 2004 for the then median price of $220,000 would if sold in December of last year have gained $246,965 allowing for inflation. Equating to a 112% return on investment. A healthy return, off a lower initial investment.
However as the above chart ably demonstrates such capital gains can be misleading when judging median sales prices over different time periods. For within this 15 year period there were significant periods when the gains were minimal and others where the gains were significant.
The first 7 year period of 2004 to 2011 through the GFC saw median sale price for Auckland City apartments rise and then fall so that the notional capital gain over that specific 7 year period was zero. Similarly though if you bought in 2011 at the then median sales price of $215,000, just 5 years later the median sale price had risen to $575,000, a rise of 167%. However over the most recent 2 years there has seen no rise in median sale price.
In many ways this volatility of capital gain is one of the core variables of the apartment market. It’s a market influenced to a far greater extent by supply and demand factors than the wider property market. Auckland city apartments experience very ‘lumpy’ periods of new supply which through their composition can significantly impacts median sales prices. Additionally such surges in supply naturally effect prices of existing inventory competing in the market at that time.
My interest in this category of apartments was peaked by a note sent to me by Simon Green from Queenstown who when reading my recent article on the comparison between the notional capital gains from Auckland houses as compared to those of Sydney and Melbourne over the past 15 years. He wanted to see how the apartment market was was fairing in those cities and also if I could look into the Queenstown apartment market. I must admit I had not in the past thought to examine this specific market, but questions like this always interest me. So for Simon’s benefit and others here is what I have uncovered.
The analysis of the apartment market comparing Auckland, Sydney and Melbourne is undertaken based on a model developed by Domain Group in Australia, one of the large digital property portals in Australia. Their analysis tracked the notional capital gain (adjusted for inflation) for time periods over the proceeding 15 years, based on the purchase date for an apartment sold in December 2018 at the then median price. So by example for an apartment bought in Sydney in March 2009, after inflation, that property would have netted a notional capital gain over the past 10 years of A$222,735, that would compare with the same time period in Melbourne of A$58,646 and in Auckland NZ$258,601.
The charts below track this 15 year notional capital appreciation of the 3 Australasian cities.
Directly comparing these 3 cities on a common NZ dollar basis over the 15 years produces this summary of the very different markets.
There is without doubt a similar trend albeit with differing scale of capital growth over the 15 year period. It is surprising to me the lower levels of capital growth seen in Melbourne as compared to Sydney and then again the much higher capital growth for the Auckland market of apartments bought in the 2010 to 2013 period vs the current median price.
All markets are though clearly experiencing a recent 3 to 4 year period of negative growth over this near term.
Turning then to the Queenstown market for which I had no real perspective of the scale of the market before diving into the data. What I found was very interesting. Annual sales of apartments in the Queenstown Lakes district have averaged 116 with a peak in 2006 at 260 and a low in 2011 of 72. As far as the notional capital growth for apartments bought over the past 15 years as compared to the current median price the chart presented below is somewhat different to the main Australasian cities.
I recognise I am ill equipped to offer a commentary on this market trend so I take the opportunity to share the perspective of a local expert - Simon Green who furnished me with this response when I posed the question to him to provide background to the data.
“The data does actually make sense to me and I don't think there is necessarily any change in composition. It is a small dataset as the really are only a dozen or so major complexes in town and most of those were sold off plan pre-GFC with the bulk settling 2006-2008 so that part makes sense. There was also a large complex of 89 apartments that settled in 2009 which held pricing up as they had been sold a few years prior at top of market. From there we went into GFC proper - no buyers in market, a large number of mortgagee sales and and other "stressed" sales as income was very low in comparison to purchase prices.
Prices continued to fall for most part through to 2013 and has been recovering well since then due to improved income performance - but equally has been pulled back by a number of complexes now leaking.
Volume of sales remains fairly low compared to '06/'07, but has been due in many ways to owners being happy with their income and not really seeing any better investment opportunities. However, for the past 18 months or so buyer activity has dropped significantly. Prices have softened slightly, but the quality stock should hold its value as there isn't anything for sale and while income will not continue to grow the way it has over past 5-6 years, it shouldn't drop - so value.
So data does seem to reflect the market fairly well.”