Higher Lending To Apartment Buyers Pushes High Density Residential Areas

Home loan providers are rethinking their lending policies in order to grab a larger chunk of the market. Knowing fully well that buying the first home is always the toughest and getting the down payment together a challenge, they are now customizing their lending policies to catch such new entrants. With intense competition, the only way to survive in the lending business is by increasing their market share. The previously pursued policy of keeping higher margins to generate revenue in low growth markets, is now being driven by factors others than price.

Till about four years ago, it was difficult to get funding over 50% of property value for apartments in general and small shoebox apartments in particular. Landed property and stand alone houses were the norm and lenders preferred putting their money on them. This led to a slump in demand for apartments and a drastic decline in their prices. The net yield on apartments also never crossed 8-9%. It is ironic that lending institutions would lend up to 95% of a house price, but seldom more than 50-60% of an apartment’s cost. The home buyer was left wondering what he should buy.

Another consequence of this was that new apartment construction was not undertaken either. Auckland for example, has hardly seen new apartment complexes constructed in the last five years. The few that are already made have been sold at prices that have not covered construction costs.

However, it is now possible to get loans for up to 90% of the value of freehold apartments. With increasing populations and scarcity of land, apartment living is a viable option that will ensure a home for all. It also makes perfect sense for a first home buyer to opt for cheaper apartments instead of the expensive stand alone houses, whose demand and hence price, keep spiraling upwards, and remain elusive for first home buyers.

The time for construction of better apartments not just in the central districts, but also on city fringes, has come. The old concept of constructing in busy areas to tap the investor and student demand, meant that poor quality apartments were seen. This also led to water problems in city centers and numerous compliance problems cropped up.

However, with funding that almost completely covers apartment prices, demand for apartments should shoot upwards. It makes perfect sense then to consider construction of modern apartment complexes on the fringes of the city where lower land prices, mean larger pieces of land can be developed with more greenery and open spaces. Access to public transport and utilities will only add to their appeal.

With a new building code in place, and improved governance of the body corporate, medium density zones with apartments are likely to crop up in major cities once the government frees land for such constructions. As banks ensure better credit policies, demand is sure to pick up, and apartment complexes will soon fill the urban landscape.


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