Are Rental Properties in Auckland More Profitable Than in Australia?

Multifamily investments in Auckland could be more profitable than in Melbourne and Sydney in the coming years, as evidenced by nearly muted valuations and available demand for properties.

Data showed that apartment values in Auckland only fell 1 per cent in February 2019. Valuations for new apartments in Melbourne dropped by 46 per cent year over year, while those in Sydney were around 45 per cent cheaper. Despite lower property values in these two cities, residential land for sale and construction expenses in Townsville and other areas are more affordable than in New Zealand.

Rising Construction Costs

Ask a commercial construction company in Auckland and they will likely mention rising construction costs for residential properties, which is one reason many developers in the country have shelved their plans in the 12 months. Colliers International said that more than 35 projects in the city didn’t materialise partly because of higher building expenses.

A shortage of skilled workers also exacerbated the problem. For instance, new home construction in New Zealand costs approximately $2,000 per square metre. Median prices for apartment construction may cost more or less than the price for new homes. In Australia, the price starts at around $1,000 per square metre. Hence, you might even spend less on acquiring an existing property in Auckland than choosing to build a multifamily property from scratch.

Regulatory controls form the city council also contribute to unavoidable delays, as builders can’t break ground on a new project without the necessary permits. The approval process often takes time, which can take up to 12 months, so longer timelines mean more expenses. A more viable prospect involves setting up flexible office spaces in Auckland.

Consider Co-working Properties Instead

co-working space

Shared offices in the city will expand by over 1,000 desks due to several plans of international co-working space operators. The Auckland market may not be as prominent as other key cities in Australia, but the sector slowly picks up its growth pace. In 2018, a report estimated that co-working spaces in Auckland consisted of almost 40,000 square metres.

The figure only represented up to 10 per cent of the total office yet it already increased by around 9,800 square metres. Demand primarily fuels the steady flow of flexible office buildings in the next two years. By 2020, the city’s central business district will have an additional 17,160 square metres of co-working spaces. The pipeline for 2021 comprises 21,600 square metres of new supply.

Vacancy levels remain relatively low with around 19 per cent of unoccupied desks, hence downplaying any possibility of oversupply for now. Large-scale operators account for a lion’s share of occupancy, but you can take a slice of the market by converting an existing building instead of dabbling in the apartment sector.

Apartments in Auckland had an average value of $674,000 as of early 2019. The price during the same time last year cost $672,000. By contrast, real estate experts predict that prices in Melbourne and Sydney will continue to fall in the next two years. If you’re still inclined on building apartments, choose a design-build contractor to limit your expenses and eliminate the need to transact with several parties.

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