Spot the bargain

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Psst, want a half-price apartment? Keep your eyes peeled.

Good buying could emerge in Queenstown apartment complexes as overvalued, distressed stock is cleared.
That message comes through in Colliers International’s annual Queenstown market report, due for full release later this month.

Apartments, particularly those in large complexes sold in bulk to out-of-town buyers at unsustainable prices, have dropped 20-60 per cent in 18 months, reports local Colliers apartment valuation specialist John Scobie.

These apartments are let for tourist accommodation with limited holiday use for owners – although Scobie predicts some units will be forced to revert to conventional residential letting.

Forced sales are setting market prices, says the valuer.

Mountain Scene has learned that early this year three penthouses at the Oaks Shores sold for between $600,000 and $630,000 – after previously selling for between $1.25 million and $1.6m.

A one-bedroom studio at the luxury Sofitel hotel – which originally sold off the plans for $500,000-plus – also fetched just $110,000. Rather than a clear freehold title, buyers at the five-star complex in effect purchase a share of hotel profits.

“Prices are a lot cheaper than replacement cost, let alone land value,” Scobie says.

Buyers often bought apartments for short-term capital gain, hoping to on-sell either their sales contract or the completed unit.

Scobie: “If those buyers had sought independent advice or researched the market further, they would have found more realistically priced property.”

The drop in values has been driven by an unsustainable, over-heated market and the credit crunch, he says. “As the [pricing] of managed apartments has reduced, returns [from visitor accommodation] are becoming more attractive, especially with mortgage interest rates at the lowest levels for some time.

“Returns are generally in the range of three to six per cent for quality, established product at current values.
“Newer or poorer performing complexes fall below these levels.

“We expect some of these marginal visitor accommodation developments to convert to providing longer-term rental accommodation.”

Given the size of the correction, Scobie expects managed apartments will provide potential capital gain opportunities as those on the market are soaked up in the next three to five years.

“We expect little if any new stock will be built that is not already underway,” he says.

Mountain Scene understands at least three complexes that have fallen over will come to market at 2009 prices in the next few months.

These include the second-stage 34-unit Pounamu Prime complex on Frankton Road and the 28-unit Bowen View on Kent and Edgar Streets, both completed last year by now-defunct McEwan Group companies. (Investors in both complexes are arguing in court that McEwan Group advised them they wouldn’t actually have to buy their properties.)

Local apartment king Ross Wensley’s Wensley Developments was also placed in liquidation last month after buyers in his latest complex, the 28-unit Marina Baches, also off Frankton Rd, reneged on original purchase prices as values dropped dramatically.

Another languished complex, ZQN on Hallenstein St, is also likely to go on the block – sales agreements expired due to delays in completion, the receiver’s report says.

Scobie warns the only obstacle to buying cheaper managed apartments will be tougher mortgage lending criteria.
“It’s fair to say we certainly wouldn’t lend as much as 12 months ago,” says a local banking source.

Despite managed apartments taking a bath, Scobie says well-located, higher-quality, established product had tended to hold its value.