Developers and investors are betting with their wallets that residential is the sector to buy in, with nine large-scale development sites in Auckland selling for more than $150 million during the Covid-19 lockdown.
Colliers International’s specialist Site Sales team has transacted over 28ha of predominantly residential and mixed-use development land in Auckland within the last two months.
The sales include the former Caughey Preston Rest Home site in Remuera, Auckland Council’s Ōrewa Service Centre, two CBD apartment sites, a greenfield site in Drury, and consented townhouse sites.
All nine sales occurred during the Level 3 and 4 coronavirus lockdown period.
Josh Coburn, Site Sales Director at Colliers, says this activity shows investors are confident that residential will remain resilient in the face of market changes.
“We saw a big influx in the amount of enquiry for residential development land throughout the lockdown.
“Developers are essentially betting that the Covid effect will be short-lived, and will therefore continue putting sites into the development pipeline.
“Driving this sentiment is the well-founded assumption that we are about to see the return en masse of residential investors.
“With the ongoing low-interest rate environment, mum and dad investors simply aren’t getting enough returns from money in the bank. Some are also concerned about alternative investment classes, as the global economic uncertainty looks set to continue.
“At times of economic crisis, property is often considered a safe haven. Land is seen as particularly stable right now, as are houses. By contrast, commercial investors remain cautious about commercial tenant covenants and in some cases their ability to pay rent in the current environment.”
Coburn says two categories of residential buyers are likely to dominate the market in the coming months.
“There is a huge appetite among first home buyers due to the lowering of loan to value ratios and record low interest rates, which in many instances will mean purchasing is cheaper than renting.
“We are also likely to see a new class of investor emerging. In the previous cycle, particularly between 2010 and 2015, many investors were speculators who might only paint the walls and put in a new kitchen before on-selling the property for a capital gain.
“The new Residential Investor 2.0 is likely to be buying modern, low-maintenance, well master-planned investment stock. They will also be buying for rental returns, rather than specifically for capital gains.”
Colliers International’s Site Sales team is the only specialist team in New Zealand dedicated to matching quality residential and mixed-use development opportunities to credible buyers.
When Covid-19 hit, Coburn says many expected the team’s land sales to fall off a cliff.
“That didn’t happen – in fact, the opposite happened. Unlike the GFC, which was a credit-led crunch, today’s economic environment is driven by sentiment.
“Land continues to be viewed positively, with the adage of ‘Flight to Quality’ this time around applying to residential – with houses still selling and demand continuing to outstrip supply.
“The residential development land we sold over the lockdown period will provide well in excess of 1,500 new dwellings.
“Many of these will be terraced houses and apartments, which are typographies that are attractive to both first home buyers and the new class of residential investors.
“As more buyers return to the market, we expect development land sales to continue showing strong results.”