The remaining supply of new apartments for sale in Auckland has dropped by around 20 percent, and that could lead to more smaller apartments in the region.

Survey results from Colliers International show the remaining supply for new apartment developments has fallen, from 21 months’ worth at the start of the year to a little under 16 months’ worth now.

Colliers says that if new build sales activity for remaining supply remains at their current rate, Auckland could suffer a shortage of new apartments by 2019.

Pete Evans, national director of residential project marketing at Colliers International, says one of the reasons for the drop has been a lack of available finance.

"The main reason is the banking industry decided about 12 months ago to stop lending to developers. That has slowed the supply," Evans says.

He believes the shortage coupled with the focus on bringing affordable apartments to the market will lead to smaller apartment projects and smaller sized apartments.

He points out that, while these smaller builds may seem more affordable, their might need to be some comprise on expectations.

"We predict that the build price may not necessarily drop but certainly the acceleration in increase of prices will drop...so what we'll find [is] the end product may appear cheaper but the rate per square meter for what you're buying probably won't decrease."

The results come as the new apartment market in Auckland's city-fringe and suburbs has for the first time overtaken that of the central city.

The average sales rate per project in the CBD dropped by 40 per cent, while the suburban and city fringe apartment sales rate increased by 22 and 15 per cent respectively.

Mr Evans says government backing through KiwiBuild will give developers more financial security and also result in increased activity in the suburbs.

"We are seeing more projects forecast for the suburban market, as developers plan smaller and more affordable projects, motivated by potential assistance through KiwiBuild,” he says.

An example of this, according to the survey, is the seven new suburban projects to enter the market in the first half of 2018 that had an average sale price of $656,000 and internal area of 78m².

Mr Evans says demand for new apartments in Auckland has been dropping since 2016.

The main reason for this, he says, was a change in legislation from the government at the time, which affected investors and led to an increase in loan-to-value ratios.

“With developers finding it difficult to make projects financially viable, we do not see the level of new projects entering the market to increase in the short to medium term," he says.

But he says the market is becoming more balanced and looks set to rise again.

"We've seen the market falling, but ever since the election last year the market has stabilised and we predict will increase either later this year or certainly next year."

On the subject of current developer sentiment, Evans believes some developers may sit on land they have purchased until the market improves and build costs even out.

"These are the developers that will bring their projects to the market as they see the market improving, which we would suggest they would start to look at that in 2019 and certainly 2020," he says.

The survey analysed 55 Auckland apartment projects in the market during the first half of 2018, totalling 4,145 units with an aggregate project value of $3.68 billion.

It showed a slight increase in the average asking price of new apartments, which is now $1,120,415 up from $1,065,000 in January.

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