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Prime Bank property investment – 6.75% NET Return; NZD$1,240,000 (plus GST if any)

12 September, 2012

National Bank – South Dunedin » New Zealand Property Based Investments.

This purpose-built modern bank property occupied by the ANZ National Bank Ltd provides a secure cash-flow with minimal investor involvement. Rated at 100% new building code for earthquake compliance provides peace-of-mind and tenant security. The next lease renewal is in 2017, with rent reviews in 2014 and 2017. After 2017 there are 8 x 3yr rights of renewal.

More evidence of foreign investor confidence in N.Z. real estate market “seeing foreign investors looking to diversify their portfolio with good quality assets in a stable environment.”

4 July, 2012

Aviva looks to extend holdings in NZ property – Property – NZ Herald News.

New Zealand provides a stable economic and political environment and is perceived by many as a safe-haven in these uncertain economic times. Carefully selected property investments- residential and commercial – can provide reliable cash-flow with capital growth potential. Contact me if you are interested in being on my investor database and/or wish to find out more about investing in New Zealand property.

New Zealand property investment opportunities – Security and Cash-flow in Dunedin.

26 June, 2012

With New Zealand deposit interest rates at record lows and forecasted to remain low for quite some time, many investors are now returning to property as an alternative investment option that provide relative security and generates reasonable cash returns. Also, with mortgage borrowing rates also at record lows, it makes good sense to consider the effect of gearing on the potential return on equity. I have prepared some projections on several notable properties in Dunedin to show how gearing may work based on current rates. My assumptions re the mortgage borrowing rates are 5.75% (3yrs) for residential and 6.0% for commercial.

129B Forth Street, Dunedin (‘St David Heights’)


This is a modern 7-studio room property in a prime university location. It has an outstanding rental history. The vendors have just reduced the asking price from NZ$1,150,000 to NZ$1,090,000. Note that the property is fully managed by a professional property management company, and the financial projections are inclusive of the management costs, together with all other normal operating expenses, including body corporate fees.

Projections (estimate only)

Purchase price:                                                          $1,090,000

Borrowings (60%):                                                     $654,000

Cash input (equity of 40%):                                        $436,000

Annual NET cash-flow (EBDIT):                                  $69,718

LESS bank interest (5.75%):                                       $37,606

NET annual cash flow:                                               $32,133

Equates to pre-tax return on equity                           7.4% (at 60% gearing)

In the interests of conservatism, the projected return excludes any provision (upside) for potential capital growth, which has historically been very good in the university investment market.


90 Crawford Street, DUNEDIN


This is a high profile commercial building on the main northern arterial traffic route (State Highway 1) into Dunedin CBD. It has very good street exposure to Crawford Street, and also a second frontage onto Bond Street. Other features:

  • Freehold tenure in one title (approximately 701m²)
  • Solid reinforced concrete construction with recent renovation work completed internally
  • Total net income of $131,636 per annum plus GST
  • Favorable lease configuration with six separate lessees strengthening the investment profile of the property
  • Strong business profile with well-known tenants including Gordon Creighton  Lighting, and Jennian Homes as the main retail tenants

Projections (estimate only)

Purchase price:                                              NZ$1,470,000

Borrowings (50%):                                         $735,000

Cash input (equity of 50%):                            $735,000

Annual NET cash-flow (EDBIT):                      $126,636

LESS bank interest (6.0%):                              $44,100

NET annual cash flow:                                    $82,536

Equates to pre-tax return on equity               11.23% (at 50% gearing)


598 Castle Street, Dunedin (Units 1 & 2)


 These Castle Street flats are impressive student investment properties in absolute prime location adjacent to the university. They comprises2 six-bedroom adjoining unit-titled flats, approximately 10 years old with two bathrooms on different levels. Other points:

  • Durable material construction, aluminum joinery and low maintenance sections.
  • Located in the heart of the prime campus area, these properties have strong appeal to students who compete to rent these flats every year;
  • Rents were increased to $130 per room for each flat in 2012 giving an annual income of $40,560  per flat which provides a yield of 7.2% on asking price;
  • The owners are advertising rents of $135 per room for 2013 in line with market increases. Unit 1 has already been signed for 2013 in early June this year at $135 per room;
  • Within easy walking distance of University campus and Otago Polytechnic and within one block of the University’s newly proposed Marsh Study Centre; saving the walk through campus to the Central Library to study;
  • Off-street parking which is very attractive to students in an area where parking is limited;
  • Excellent rental history with full year leases at market rent levels.

Projections (estimate only)

Purchase price (for 1 unit):                          NZ $565,000

Borrowings (70%):                                         $395,500

Cash input (equity of 30%):                            $169,500

Annual NET cash-flow (EBDIT):                      $36,700

LESS bank interest (5.75%):                           $22,741

NET annual cash flow:                                    $13,959

Equates to pre-tax return on equity               8.2% (at 70% gearing)

In the interests of conservatism, the projected return excludes any provision (upside) for potential capital growth, which has historically been very good in the university investment market.

66 MacLaggan Street, CITY TERRACE


Brand new (estimated completion end August 2012) units an easy walking distance to the city centre, and close to schools like Otago Boys, Otago Girls, Kavanagh College.

  • 2 units – fully furnished with carport and lockup – only $282,000 and $288,000
  • This is part of the next stage of the existing City Terrace complex, which already comprises six fully completed units with very strong tenant demand, mainly from professionals and senior students. These new units already have tenants wanting to commit to long leases (at least 12 months) at $410pwk.
  • The modern design and fit out provides a spacious living area. An energy efficient heat pump, double glazing and good insulation help provide a warm and comfortable environment.
  • Ideal as ‘minimum fuss’ investment, for owner-occupier, or as a ‘lock-and-leave’ town base.
  • Professionally built by G.J.Gardner Homes, with a builders guarantee.

Projections (estimate only)

Purchase price:                                             NZ $282,000

Borrowings (80%):                                         $255,600

Cash input (equity of 20%):                            $56,400

Annual NET cash-flow (EBDIT):                      $17,074

LESS bank interest (5.75%):                           $12,972

NET annual cash flow:                                    $4,102

Equates to pre-tax return on equity               7.3% (at 80% gearing)

Note: The lower return of this property reflects the fact that it is new.

All examples are projections only and should not be relied upon. As always, you are advised to obtain your own independent professional advice. All figures are shown in $NZD.

As these examples illustrate, it does make sense to consider alternate ways to structure your investment and maximise returns, especially in the current low interest rate environment. These examples are necessarily simple, and do not include allowance for capital growth potential or personal tax savings, which may further enhance the overall return. Overseas investors should also consider exchange rate issues and prevailing laws and regulations that may be country specific. Note that the above examples do NOT require approval from the N.Z. overseas investment commission which makes them a relatively simple N.Z. investment.

Please feel free to contact me if you have any questions or comments, or wish to find out more information about these or other investment opportunities. You can also check out my profile here.

N.Z. Heritage properties face 500% increase in insurance bills –

19 June, 2012

Owners of heritage buildings are being warned they may find it hard to get insurance – and if they do, it will come with a high pricetag.

via Heritage properties face 500% increase in insurance bills –

Kiwis rekindle love with property – New Zealand

18 June, 2012

While property prices are likely to pick up in future, a rental investment should stack up as just that – an investment. Properties are available at 8 per cent or 9 per cent gross return. Look for those – then any capital gains are just the icing on the cake.

via Finance: Kiwis rekindle love with property | Rotorua Property | Real Estate News for Rotorua, New Zealand.

Sellers Property Market Says Bank Of New Zealands… |

15 June, 2012

Sellers Property Market Says Bank Of New Zealands… |

New Zealand Commercial Property …Popular Ways to Invest (Part 2)

12 March, 2012

Last month I discussed the pros and cons of investing directly (DIY) in New Zealand commercial property, as well as listed and unlisted property funds.

Another increasingly popular way to invest is through a ‘proportionate title’ property syndicate.   This is perhaps the most direct way to invest in commercial, next to DIY. Proportionate title syndicates are covered by the Securities Act (Real Property Proportionate Ownership Schemes) Exemption Notice 2002.  This means that, instead of a prospectus and investment statement, the promoter of the scheme issues an ‘Offeror Statement’. This statement contains the key information about the investment. A proportionate title arises when there is more than one owner of a property and each person owns a share/s. Where there are multiple owners of the property, each owner is entitled to their own certificate of title for their share/s. Such titles are registered through the Land Registry Office and can be sold or bequeathed as with any other Certificate of Title.

Proportional property syndicates allow investors to invest directly in commercial property with a relatively modest level of capital – sometimes as little as $25,000 per title. Because the property is fully managed, an investor doesn’t have to be an expert in evaluating, owning and managing buildings. This means that the investment is relatively ‘passive’. Investors can also spread risk by investing across a number of syndicates.

Where property is owned in proportional ownership, each owner owns a specified share of the whole property. For example, an owner of 10%, would own 10% of the whole land and buildings. Profits and losses, including depreciation, are apportioned accordingly, for tax purposes.

It is possible for proportionate ownership scheme investors as a group to borrow part of the money needed to complete purchase of a commercial property. As such, particularly in the current low interest rate environment, most schemes will fund the purchase with a combination of borrowings and investor equity, in order to gear up the return to investors. Bank borrowings are often structured on a ‘non-recourse’ basis which means that, in the event of default, the bank can only recover the amount lent to the Nominee from the security given, being the property, and not from any of the subscribers/investors.

Property Managers generally operate a secondary market to facilitate sales for an investor who wishes to exit. However, there are no guarantees of a quick sale because, as with owning your own building, this will depend upon the state of the market and the building performance / leases at the time. As such, proportionate titles should be generally considered as a long-term investment of at least 5 years.

Each investor in the scheme has to sign a detailed agreement with the Promoters of the investment opportunity binding themselves to common rules that will affect every investor. Such rules may commonly prevent an individual owner mortgaging their proportionate title as collateral security for other investments or business.  They will also usually be accompanied by a detailed management agreement with a professional property manager.  They control how a proportionate title share is sold. For example they require a selling investor to first offer their share to the other investors before sale to members of the public. They may prevent individual owners from dealing with the tenant and require that to be done by the professional property manager. They will also provide how decisions of the owners are to be made and when and how meetings are to be held.

In some special cases, investors with at least $500,000 can also invest in more ‘intimate’ syndicates with a handful of investors. These typically include a development, or value-add component and, while they may be perceived as speculative, the potential returns can be significant. Let me know if you are interested in this type of investment as they are often made available directly to a pre-qualified database instead of being publicly advertised.

N.Z. Commercial Property …Popular Ways to Invest (Part 1)

20 February, 2012

With continued low bank interest rates there is now a significant gap between the cost of capital (mortgage rates) and the cash return potentially available from commercial property. There are several ways to invest in commercial property, with the most common being the following:

DIY Go out and buy a building yourself. Some investors like to be able to drive past their own building and have direct control over what happens. There are also the advantages of being able to gear (borrow) against the property, with associated tax benefits and the potential to leverage returns. However, because much of the ‘quality’ property is in the $5M+ price range, this is out of reach for many single investors. At the more affordable ‘sub-$5M’ level, competition appears to be fierce for the few good properties that come up. As such, this seems to be driving down yields, with anecdotal evidence suggesting that the cap rates are now creeping down to around 7% for ‘prime’ buildings in this hotly contested price range.

The Canterbury earthquakes have also significantly reduced the number of quality buildings available. However, perhaps the biggest single issue now is the change in insurance coverage. The Earthquake Commission no longer insures commercial buildings and commercial excesses that were previously 2.5 per cent of the loss incurred may now have risen to 5 per cent of the site value, with those for pre-1935 buildings being even higher. In addition, premiums have increased markedly – up to 350 % for those buildings built before 1935. As such, investors should always address the cost of insurance and the insurability of buildings before committing to purchase. Without insurance cover you will not be able to secure a mortgage, and even if you were able to purchase debt-free, the building may be very difficult to sell in the future if potential purchasers cannot obtain funding.  It is also important to investigate the changes in insurability for tenants. If tenants are unable to secure cost-effective business continuation insurance then this may affect the ‘lease-ability’ and therefore the value of the building. While this does not rule out older buildings as an option, any due diligence should consider the likelihood and cost of earthquake strengthening up to an ‘acceptable’ standard. Because councils and insurers etc. are still coming to grips with the post-earthquake environment, it may sometimes be difficult to get a definitive answer about potential upgrade requirements and costs. The absence of this certainty does increase the risk profile of the investment.

While owning your own commercial building may have some significant benefits, it is important to undertake thorough due diligence that balances the advantages against the potential risks. Particularly in this post GFC (Global Financial Crisis) environment the conventional wisdom is now to “hope for the best but prepare for the worst”. Some investors may also find that other forms of commercial property investment are better suited to their circumstances.

Property Fund – Listed. There is a choice of property funds listed on the NZ Stock Exchange. Each fund typically has several properties, which in theory spreads risk. People invest by buying shares in the fund through a registered Prospectus, in much the same way as they would any other publicly listed company. However, because the share market is typically driven “by fear or greed” the share value can fluctuate quite significantly.  As a result, the share value often bears no relationship to the underlying asset value. For example, in recent years the shares in some of these funds have traded well below the NTA (net tangible asset) value. A major advantage of publicly listed property funds is that the shares can be readily traded at ‘market price’.

Property Fund – Unlisted. These have the same characteristics as listed property funds. However, because the shares are not publicly listed and traded on the share market, their value is generally closely linked to the NTA (net tangible asset) value per share. As such, values tend to be more stable. On the flip side, the shares are not as easily trade-able, although most funds will normally have a ‘secondary market’ to facilitate buying and selling.

Property funds generally pay out their tax-paid profits as dividends. Some property funds are now set up as PIE’s (Portfolio Investment Entity) which may provide tax benefits depending on the investor’s specific tax situation.

In Part 2 next month I will discuss ‘Property Syndicates’ – another increasingly popular form of commercial property investment.

Choosing the Right Investment for You …the difference between ‘good’ and ‘bad’, ‘low risk’ and ‘high risk’ investments

20 February, 2012

The GFC (Global Financial Crisis) of 2008, and on-going global volatility, has left many cashed-up investors “shell-shocked” and wondering what is a relatively safe investment that provides a reasonable return? The realisation that fixed term interest deposit rates are not likely to increase for some time, together with the devaluing effect of inflation, means that many are now actively seeking to move their funds into higher-returning long-term investments.

While I strongly support property as an investment class, primarily because of the inherent security, control and transparency that it offers, I also acknowledge the importance of having an open mind. As any investment advisor will tell you, one of the key rules with investment is to diversify i.e. spread risk.  For those who favour property, it is possible to diversify within the property asset class through a whole range of different property types and, of course, other asset classes are also options worth considering.

Regardless of the asset class, one of the golden rules of investing is to consider the risk profile of the investment options.

What is ‘Risk’? There are many definitions of risk, but I would define investment risk as being the difference between the ‘expected returns’ and the ‘actual returns’ over a given time period.

Let’s assume that we have $100,000 and compare 2 investment options – 1) fixed deposit in the bank and 2) investment property.

The Bank – on today’s rates you would receive 4.75% for a 2 year deposit. This is virtually zero risk because it is almost guaranteed that you will receive 4.75% return on your money.

Property – you could invest your $100,000 and buy say $250,000 worth of property (60% gearing). Prior to 2008 residential property had increased in value, on average, approximately 10% per year over the long-term. However, many might argue that in the short-term the market could sit static for a few years – or even drop in some areas. On that conservative basis, let’s assume that we can invest in a property with growth prospects of 5% p.a. – half the historical average. No-one has a crystal ball, and there are no guarantees with property. As such it could be suggested that property is ‘high risk’ because the actual return may vary quite significantly from the expected return, especially in the short-term.

If we had the $100,000 earmarked for a tax liability in 2 years time, would we be better to put it with the bank or invest it in property? The answer is pretty obvious. The bank is a good, short-term, low-risk investment and the $100,000 will be available when you need it. If it was invested in property, who can say what the value of the property will be in 2 years, and how easy it will be to release those funds?

However, if we had the $100,000 set aside as our retirement fund, or to build an off-farm investment nest-egg, with a time-frame of 10-25 years, then it would be a different story. The $100,000 fixed-deposit with the bank would, at current rates (5.85% for long-term), have increased in value, with compound interest, to around $176,566 in 10 years. However, with the benefit of time and riding thru the ‘up and down’ cycles, even at a conservative 5% growth rate, the $100,000 in $250,000 property should have increased to over $257,223 (after deducting the original $150,000 mortgage)! ! This example assumes that the property is cash neutral – the rental covers all outgoings.

It doesn’t take a rocket scientist to work out which is the better long-term investment. In this scenario, property is a good, long-term, high-risk (because returns vary over time) investment and an investor would be unwise to even consider the bank as an option. The fixed deposit would have been, in this situation, a bad, low-risk investment.


*        It is possible to have good and bad low risk investments, and good and bad high-risk investments.

*        Always consider the time horizon for your investment plans.

*        While there are no guarantees that historical returns will always continue, apply your own common-sense and informed judgement to take a position that you are comfortable with. For example, knowing that property has, over the long-term, averaged 10.2% return, a conservative investor might well base their numbers on only 5% annual average for the next 10 years.

Time to Invest or is it Better to Wait and See?

9 November, 2011

It seems that almost every day we wake to more news about economic upheaval in places like Greece and Italy, and fears about the stability of the global economy are hard to ignore. Does this mean that people should “wait and see” before making investment decisions.

An increasing number of respected economic commentators are now saying that heightened market volatility is the “new normal”. As such, if you are taking a “wait and see” position then it is likely that you will be waiting a very long time. Experienced investors often say that volatility creates opportunity and there are undoubtedly some outstanding opportunities out there. I have been surprised that recent opportunities – such as 6% NET return on freehold waterside land – have not been snapped up like they would several years ago.

Regardless of the drivers, heightened volatility requires investors to exercise specific investment strategies. While many of these strategies are basic investing concepts that can be applied any time, they are particularly important in a volatile environment.

Don’t follow the herd. It’s an old cliché but it still holds true – many investors generally buy into the market too late and they sell too soon. Unfortunately they tend to take the lead from the media and generally, by the time that you read that the market has “taken off” in the newspapers it is normally too late!

Keep a long-term perspective. It is all too easy to get caught up in the market’s daily roller-coaster ride. This type of behaviour is natural, but can easily lead to bad or no decisions. Instead, focus on whether your long-term performance objectives, i.e., your average returns over time, are meeting your goals. Property, in particular, is a long-term investment and if you don’t have a perspective of at least 5 years then you are probably best to consider other investment types.

Take advantage of asset allocation. During volatile times, more risky asset classes such as stocks tend to fluctuate more, while lower-risk assets such as property, bonds or cash tend to be more stable. By allocating your investments among these different asset classes, you can help smooth out the short-term ups and downs.

Consider buying opportunities. Although you may be rightfully gun shy in the wake of the recent market turmoil, one strategy you should seriously consider is selectively adding to your investment portfolio. This is especially true when prices are low versus historical averages.

Do Your Homework. It is important to ensure that you are making a fully informed decision. While there is no such thing as a “sure bet” in any market, there are certain fundamental checks, for each investment type, that be applied to manage risk.

Financial Analysis. Take the time to analyse all opportunities using assumptions that you are comfortable with. I generally use reasonably comprehensive spread-sheet modelling that makes it relatively easy to project the financial merits of an investment across a number of scenarios. Consider the earlier example of a freehold land title earning 6% ‘lease’ return. On the face of it, 6% doesn’t seem much more than current bank deposit rates. However, because the lease is reviewed (upwards only) in line with the underlying property value, the return also increases. So, an investment of $100,000 returning $6,000 (6%) in year 1 could be earning $12,000 in year 10 if the property has doubled in value. Average that out over 10 years and the average cash return on the original amount invested is approximately 9%. If inflation takes off within the next year or so as some are predicting, then this might well be significantly more. This is an overly simplistic example but it does illustrate the benefit of doing the numbers.


I am often being presented with very good long-term property opportunities. You can check out some of these on my website or, better still, contact me to have a chat about what you are trying to achieve.