Apartment 101: Everything you need to know about buying an apartment

Saturday, 21 September 2024

The Greenhouse apartment building on Pollen Street in Ponsonby was opened by the Mayor of Auckland Wayne Brown on 16 February 2023. Ockham co-founder Mark Todd said it had been a once-in-a-career project.

One of the most beautiful apartment blocks in the country has got to be the Dominion Building in Wellington. Sitting proudly at the corner of Victoria and Mercer streets, this heritage-listed, Chicago-inspired monument to 1920s style was converted into apartments designed by Athfield Architects in 1994.

In the years since it was converted, apartment conversions and building have boomed across the motu.

In Auckland, cutting-edge developers such as Ockham Residential are changing the way we think about apartment life, creating sustainably minded apartments, Homestar-rated blocks with a focus on lifestyle.

Some folks are now seeking out and actively prefer the apartment life, thanks the perceived low maintenance, high location value of many developments.

Andrew Ashkettle from Loan Market lives in an apartment himself.

It’s been a slow change of opinion. Ten years ago, Auckland mortgage broker and apartment owner Andrew Ashkettle, of Loan Market, says most of his clients would never even have considered an apartment, let alone sought one out.

“I'm personally seeing a shift towards an acceptance of apartments,” Ashkettle says. 'I'm a big fan of apartments myself. I think more and more people will eventually be persuaded over to them.“

The reason: Price. Despite it being a buyers’ market, “every house in Auckland is still over $1 million”. “Eventually people have to start coming to terms with apartments because the cost of buying a home is getting unbearable.”

Stay at St Paul's is a 114-unit apartment complex spread across four buildings in Thorndon, Wellington.

But not all apartments are created equal, and there are several things prospective apartment buyers must check out before diving in.

What does the bank need?

Townhouses are still more popular that apartments, but people are coming round to the idea of apartment living.

Apartments may cost less than stand-alone houses, but lenders are often a little tougher about how much they will loan on them, for a number of possible reasons.

Firstly, apartments don’t increase in value as much as stand-alone homes. According to Opes Partners, flats and apartments appreciate about 3.8% a year, compared to 5.8% for a traditional home, meaning they are not as good a return on the bank’s investment.

Common spaces, like this mail room in Wellington, are usually maintained and managed by the body corp.

Secondly, most apartments have a body corp, which requires you to pay an annual levy on top of any loan repayments. Traditionally, banks will factor this in on top of your expenses. Depending on your financial situation, that may affect how much you can borrow.

“When people buy a home, they normally just pay the rates, house insurance and then any repairs as they go,” explains Ashkettle. “Whereas the body corporate may include rates and insurance, as well as maintenance on the building, long term projects and the building manager, of course, so it's probably going to be a bit more expensive.'

Apartment buildings aren’t new - this one in Wellington’s Mt Victora area was built in the 1930s - but some buyers are still resistant to the idea.

Finally, if you’re buying an apartment off plan, the levy will be an estimate only. Which might make the bank nervous. The real levy could be much higher by the time the building is completed.

Size matters

The size of the apartment may determine how much deposit your bank will expect you to have.

We spoke to seven mortgage advisers to get their top tips for first time buyers.

For example, one major bank’s policy is to require a 50% deposit on apartments up to 38m², and 20% deposit on apartments over 38m², which is considered generous. Most banks will accept a 20% deposit only on apartments 50m² and over.

In some cases, location will make a difference. One major bank will loan up to 90% for apartments outside Auckland CBD, and 85% for apartments in the CBD.

Make sure that the square footage doesn’t include the size of the balcony, too, as banks typically do not accept a balcony as part of the floorplan.

This vintage wharf building was converted into apartments in the late 90s. It’s now one of the most coveted complexes in the country.

If you’re buying as an investment, you will also require a higher deposit at most banks.

Show me the body corp

Most apartment buildings are governed by a body corp. You will pay a fee, either annually or quarterly, which will typically cover rates, building insurance, maintenance, and pay a building manager.

It means you don’t have to worry about some bills and maintenance, but you can’t opt out of paying for works agreed on by the the majority of tenants. Similarly, you can’t force works that no one else wants. The levy can go up and there’s not much you can do about it.

Ask to see at least two years worth of minutes from the body corp meetings before you put in an offer. This will be where all the building’s skeletons are buried and you should be able to see if something big is looming, or if there’s a problem neighbour, a lift replacement needed, or a new roof, or earthquake strengthening.

This should also show you what the rules and restrictions are in the building. You can ask the agent to share these with you, too.

The body corp levy should realistically reflect the cost of maintaining and running the building. It’s not a profit-generating business.

The Nix apartment building in Newton in Auckland.

Let me know all the defects

As with any home you purchase, it’s a good idea to ask to see a defect disclosure document, prepared by the vendor.

Agents have to tell you all the issues they know of upfront, and may even include them in the listing. But this document should include anything you can’t see on a tour of the home, like scratched flooring hidden by furniture and appliances, broken appliances or small leaks.

As crucial as it is, this document shouldn’t replace a property inspection before settlement day, however.

Who lives here?

Ask what percentage of the building is owner-occupied and how many units are rentals, or even Airbnbs, as this may give you an indication of how often maintenance is carried out - it will usually be better and higher quality if the residents are a higher proportion of owner-occupiers rather than renters.

You should also know whether you are going to be dealing with endless strings of different folks in town to party in the building, if there are a number of Airbnbs in the building.

New Zealand is small and people know people. It might be possible to find someone you know who knows someone in the building you can talk to about what it’s like to live there and deal with the body corp.

Another way to check what kind of building you’re dealing with is to visit the area in the evening. Who’s hanging round outside, how loud is it in the lobby - can you easily get into the lobby without a key? These are all things worth knowing about ahead of buying.

Weathertight, all right?

Finally, if your complex was built or converted in the mid 1990s, it might be a good idea to check if it appears on the weathertight buildings list, which is held by the Courts of NZ, and includes any disputes over leaky buildings up to about 2019.

Happy apartment hunting.