Aussie investors find Kiwi market offers low-hanging commercial fruit
New Zealand commercial property has become increasingly attractive to Australian investors given the effects of New Zealand’s property price deterioration. The rise in the value of the Australian dollar during the past two years against New Zealand’s currency has been a strong motivation for the buying interest from Australia.
Mortgage interest rates in New Zealand are more than 2% lower than they are in Australia, increasing the attractiveness of buying for investors who sourced their funding from New Zealand banks.
Last week an Auckland CBD office building providing a rental yield of just under 9% was sold to an Australian, with the buyers borrowing half of the price from a local bank at a fixed 6.5% interest rate for five years.
“So that was a really good arbitrage opportunity,” says Bruce Whillans, director of Ray White Commercial.
Last month Whillans promoted a portfolio of New Zealand commercial properties to Australian buyers – and says ever since he has been busy picking up investors arriving from Sydney and Melbourne.
An Australian private investment fund Whillans has been dealing with has invested A$400 million (NZ$515 million) in Australia over two years and is now shifting its attention to New Zealand, he says.
Some buyers are looking for B-grade office buildings in Auckland CBD, attracted by their high yields, and others are looking for distressed assets, mortgagee sales or undervalued land for development opportunities.
Whillans says Australians like the fact that New Zealand property trends are at least 12 months behind those in Australia, where the market is already in recovery mode.
Whillans purchased the Ray White Auckland regional commercial sales franchise in early 2010, having sold more than $1 billion worth of commercial property during his 25-year career.
In May Whillans said the New Zealand market was returning to positive growth following a three-year downturn.
“This, coupled with the Australian dollar sitting at a 10-year high to New Zealand, puts Australian investors in a strong position to take advantage of firming yields and a potential exchange rate play,” Whillans says.
"We have fielded interest from sophisticated unlisted property funds based in Australia as well as high-net-worth privates and even developers who are attracted by the exchange rate.
"They see the two markets as sharing similar fundamentals, particularly Auckland, with the strongest motive being the exchange rate followed by our lower cost of funds and attractive yields,” Whillans says.
"We are probably 12 months behind the kind of recovery cycle Sydney and Melbourne are experiencing, and can offer better buying as a result."
Whillans says New Zealand government policy encourages foreign investors with a high overseas investment threshold and no stamp duty, land tax or capital gains tax.
