Apartments – Investment or Lifestyle

Apartments over the past few years have received a lot of attention in the media.  Most of this has been adverse with some being totally unwarranted.  In certain regions of the country there is simply a glut of apartments on the market.  This is particularly so in Auckland where many are tiny and nothing more than glorified shoeboxes.  But even these have their uses, with possibly the most appropriate use being for people who want an inner city pad to stay in a few nights a week.

Many investors, principally those who invested in finance company debentures have effectively lost money on apartments.  Other investors have lost money because they paid too much for the apartments in the first place. This has been compounded by a large number of apartments being completed around the same time.  Developers and/or receivers are desperately trying to sell to meet mortgage obligations.

This of course creates buying opportunities for those who have the money or can readily arrange finance.  Lenders are very wary about small apartments.  Those larger than 80 square metres are probably easier to borrow against.  It may be that the lender would prefer to have the mortgage secured against a good quality residential house than an apartment.

Most apartment complexes have a body corporate.  The body corporate effectively runs the building and has a set of rules, which owners and tenants must abide by.  Most are straight commonsense.  The body corporate arranges insurance cover, and may also be responsible for on charging power and water supply costs.  They should also have a sinking fund to pay for maintenance costs such as building painting, lift servicing etc.

There can be real issues when owners (which can include the developers) do not meet their body corporate levy obligations. Special levies can be issued to ensure that the common area part of the complex functions. This is the area that the Body Corporate is responsible for. Major cost items include insurance, energy, waste, Body Corporate Secretarial Costs and Manager fees. Typically Body Corporate Fees vary with the value of the individual apartments. The lower value apartments pay less than the higher value apartments. Costs may vary from around $3,000 to say $8,000 per year. Rates will be additional.

With few buyers in the market, it would be expected that prices are likely to be very price negotiable. It is now possible to buy well constructed and finished apartments with beach or harbour views, at prices which can make some of these properties reasonably attractive investments.  They can also make a great alternative to a bach, often at a much lower price than is commanded for a freehold waterfront property in this country.  Plus there may be the great benefits of several swimming pools, spa’s, saunas, gyms, and tennis courts. 

Of course, property prices could continue to fall.  However, recent indications are that there is renewed activity in certain areas of the property market.  Delaying a buy decision, may not result in buying later at a lower price.  The reality is that the choice of affordable properties may reduce.  As with all types of investing, trying to time the market is fraught with danger.