Little Big Town

New Zealand’s biggest city could start making big noise

Nestled on an isthmus on the North Island, Auckland has long been one of the world’s best-kept secrets. It’s not as if no one has heard of the city, it’s just that few of us venture the two hours past Australia to see it. Nonetheless Auckland has become a major player in the Asia-Pacific region over the last few decades: not only is it New Zealand’s economic engine, it’s among the leaders in greening and energy efficiency, the main portal through which the country’s burgeoning locations industry travels and is consistently rated among the world’s most liveable cities, recently placing 10th on the Economist Intelligence Unit’s 2011 list.

Auckland’s mix of commerce, culture and lifestyle has a lot to do with its growing status as a property investment location too. The city boasts an educated, affluent population, a temperate climate and wealth of outdoor leisure activities (making New Zealand an ideal host for the Rugby World Cup in 2011) and, if you’re into spas and wine, Rotorua and Hawke’s Bay are just down the road.

Like many other metropolitan areas, Auckland is on the road to recovery following the 2008 financial meltdown. Colliers International’s New Zealand report for April 2011 indicated continued growth and recovery, but also hinted at low consumer and tenant confidence, putting the property investment market in a tenuous position. Knight Frank research found New Zealand’s housing prices were down 1.3 percent in 2010 despite Asia-Pacific’s position as global leader with increases averaging 3.1 percent.

Rachel Dovey, residential manager for Bayley’s Realty Group, would partially agree with those assessments, but is quick to point out the residential market’s inherent complexity. “If we talk about Auckland as a whole, it’s quite a diverse city so there are many different suburbs and price points. Auckland central is probably where the majority of the main dwellings are, near the CBD. On the whole the market is probably not going down as rapidly as it was during the recession. It’s what we would call ‘flatlining’. That sounds pretty dull, but we’re not going up or down majorly. We’re trying to recover.”

Investment has not dried up completely. Dovey estimates there are around 16,000 apartments in the city centre that appeal to investors — many from Hong Kong, Singapore and China — for all the reasons you would expect. “The composition of the city is such that there are a lot of sub-cities, if you like. People who work in banking, lawyers, accountants, who all like to live near their place of work, and where socialising and transport are easy. [That district] also has a large university structure, so there are a lot of incoming foreign students as well as students from all around New Zealand. Of course, they want accommodation there as well. The apartment market is quite an affordable solution to housing. That’s why investors tend to see it as a stable investment,” she explains.

Residential returns hover around 4 percent, and upwards of 9 percent in some of the city’s larger, high-end apartments. Buying in Auckland is relatively easy; luxury homes on the waterfront, the eastern suburbs and the likes of Saint Marys Bay and Herne Bay remain prime properties where homes have median prices of about NZ$1 million (HK$6 million). But, “There’s not a lot to rent, so anyone who has an investment currently has very, very stable tenants,” Dovey points out. The upcoming month-long Rugby World Cup is also putting pressure on accommodation.

Currently there are just under 1.5 million people living in Auckland, a number that is expected to grow to approximately 2 million by 2030 and strain the city’s infrastructure. The Auckland Council’s Long-term Council Community Plan for 2009-19 admitted, “Investment in infrastructure has not kept pace with growth and the regional community’s expectations of services and environmental quality.” The report also stated that affordable housing and management of Auckland’s population growth were key challenges over the next decade. On that, Dovey does agree. “Around 2006 and ’07 there was a boom in new dwellings in central Auckland. Then came the credit crunch and the recession and most of the developers had to pull back, and many actually went into receivership,” she says. Add to that immediate migration of business and people from Christchurch in the wake of its devastating earthquake and Auckland’s supply crunch could be coming sooner than expected. “What the Council is constantly telling us is that new dwelling consent is significantly down. So you’ve got a growing population in a highly desirable place to live. We don’t know if it’s two or three years away but we will get a real supply problem” Dovey summarises, adding, “It will be interesting to see what happens to sales value in the long term.” Here’s a guess: They’ll go up?