Strike while the iron’s hot

by Hannah Norton01 Oct 2015
The bubble that is Auckland’s property market is having far reaching impact – from the lowering of the credit profiles to the country’s largest banks, to professionals relocating to the provinces in search of affordable housing.

It is also translating into increased transactions – as well as increased profits – for Auckland’s law firms.
Firms are experiencing the highest level of profits in nearly a decade in part due to the legal work arising from the property boom, Moore Stephens Markhams director Sam Bassett tells NZLawyer.

The work – including transactions, and unitary plan, resource management and environmental requirements – has contributed to an increase in equity partner net incomes across the board, according to a recent study by Moore Stephens Markhams.

The top five firms ranked by profitability reported net equity partner incomes ranging from $624,000 to $1,070,000 ($487,000 to $613,000 in 2013) and nearly half reporting net equity partner incomes in excess of $500,000 - a major increase since the 2013 survey.

And while firms will keep mum about whether the boom is translating into profitability, a number report an increase in work and transactions.

Minter Ellison Rudd Watts property partner Andrew Monteith is so busy with meetings in both Queenstown and Christchurch in the space of two days, his only opportunity to speak NZLawyer is during a 20-minute taxi ride.

“How it is benefiting us is that we are flat out busy,” he says.

“There’s a lot of work being done... in the Auckland space we are working on a number of developments which are residential and commercial mixed developments, which are all very sizeable.”

The firm does a lot of development work, acting for those doing the development or engaging stakeholders in the public or private sector.

“There is big demand in Auckland for new residential property, so there are a lot of proposed residential developments in the pipeline.”

Another trend was the amount of foreign investment coming into the region.

“There is a lot of money being spent on real estate… and it’s not just Chinese money – there’s Australian money, Canadian money, European money – but Chinese money is perhaps the most predominant at the moment.”

In the residential property space the firm was starting to notice was the movement of young professionals away from cities to provinces, where housing was much more affordable, he says.

Lowndes property/construction partner Jeff Walters has also noticed an increase in both development activity and new players in the market.

“Our developer clients have increased their activity in terms of getting product to market to meet the demand and to ensure that they time the cycle correctly.”

This applies to both developers who primarily sell down subdivided sites, and those who complete full residential builds, whether stand alone, terraced housing or apartments, he says.

Market newcomers – particularly Chinese and Indian developers – have also been a hallmark of this year’s property boom, he says.

“We are seeing more participants looking to enter the market and partner in development projects with larger developers. This is leading to interesting development structures.”

It is something Walters believes will continue, given the drive to get product developed and initiatives such as the Special Housing legislation to accelerate consents.

There are a number of challenges that arise out of that increase in work, Walters says.

“There is an intellectual challenge in being smarter at producing ‘out of the box’ outcomes. There is pressure to turn around higher volumes of work in shorter amounts of time to satisfy demand.”

Practitioners also need to “keep up with the changing political and legislative landscape as central and local government implement various initiatives to assist development with the potential for all sorts of unintended consequences,” he says.

Bell Gully’s property practice is another team extremely busy at the moment, partner Jane Holland says.

“We have a very well-resourced team and everyone is involved in a range of transactions. Our broad client base is keeping us busy on everything from development agreements to major sales and purchases.”

There has been a significant increase in the number of new office commercial and industrial developments happening across the country, including in Christchurch, she says.

She has also been a lot of overseas buyers - particularly in Auckland – from jurisdictions such as Australia and around the Asia Pacific, the US, Europe and the UK.

Foreign buyers have been a controversial topic of late, with the perception that investors were buying ahead of, and pushing up the prices for, owner-occupiers.

Prime Minister John Key indicated before the Budget in May that the Government would look to gather foreign investor information, as well as require investors have New Zealand bank account and IRD numbers.

And, according to Westpac's latest Outlook for Auckland Residential Construction report, there is not enough new housing being built in Auckland to meet existing demand and to keep up with population growth.

The report says an estimated 10,800 dwellings a year, or 30 per cent more than current levels, could be built by Auckland's construction industry over the next eight years without a serious risk of overbuilding.

But, the next development for law firms might still be - what happens when the bubble bursts?