Apartment rents need to jump sharply or sales prices must plummet further before the market reaches a balance, says Dick Ayres, convener of the Auckland CBD Apartment Investment Group.
He said rents needed to rise before savvy investors could justify some of the prices being demanded by vendors.
Ayres was responding to an article in yesterday's Business Herald showing that of Auckland CBD units auctioned by real estate agent City Sales last week, two failed to reach reserve prices and two sold for about $169,000 under their previous selling price.
Ray White's apartment division also provided sales data which showed sales gains on nine apartments this year, but losses on five.
Shamubeel Eaqub of Goldman Sachs JBWere analysed the prices published in the Herald and said they showed a poor performance from the sector.
"These are mediocre inflation-type returns."
He called for more information to be made available on a regular basis so a thorough analysis could be made of the sector as it was important to build up a picture of the sector over time.
Ayres, who owns four CBD apartments, said the market was out of sync and people had to become more realistic about it.
"Investment apartments are just that. They are residential units purchased with the sole purpose of renting out to others in return for a rent that will cover all expenses related to owning that apartment and show an acceptable rate of return on capital invested," he said.
The trouble at the moment was that even after the recent price drops, the prices being asked - and being paid in some cases - were still not justified because rents were so low.
"For some time now, city investment apartments have failed to show any capital growth, which is the holy grail for many property investors," Ayres said.
He also said people paid more for apartments occupied by owners than for units which were tenanted long-term.
