New Zealand ‘red hot’ for overseas equity investors
Auckland’s CBD office yields are at 7.7 per cent compared to Hong Kong’s at 2.6 per cent.
Interest among overseas investors in New Zealand property is “red hot”, says Andrew Reed, international director of capital markets at Colliers International.
Commenting on the agency’s Capital Markets Report, based on a survey of the world’s top commercial and industrial markets, Reed also predicts more Chinese investment in New Zealand commercial property.
Last year was “a defining moment in New Zealand’s history” in regards to overseas property investment, he says.
“Offshore purchasing activity has typically been below 15 per cent of overall value, and below 10 per cent of the number of sales, signalling higher value price points of these sales.”
“But, in 2014 almost half the total value of properties sold for $5 million or more in New Zealand, was sold to offshore investors – representing one fifth of all transactions.
“Offshore purchasers from Asia Pacific countries like Australia, China, Singapore, Malaysia, Indonesia and Japan have been the stalwarts of offshore purchasing activity in New Zealand real estate for two decades and in the past, many of the larger listed and private investors shied away from New Zealand citing distance and market liquidity as barriers to entry.”
However, new entrants with significant purchases such as PSP Canada and GIC from Singapore have given the seal of approval and added significant depth to New Zealand’s investment market.
“This will open the door for more offshore investors looking to diversify their portfolio while keeping returns high,” Reed believes.
Given the large values and management commitments required, Reed also expects more joint venture partnerships between offshore and domestic property companies in the future.
“Chinese now account for 4 per cent of New Zealand’s population and 69 per cent of New Zealand Chinese live in Auckland - compared to just 3 per cent in 2001.
“The registration of Chinese banks in New Zealand in the last two years such as the Industrial and Commercial Bank of China (ICBC), Bank of China and China Construction Bank will also increase transactions. As a result, leveraging and investment processes will become more streamlined”.
Other key factors initiated by the Chinese government in the last four years to encourage outbound investment for countries are also providing impetus to investment in New Zealand such as:
- endorsing the Chinese ‘Go Abroad’ policy;
- allowing China’s insurance companies to invest directly in overseas property;
- imposing stricter domestic purchasing requirements;
- streamlining tax clearance procedures for corporate remittances;
- relaxing controls on corporate overseas price investment thresholds, notifications and approval systems; and
- considering relaxing processes and thresholds for individual outbound investment from $USD 50,000 to $USD 2 million.
Chris Dibble, Colliers’ national manager of research, says the key finding of the inaugural Capital Markets Report was that New Zealand continues to provide investors globally attractive investment returns.
“In a review of major gateway cities in the US, Europe, Asia, Australia and New Zealand, prime average commercial office, retail and industrial yields in Auckland and Wellington were typically higher than their global counterparts,” Dibble says.
“When comparing some markets and sectors, New Zealand’s average prime investment yields were almost 400 basis points higher than other countries. Examples include: Hong Kong CBD office yields at 2.6 per cent compared to Auckland’s at 7.7 per cent; London’s High Street retail yields of 2.75 per cent compared to Auckland’s at 6.25 per cent; and Seoul’s industrial yields of 4.10 per cent compared to Wellington’s at 8.25 per cent..”
Dibble says that, while New Zealanders typically provide the lion’s share of purchasing activity, “the motivations of offshore parties – searching for higher returns and asset diversification in a world with super-low interest rates and strong competition - have changed our investor landscape.
“The world’s largest investment funds are adopting a strategy that New Zealanders have preferred for a long time – investing in New Zealand commercial real estate,” says Dibble.
He reiterates the point made by Reed, that New Zealand’s favourable investment conditions for offshore parties, as well as locals, led to a strong run in 2014 that pushed aggregate transaction values to record highs.
“The aggregate value of sales transactions in New Zealand in 2014 was $6.9 billion. This increases to $8.2 billion if an additional $1.3 billion in joint venture purchases are added. “These include Singapore’s GIC for a 49 per cent share in five Westfield shopping centres, and a portfolio of Goodman Property Trust’s properties in Auckland’s Wynyard Quarter and Viaduct Harbour.
“New Zealand sales values segmented by price cohort comprised an aggregate $1.8 billion of sales for properties less than $2 million; $900 million of sales between $2 million and $4.9 million; and $4.2 billion for properties $5 million and over. The next highest year for aggregate values in the last two decades was 2007 when $7.1 billion of property was transacted - boosted by a record $3.3 billion of properties under $2 million.”
Colliers’ data shows that for the majority of properties bought worth less than $5 million, purchasers typically sourced their funds locally. This reflects the higher value purchasing generally required by major offshore parties when searching for investment opportunities abroad.
“Our recent offshore discussion with investors about New Zealand reveals we are growing into an internationally recognised country for its commercial real estate, and its values are appreciating quickly,” Reed says.
“This is similar to what Australia has been experiencing for several years.”
Andrew Reed, international director of capital markets for Colliers International, (left) & Chris Dibble, national research manager for Colliers International (right).