'Big future' for south Auckland properties

Auckland real estate specialist Merlot Property Investments has paid more than $6 million for 62 residential sections in Counties Manukau.

The Quay St-based business is planning to sell the properties to its investors, who are keen to buy new homes to rent out.

Merlot director Grant Petrie said he had bought 40 sections at Cape Hill on the northeastern side of Pukekohe, 11 sections at Tuakau and 11 at Waiuku.

Merlot usually tries to buy new houses from developers, but Petrie said land had become so scarce that his business was finding it impossible to buy finished places. "Developers are struggling to get land to build on in the first place."

So Merlot is scouting for more land, having services brought to its new sites where necessary, then contracting out development work to construction firms.

Merlot will build brick-and-tile family-style homes on its 600sq m to 1300sq m plots. It then plans to sell the places for $330,000 to $395,000. Petrie said he aimed to make a 10 per cent profit on such deals.

But labour and skills shortages and long subcontractors' timeframes for completing work meant lead construction firms' timeframes had lengthened. Petrie said houses usually took 12 to 14 weeks to build but some firms were now citing 20 to 25 weeks.

The company provides three-year rental guarantees, but the rising price of land and higher building costs had cut investment returns from 6 per cent to 5 per cent lately.

Other residential property investors are crying out about low rental returns. Forecaster Infometrics said rents were dropping throughout Auckland. Its PMI Mortgage Insurance survey found Auckland landlords were shunning the market because of a severe tenant shortage and said rents rose only 0.1 per cent in the year to March. They dropped on the North Shore, Waitakere and in Auckland City.

Merlot is still keen to put more investors into the sector and wants to buy more sections in Counties Manukau, where Petrie said it saw a big future.

The company has largely rejected Auckland's inner-city apartment market, saying real capital gains growth depended on the underlying land value.

"The suburban residential four-bedroom brick and tile was - and still is - in strong demand all over Auckland and the surrounding areas," he said. "Supply and demand is the main driving force in the Auckland housing market. The proof is in the increase in value of all non-CBD property, and increases in rentals, to give the investor who bought two years ago a healthy 6 to 7 per cent rental yield, plus a capital gain of 15 to 25 per cent over 24 months."

Merlot said it bought only new properties, usually from developers who gave a discount "because we buy so many". It then onsold the houses at registered valuation or less.

Merlot Residential then becomes the investor's tenant for at least three years as well as the property manager. A management fee covers the cost of repairs and maintenance.

After three years, Merlot Residential can negotiate a further term based on an independent rental appraisal and offers to arrange finance though a mortgage brokering company.

Merlot charges an advisory fee of 2 per cent of the total purchase price of the investment property.

www.merlot.co.nz