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.
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.
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.
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.