There has been an increase in the number of apartments in Auckland with remediation issues up for auction recently, and there is both good and bad news for their owners.
The good news is that, perhaps surprisingly, there is a good demand for these types of apartments, resulting in competitive auctions at auctions.
The bad news is that they are selling for extremely discounted prices.
The most common sanitation problem is Leaky Building Syndrome, which means that the affected building will usually need to be re-covered, but it can also include a host of other issues, ranging from electrical and plumbing faults to problems with plumbing. fire safety.
Buying these types of properties is not a game for the faint hearted.
Usually, buyers will be faced with the remediation costs, so they effectively take into account that the value of the apartment after the remediation is complete will be greater than the purchase price and remediation costs added up. .
But there are also other risks to consider.
There is the possibility of cost overruns once remediation work is underway and this could be compounded by the possibility that other issues with a building could be discovered during the remediation process, leading to cost explosions.
Plus, these properties are almost always bought by investors, and once a building is covered in scaffolding with workers crawling all over the place, its appeal to tenants is drastically reduced.
Investors should therefore be prepared for extended periods of vacancy and reduced rental income while the work is being carried out.
Some buildings require such extensive renovation that they have to be vacated completely, sometimes for up to two years, leaving apartment owners with no rental income during this period.
And there is no guarantee that once the remediation work is completed, other issues will not be discovered.
If a building was so poorly constructed that it couldn’t keep the rain out, what are the chances that it would develop other problems at some point?
It is not uncommon for apartment buildings to have undergone two or even three cycles of remediation work.
It is therefore not surprising that banks do not lend money for buildings in need of rehabilitation.
This limits the pool of potential buyers willing to take a boot to those who have cash.
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In the latest apartment auctions conducted by Auckland agencies Ray White City Apartments and City Sales, a total of 15 apartments were offered and nine of them had issues with remediation, which gives some idea of the magnitude of the problem.
However, seven of the nine that had issues were sold under the hammer, representing a 78% liquidation rate and the auctions were quite competitive for most of them, suggesting there is no shortage hard-cash investors who think the risks of buying such properties are worth it. socket.
But of course, they buy at wildly discounted prices.
Auckland property rating ratings haven’t been updated since 2017, but most catering apartments auctioned off account for around half to a third of their 2017 rating ratings, some for less.
Here’s what the prices of the seven that sold in the last auction looked like:
City auction on July 23.
- Quadrant 3K / 14 Waterloo. The Connaught Building. Studio of 33m². 2017 Rating Assessment $ 350,000. Sold for $ 130,500.
- 9L / 135 Victoria Street West. Victopia building. 40m², one bedroom unit. 2017 Rating Assessment $ 280,000. Offered with a declared reserve of $ 50,000. Sold for $ 125,000.
- 12M / 135 Victoria Street West. Victopia building. 30m², two bedroom unit. 2017 Rating Assessment $ 260,000. Offered with a declared reserve of $ 50,000. Sold for $ 120,000.
Ray White City Apartments auction on July 24.
- Quadrant 6C / 14 Waterloo. The Connaught Building. T2 of 58 m² with parking. Rating Assessment 2017 $ 710,000. Sold for $ 290,000.
- Quadrant 3J / 14 Waterloo. The Connaught Building. Studio of 35m². 2017 Rating Assessment $ 370,000. Sold for $ 152,500.
- Quadrant Waterloo 4K / 14. The Connaught Building. Studio of 33m². 2017 Rating Assessment $ 360,000. Sold for 141,000.
- 3M / 135 Victoria Street West. Victopia building. Two bedroom unit of 33 m². 2017 Rating Assessment $ 225,000. Sold for $ 95,000.
Details of the individual properties offered at all auctions monitored by interest.co.nz are available on our Residential auction results page.
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