by Jenny Ruth
Two factors are making property investment in New Zealand look very attractive at the moment; debt is relatively cheap and the yield gap between property returns and those available from bank deposits is sizeable, says AMP Henderson's property manager Anthony Beverley.
"Those two things in combination are attracting quite a bit of interest, particularly at the lower end," Beverley says.
Yet another factor driving the market is increased foreign interest. At a recent auction of a complex of unit titled shops at Botony in Auckland that AMP developed, demand was strong enough that the auction had to be moved to a bigger auction room and every buyer but two were Asian, he says.
There's also increasing foreign interest at the top end of the market as evidenced by German investor Navire Holdings' recent purchases of the Mobil-on-the-Park building in Wellington for $66 million, the BNZ Centre in Wellington for just over $62 million and Downtown House in Auckland in June for $19.05 million.
Navire would get a 4% yield from purchases in its home market but is getting 9% plus from its New Zealand properties, Beverley says.
Historically, pension funds have been less geographically diversified in property than in other asset classes but that's now changing because of the evidence that diversification reduces risk, he says.
In 2001, pension funds had about 25% of their equities money in international markets, about 10% of their bonds money but only about 3% of the property part of their portfolios.
"Large scale property investors around the world are becoming more aware of the benefits of diversification and more comfortable with it," Beverley says.
The implications for New Zealand are largely positive in terms of improved liquidity and a bigger capital pool, but local fund managers may find the developing environment challenging, he says.
New Zealand investors were all bidders for the three properties Navire bought and were outbid.
On the plus side for domestic fund managers, they're already seeing the valuations of their existing properties rising as a result, he says.
"Our market's quite small and not that sophisticated. A lot of investors are coming from markets that are very mature and well disciplined," Beverley says, suggesting this will mean locals will have to lift their standards.
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