Real Estate Investment Shift To Apartments

May 14, 2018, 5:37 a.m.

In Fiji, particularly in Suva, and to a lesser degree in Nadi, there has been a growing interest in real estate for in­vestment over the last five years and that interest is accelerating now.

The price of reasonable apartment real es­tate has shown a strong capital growth year on year and rental returns have been grow­ing in spite of the rent freeze imposed by the government.

There is no hard evidence that will allow a trustworthy picture of where the increase is coming from but anecdotal evidence sug­gests that there are a significant number of residential properties that are being pur­chased and then undergo a total renovation to convert them to rental properties.

With the number of new rental proper­ties showing significant growth it is to be expected that it will reflect in total rental market income figures.

People in the building and real estate busi­ness are reporting a very significant move­ment in the number of investors who are interested in either land or structural prop­erty that has the capacity to carry apart­ments of to be converted to apartments.

This is particularly evident in tourism ar­eas where the self-service vacation market has been in strong demand in the last few years.

This is particularly so in the family vaca­tion segment and the demand is not being matched by supply.

There has been exceptional growth in pri­vate people placing rental property with the new operators such as Airbnb, even though there are legal restrictions on these operations.

In the last two weeks there have been two major announcements of high rise apart­ment building start ups in Suva and the Wailoaloa area has a number of projects recently announced and now progressing well.

Most of these are at the high quality end of the scale, but there are also a significant number that are targeted at the middle in­come buyer and sales activity seems to be good.

Reduced land costs

The main driver in the private sector movement to apartment purchase is that for the same money.

It is generally possible to buy a larger area because of the reduced land costs constructing apartments incurs, and that apartments are usually in more appealing locations.

There is also a feeling amongst real estate agents that middle income professionals do not want the hassles that attach to having to look after the garden and the maintenance of the property, all of which is looked after by the body corporate in most apartment buildings.

Buyers also now better understand the concept of strata titles and the broader acceptance in the resale market have also made apartments more attractive.

For investors the idea of building an apartment block and selling half to reduce the debt to a level that can be serviced by the remaining properties is attractive and makes good financial sense.

Rural drift

Another driver is that developers are now planning to have sections of the property zoned commercial, which allows for the in­tegration of apartments in amongst single structure residential lots.

The rapid growth in the volume of rural drift also adds to the potential market for apartment buyers as this type of property is generally more conveniently placed to most of the services such as schools, retail shops and medical services than the single dwelling on a lot being offered in the new suburbs on the edges of towns and cities.

The fact that an investor can buy a house and land, knock down the house and put six apartments on the site and sell each one for slightly less than the cost the house makes good sense to the investor and it should make very good sense to the local author­ity or council because it makes much more efficient use of the services, with six dif­ferent families now using them and the au­thorities don’t have to extend even further outside town to provide expensive new ser­vices.

Financial institutions

The financing institutions are now accept­ing strata titles where previously there was some reticence in doing so; the reason usu­ally given was that resale was harder.

Now, even in the most exclusive develop­ments such as Denarau Waters, there is allowance in the Body Corporate agree­ment for apartments and the developer has designed and zoned precincts for this pur­pose.

For the future there needs to be more sites for apartments as the growing population needs to be relatively close to infrastruc­ture and service provision in urban areas is already wide spread and distance creates inefficiency.

Some of the new apartment projects, espe­cially in Suva, show the way of the future as it is no longer true that Fiji has plenty of land so there is no need to worry about urban spread.

Over the next couple of years a whole range of apartment options will hit the market.

New ideas will be exposed and new stand­ards will be introduced.

This will not only benefit investors but the middle class professionals will have a bet­ter choice of properties that will suit their lifestyle.

In trying to understand the reasons for apartment growth, I spoke to Philip Too­good from Bayleys Real Estate.

They have a number of projects either on the market or are about to become avail­able.

His view is that there has been little activ­ity in strata apartment developments since 2000 but that the time is now right for this concept in Fiji and that the main potential lies with overseas buyers.

The prices of holiday properties in Aus­tralia and New Zealand have risen to where the return on investment is not commer­cially viable.

Overseas buyers

Philip said “there are probably 400,000 Fi­jians living overseas who may be interested in owning a property that gives them an op­portunity to spend some time in Fiji with family each year and that will earn them a good income when they are not here.

If only 0.1 per cent of them bought, that would take up 400 properties, significantly more than are available at the moment, so there is a huge untapped market.”

With the availability of dual citizenship at a reasonable cost to ex-citizens, the oppor­tunity becomes even more attractive.

Also, non-citizens are not able to buy prop­erties within town boundaries, but strata title properties are not covered by this restriction and are open for overseas pur­chasers, presenting an attractive option for expatriates living in Fiji.

Bayleys expects to see more properties appear on the market in future as Fijians become used to the concept of apartment living and the benefits this type of property presents.

This article was authored by John Ross and originally published in the Fiji Sun newspaper on May 12, 2018.