Apartment Complex Sales Slowing, Report Says : Real Estate: The bad news for investors is insufficient return on partly vacant buildings. The good news for occupants, rents aren’t rising.

Hundreds of big investors who prowl Orange County in search of apartment buildings now find them so expensive that they’re not buying and as a result the market has slowed dramatically.

The reason is basic economics, according to a report released Thursday. Most of the county’s apartment buildings have so many empty units--an average 10% vacancy rate in some areas--that buyers can’t justify the high prices owners are asking.

“It’s still a seller’s market, but the buyers aren’t buying,” said Julie M. Hagberg of Apartment Properties, a Newport Beach apartment broker and investor that released the report.

In 1988 these buyers--mostly well-heeled individuals--bought 111 apartment complexes of more than 20 units. That dropped to an estimated 61 in 1989, the report says.

That’s good news, of course, for Orange County’s tens of thousands of renters. About four out of every 10 households in the county rent.

But Apartment Properties says the market will eventually tighten and rents rise. That’s what all these buyers are banking on, even if they’ve taken a breather from making big purchases now.

They expect units to fill up and rents to rise because fewer people each year can afford to buy a home in Orange County, where prices for a house are among the highest in the nation. The average new house in the county costs nearly $400,000 now.

A lot of people solved that problem by moving inland to Riverside County, where houses are cheaper. But that often means a long and harrowing commute back to Orange County, whose bustling economy still offers far more jobs than Riverside. Eventually the commute will become so difficult--and home prices will rise so fast in Riverside County--that far fewer Orange County residents will have the option of moving.

And land costs in Orange County have gone through the roof, making apartments less economical to build. To buyers, all this means a future with apartment buildings so crammed full of tenants the only time an apartment’s vacant is when it’s being cleaned for a new tenant. That’s the way it was in Orange County until the building boom began a few years ago.

Why are there so many empty apartments?

While it’s slowing down now, the county has been in something of a building boom recently, with thousands of new units just on the market and more under construction.

One reason: Lower interest rates made it easier to borrow money to build. But lower interest rates also made it easier for people who had been renters to buy a home and move out of their apartments.

The apartment buyers are increasingly from abroad, said Randall J. Friend of Apartment Properties. They are the Japanese, the Koreans, the Taiwanese and even some Hong Kong investors who fear for the safety of their money after 1997, when the British turn over their colony to the Chinese.

The Japanese, in particular, can borrow at far lower interest rates than Americans and thus can pay much higher prices. But even they have balked lately at the prices owners are asking for their apartment buildings here, said Friend.

Here’s why: The average purchase price of an apartment unit has risen 83% since 1983, from nearly $43,000 to more than $78,000.

Yet rents haven’t risen nearly as fast. In fact, they’ve gone up only 49% during the same time, according to Apartment Properties.

A two-bedroom apartment of between 850 and 950 square feet now rents for an average $750 a month, far below what it would take to make a reasonable return on an investment at today’s prices, said Friend.

Vacancy rates, meanwhile, are more than 10% in some county neighborhoods, the company said.

Friend--not unexpectedly for an apartment broker--says that doesn’t faze him.

“I still have a lot of faith in the market,” he said. “It’s been pretty strong until last year.”