Well, the statistics are starting to come in and it would appear that we are in for a period of suburban rental growth in Auckland. Conversely, I expect to see a rental softening in the CBD as demand for AirB&B and student accommodation lags.
While the dataset for CBD apartments is far from exhaustive, it would appear on the initial data that there has been some market softening. I expect this to continue as the market responds to global economic headwinds.
Across the Du Val portfolio, we have seen suburban rental growth. The southern corridor, in particular, has been a successful investment destination for our clients which is picked up in the wider suburban statistics, with rental growth trending after a static period.
Increased rental activity has also been matched by investor demand for affordable suburban apartments and terraces as they return to the market seeking yield and more importantly stability of cashflow.
A hardening suburban rental market and the easing of LVR restrictions in conjunction with the availability of cheap debt provides a substantial opportunity for investors over the coming period.
We will have signed approximately 60 new sale & purchase agreements by the 18th of May for new or recently completed property and we anticipate that we will have contracted $45m of sales by the end of the month. This level of activity hasn’t been seen in the Auckland market since 2016 and there are early indications that there is a flight to quality, affordable real assets.
What isn’t widely reported is that the government is the clearinghouse for transitional, emergency and social housing. This data isn’t closely monitored by property commentators, however, the research from CBRE is compelling and the government will become increasingly active through the rest of the year. By way of example, my family has signed government leases for new builds totaling 700 units in the past few months, substantially reducing the stock for free market rental in coming years.
Government housing provides a sales “floor” for one and two-bedroom property through the KiwiBuild program and also provides a floor for rental through CHP’s and Kainga Ora. As detailed above, the government's activity also substantially reduces the stock of free-market tenancy and this creates rental pressure at the affordable end of the market. We anticipate that rents will increase across our portfolio and through the wider suburban market in areas where the government is active through 2020 and 2021.
Current occupancy across the Du Val direct and managed portfolio is 100% with vacancy only coming from “churn”. To limit churn, we attempt to back-to-back tenancies where we lose one or two days for cleaning and minor repairs and maintenance between outgoing and incoming tenants. Advertising accommodation to let has had to be curtailed as we have 10-20 applications a day for a single tenancy as long as an advert is running and rental demand for quality new housing is at the highest level we have seen in the past five years.
Rental demand by market segmentation isn’t widely reported and we often have to rely on anecdotal evidence and data from our property management division. Inquiry for a one-bedroom property is marginally higher than inquiry for two-bedroom property and there is a substantial fall-off for inquiry for three and four-bedroom accommodation. There is evidence to suggest that this is due in part to price sensitivity and this is supported by the Nov-19 Colliers BTR research report where tenants surveyed indicated that price was the primary driver for accommodation ahead of amenity and tenure.
Demand for semi-furnished accommodation at the affordable end of the market exceeds demand for unfurnished accommodation and attracts up to a 9.5% rental premium. This is in line with international trends and the London BTR and BtL market achieves a similar premium where the property is purpose-built for renters.
What is clear is that there continues to be an undersupply of housing outside of the CBD and at the affordable end of the market. We will face significant challenges as a society if we are unable to deliver housing at scale to provide accommodation at every rung of the property ladder.
How can I ethically say we see a great future for this district if we're not here too?" he says. "Our investment shows people buying into these complexes we are confident of the future, that we are bound economically into this area too."
Clarke will be outlining his philosophy at a function at the Ellerslie Events Centre on March 6 on a theme of Accepting Change and Securing Your Future Through Property. Organised by Du Val Wealth, Tony Alexander Economic Commentator and the founder of My Food Bag, Cecilia Robinson, will also speak.
The Du Val Group is about a year from completing the 17-level tower Lakewood Plaza in Manukau while construction of a second development - The Avenue Apartments, a 119-room complex also in south Auckland - is expected to be finished in about 15 months. The two complexes are estimated to be worth a combined $180m.
Clarke will keep ownership of about 30 apartments at The Avenue and a further 15 at Lakewood Plaza. A third project, the Mountain Vista Estate, a $170m, 200-apartment complex, is to be launched in August, making a total of $400m of construction in the pipeline and a further $230m of completed projects.
Although today Clarke controls a multi-million dollar business, less than 10 years ago he was so broke he could barely afford 50c lunches.
In the wake of the 2008 global financial crisis (GFC) he was declared bankrupt after 12 of 27 companies he owned went into receivership, forcing Clarke to survive on the dole for the following two to three years.
Although Clarke lays the blame at the feet of his bank lender at the time, he says the experience was "one hell of an education.
"It was the most expensive MBA you could get," he says. "I estimate it cost me about $80m all up. I ended up on the benefit, could barely afford 50c lunches and had to watch my wife wash her hair with soap.