TIPS FOR PURCHASING AUCKLAND APARTMENTS

• The biggest and the best ...
• Has it got a ‘Big Thing’...?
• Body Corporates ...
• Take a tape measure ...
• Should I buy a car park ...?
• Developers and Real Estate agents ...
• Utilities and the tissue test ...
• Exit Strategy ...
• Auckland Apartment Development Links ...

The biggest and the best

We regularly receive calls from people considering the purchase of an apartment and based on our experiences offer some cautionary advice

The potential for poor returns through to huge losses are well illustrated by the reluctance of New Zealand high street banks to lend more than 50% to purchasers of CBD Auckland apartments. This notion alone should ring alarm bells as the same banks would willingly lend 90% for a house purchase anywhere else in Auckland. It’s a very good tip – borrow only 50% of the purchase price. The other side of this coin is the soaring visitor numbers and immigration numbers all whipped up in a nationwide property boom. Its true but of little use if you buy a lemon or worse still buy a lemon at the top of the price market cycle.

Proceed with caution and you can enjoy a superb Auckland investment or residence. For overseas and out of Auckland investors the security of apartments particularly when unoccupied is far better than stand alone houses and there is no overseas investment restrictions on this type of property. The cost of maintenance and gardening in a stand alone house may be similar to the body corporate fee that you will have to pay in any unit titled development.

Has it got a ‘big thing’?

What’s a ‘big thing’ you ask;

or any substantial feature that will enhance its appeal, it is important here to focus your evaluation on the apartment rather than the building it is in. Attractive features of the building will not really offset deficiencies in the apartment although they may well be paraded in front of you prominently.

The ‘Big Thing’ is very much an important consideration after the fundamentals especially lack of intrusive noise, security, utilities including rubbish removal, elevators, car parking, good building management and an alarm system that doesn’t involve a weekly turnout at 3 am. These utilities are an important place to start because chronic difficulties will affect residents possibly on a daily basis and will invariably be expensive and difficult to fix. It is easy to walk into some fabulous apartment and be mesmerised by a view of the sparkling Waitamata harbour but after buying and moving in the reality of say a poor hot water supply can be overwhelming.

In summary make sure your purchase has a ‘Big Thing’ but first do the hard yards on investigating those fundamental utilities. In the first instance forget about the building it is in and make sure the actual apartment itself comes up to scratch. Walk or run if even just one of the fundamentals is not right. The effort of talking to an existing tenant in the building who lives as close as possible to your proposed purchase should be revealing. I say tenant rather than owner because the tenant may have less reason, often none, for a coy reply.

Body corporates

Body corporates and apartment buildings are governed by the unit titles act 1972. The unit titles act takes the blame for many difficulties that have and our occurring in the Auckland apartment scene, I found the act quite easy to read and the Auckland Regional Council has published a booklet titled The Mysteries of Body Corporate; a guide to the rights and responsibilities of apartment ownership which is a very good interpretation of the act and a great place to start.

You or your lawyer should look at the meeting minutes of all the recent body corporate meetings and the financial reports including the budgets, you should also talk to;

It is common to pay $100 per week body corporate fees for a 2 bedroom Auckland apartment, it is quite likely your biggest expense after borrowings. The most expensive fees tend to be were there is a small number of apartments in the development perhaps 20 or less and significant facilities in particular and most common swimming pool and spa pool

There are a number of difficult issues including poor management, inadequate budgets and retained funds. Retained funds for significant work in the future such as expensive lift replacement is often not planned well enough. The asset plans and preventative maintenance programmes require skill to develop and implement not just deep pockets. So it is not just that a budget could be understated, the time will come when the owners could discover a huge increase in the fees is required possibly in year 2 or 3 following completion and could be asking/demanding that individual owners also pay a ‘catch up’ sum. Just about now you might have discovered that your asset is ‘saleproof’ or at least it is without losing a $100,000 or so. A 40% lift in body corporate fees could be the last straw in what was once a dream investment. Maybe not, it could be even worse you might have, like many, experienced both poor occupancy and property damage.

And does a great job along with the hotel company, Mirvac, Body Corporate secretary and a few interested residents. All of this competently carried out within the unit titles act but I must stress it is an area ripe with opportunity for misery.

If you are considering purchasing an Auckland apartment at the preconstruction stage you are faced with more variables and would have to consider the developers previous track record and in particular the proposed budget, for example it costs $17000 per annum to clean the windows at Quay West now imagine if you forgot or didn’t forsee a couple of items of that nature when preparing the budget or because of car break ins the body corporate wants to raise $20,000 for surveillance equipment needed soon after completion.

In summary this may well be a complete chore finding all these people and getting the hard facts but I doubt your lawyer will stand outside the main entrance of the building casually asking residents what it is like to live there yet this activity will be very revealing and you are bound to make one new friend which is nice if you do happen to move in.

This area of Body Corporates is the most controversial in Auckland apartment ownership however do the research and you will find plenty of fantastic apartments to live or invest in.

Take a tape measure

Do you know how to convert square metres into dimensions? No neither do I, so if a scale floor plan is not available ask for important dimensions ie height, width and length of each room. Next tape this out on the floor of your existing residence preferably in the corresponding room. All you have to decide is, does it meet your expectations? Rarely are dimensions presented in the sales package and the artists impression may give a distorted view. For instance my expectation for a master bedroom in a decent Auckland apartment is the ability to fit a king size bed in the master bedroom and walk around it freely and open and close all cupboards and doors fully in a comfortable manner.

I am not aware of misrepresentation in this area I am just cautious and for the sake of a roll of masking tape and carpet burns on your knees it might be a way to have some fun for an hour. I would be interested to here from anyone who has experiences good or bad in this area (apartment plan experiences that is not carpet burns) email.

If you have minimum requirements for all or any of your rooms this really is part of a good and thorough approach to purchasing an Auckland apartment.

It may inspire you to put on your gardening knee pads and have a game of Twister with the kids, I hope so.

Should I buy a car park?

Yes, if you can afford it of course, even in student markets demand is high. Even if you do not need it, it will be easy to rent out and you will get $50 to $100 per week. The real reason though relates to your exit strategy and I can 100% assure you we will be car mad in these parts for a long time to come and therefore selling your apartment with a car park is going to be a significantly easier proposition than selling it without.

In summary buy at least one if you can.

Developers and real estate agents

It may be helpful to know the difference. The real estate industry is regulated by legislation and unless you are selling your own property this is the way nearly all real estate is transacted. However private individuals and developers can sell property that they own themselves and several developers in the Auckland apartment scene do so. The difference will be in the type of sale and purchase agreement that is used and that the developer is not selling property under the licence of the real estate institute and its rules for real estate agents. Buying direct from the developer can be advantageous simply because it cuts out the middleman and established groups such as David Hendersons Kitchener Group are easy to check out as they have apartments all over town and sells his products in a sophisticated manner in a swanky Auckland viaduct showroom.

To tell the difference look for the Real Estate Institutes abbreviations REINZ or MREINZ which must appear on all advertising and promotional material of any licensed agent

Utilities and the tissue test

These areas are very important and can be tricky to check, it probably will not go down well if you run a hot shower for 15 minutes at a few open homes, anyway lets look at the trickier ones and see how they can be thoroughly checked

Shower, firstly the hot water is sometimes a separate charge, around $50 per month for a 2 bedroom apartment. Finding out its quality is worth checking and the easiest way will be to ask a resident.

The other bathroom test is the tissue test, hold a tissue about 5 cm from the extract fan, the suction should easily hold the tissue against the grill. This is really necessary were there is no outside window in the bathroom and doubly so were the bathroom is also the laundry. Were the extract fan is connected to the bathroom light and then extracts a short distance to the outside it would be easy to fix however there are buildings with central extract systems that do not work and may prove costly to fix. The resulting damage in one case were the plenum had been compromised by alterations was awful. Cockroaches took a liking to the nice warm moist air in the cavity between floors and the infestation end result was a complete evacuation while the floors were gutted. I bet their owners committee has seen some tears

Just remember in some cases such as Metropolis and Quay West you only get what is determined by the body corporate. So its not optional in some buildings and you will not be able to erect a satelitte dish or anything else on the exterior of most buildings. If TV is an important part of your Auckland apartment purchasing decision then make sure you understand the options or lack of them available to you

A compelling reason for buying an apartment is that apart from scaling the exterior they are easy to secure and a far better proposition to a house if left unattended even for the briefest of periods. The car parks may look secure but there are frequent problems and surveillance equipment were it has been in place has often been inadequate. I.e. faces are unrecognisable and not even number plates can be read. Generally though Auckland apartments offer a secure environment for you and your vehicle.

The chairman of the our owners committee at Quay West likes to lecture us on residents keeping an eye on things when around the common areas and I believe this type of high quality free leadership is not always available. Another good sign is any type of neighbourhood watch scheme or regular get togethers of residents for social events.

A few good residents and a good building manager is a great starting block. They need encouragement and more help from talented owner/occupiers to counter the apathy and distant ownership that exists.

In summary security will be enhanced were there is a sense of community and so will a lot of other things.

Exit strategy

If and when you come to sell your Auckland apartment it should be a profitable experience if you choose one of these strategies

Plan A get one of those ubiquitous television property programmes to sell your Auckland apartment at way over market value

Plan B buy something decent and be prepared to put in plenty of effort at the pre purchase stage

There are plenty of really good Auckland apartments and an unknown but smattering of lemons perhaps even a few buildings that would have been better unconverted to apartments or not built at all. Exiting successfully in this very new Auckland market is often a risky and slow process. Perhaps buyers will become better informed or a reform of the Unit Titles Act will lessen the potential for misery

In summary buy well in order to sell well.