An analysis of the poor financial performance of Auckland's apartment market showed some units had had a quarter of their value wiped out.
Shamubeel Eaqub, of Goldman Sachs JBWere, analysed data on the apartment sector's returns and says the news is generally bad for people who bought earlier this decade.
He graphed the compound annual growth rate of apartment prices based on the latest sales data. But much of his data showed a loss in value rather than a gain.
His graph showed some investors had suffered a 25 per cent drop in the value of their apartments over a period of three years and four months.
The median loss shown on the graph was almost 5 per cent but some apartment owners had made money, the best being an 8.7 per cent gain in the value of an apartment in the period measured.
Eaqub said he wanted more information on previous sales to compare to the latest figures to build up a more accurate picture of the sector.
"But getting the information is not easy," he said.
The Herald reported yesterday on City Sales' auction of nine inner-city Auckland units bought earlier this decade for $1.7 million but sold for just $1.4 million this week. Bids on all nine apartments were well under previous sales between 2000 and 2004. Eight of the nine units sold at auction and negotiations were expected on the ninth unit after bidding failed to meet the reserve.
Some investors lost $70,000 on a single unit. None made money. But their losses were even greater because they still have to pay the marketing, auction and agency fees to City Sales for quitting their places.
Eaqub said it was hardly surprising prices had slumped so much because there were fewer tenants from the language student market combined with a vast rise in the number of Auckland inner-city apartments. He expects the price drops to continue.
"It certainly does seem quite scary in the apartment market. Unfortunately for vendors these things can become cyclical and self-compounding.
"The apartment sector has been through a period of significant growth, with an estimated addition of 27,000 units over the past five years.
"Although there has been this large addition over the past five years, a significant portion of the demand from international students has halved, as have migrants from Asia.
"Given only limited capital appreciation in the sector over recent years, soft demand and significant additions to capacity, we view the apartment sector as vulnerable," Eaqub said.
Kieran Trass, property analyst at Suburbwatch, said the price plunge should have taken no one by surprise and would continue.
"The market was certainly well and truly warned about the CBD apartment markets over-supply two years ago and early indications from my updated research indicates that a recovery is still not imminent in this market within the next year," Trass said.
He said the real winners in the CBD apartment market boom were the developers who have made tens of millions of dollars in profits from building cheap and nasty apartments, and specialist apartment sales companies and managers.
"These people deceived buyers into the investments in the first place with slick and often high-pressure marketing and telemarketing, combined with over-inflated rental and value estimates and cashflow projections," Trass said.
He also criticised councils for wanting the extra rates. "Uninformed mums and dads never really had a chance against that combination of forces," Trass said.
One Herald reader said apartment investors had suffered a lost opportunity cost on their capital. "The losses are even bigger when we consider the interest in a bank account that the original buyer would have earned. Your report should be issued in poster form and pasted in windows when the next property boom gets under way along with agents promising property always goes up in value," the reader said.
Ian Mitchell, a specialist apartment researcher at DTZ in Wellington, said inner-city Auckland had 18,000 units. But there could be up to 27,000 throughout the wider city area.
Unit owner hell
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