Foreigners ready to step in
Growing concern about the state of the apartment market grabbed headlines this week, as it emerged a number of Auckland apartment projects had fallen though.
But some experts say well-heeled international developers and funders may soon be able to fill the void.
Two industry sources this week said that between 22 and 35 multiresidential projects had fallen through in Auckland over the last year.
Some of them were smaller townhouse complexes but one was Flo, a 91-unit apartment planned for Avondale’s RSA site.
Despite this, CBRE estimates there are still nearly 8000 apartments due to be built by 2018, of which more than half are under construction.
That’s 120 projects which are well advanced, and 2000 apartments sold off the plan in the last six months..
Phil Eaton, the Property Council’s Auckland branch president, blamed the abandoned projects on industry ‘‘growing pains.’’
‘‘The main issue here is that the industry’s ramped up from having around 500 apartments under construction three to four years ago to nearly 5000 today.
‘‘With that sort of ramping up, the market has got stretched.’’
Building costs had ‘‘escalated significantly,’’ and things were taking longer. ’’Builders aren’t tendering these days they’re negotiating,’’
But it was also a much bigger market, with a wider range of apartments being built in more locations.
Eaton agreed bank lending was tighter but expected the constraints to ease early next year.
‘‘They are restricted by the capital they can lend on property and they are preserving the capital for existing clients and low-risk projects.’’
However, help from overseas at hand, according to CBRE.
Gavin Lloyd, its national director of residential projects, said that while it was a shame banks here had tightened up on developer finance, alternative funders were appearing including private equity is and Chinese banks.
‘‘There are two hedge funds here at the moment, an Australian group and an Asian group, who have got $300 million of developer funding they want to put into these things.’’
Overseas developers were also starting to arrive and they were not necessarily reliant on local bank funding.
Belgium’s Eaglestone was planning a small 49-unit complex in Auckland’s Rutland St, and Australia’s Hengyi wanted to build a 300-unit complex in Commerce St.
Both were well capable to financing the job, and it was possible that publicly-leased Australian developers like LendLease, Mirvac and Stocklands would also cross the ditch.
Auckland’s apartment issues have come to light as Australia faces some major ones.
Melbourne and Sydney have been veering towards an apartment glut and last month, a US think tank warned Australia’s property market was just six weeks from potentially crashing.
Australian banks have clamped down on lending to foreigners after rules preventing offshore investors from buying existing homes, saw huge sums channelled into the apartment market.
But CBRE researcher Zoltan Moricz said no apartment crash was likely here because of Auckland’s housing shortage.
And this apartment cycle was also fundamentally different.
‘‘In the last cycle, about 80 per cent of apartments were bought by investors. Now, about half of the apartments are bought by owneroccupiers, so it’s quite different.’’