Of all the various influences that have combined to shape recent capital flows into New Zealand, one continues to stand out: Overseas funds bearing large stockpiles of accumulated cash are coming to our shores and investing in property.

SO WHY PROPERTY, AND WHY NEW ZEALAND?

In a world of low-income yields, investors are searching for opportunities to enhance returns. This has meant they are typically doing one of two things – either moving up the risk curve (so maintaining absolute income returns) by reducing their exposure to bonds, or seeking out alternative less traditional forms of investment. Increasing investment in property has been a beneficiary of these changes. Property has some attractive characteristics. It offers an attractive yield, and provides a balance between the stability of fixed income and the returns associated with shares. It can also offer a hedge against inflation should that eventuate.

This increased allocation to property, and increased competition for assets, has resulted in international investors migrating away from their home markets into new geographies and new asset types.

Historically overseas buyers haven’t played a major part in New Zealand, with the relatively small size of our commercial property market making it difficult to justify the associated establishment costs. But with traditional markets becoming saturated, New Zealand has matured into a destination for investment.

Buyer demand, from both international and local investors is generating an extremely healthy and liquid market. Total sales (both domestic and international) has exceeded $2.5B per annum for each of the past five years – but it is the $8.7B spent by offshore investors since 2014, that has really changed things.

As American writer Mark Twain once said: “Buy land, they’re not making it anymore.” When it comes to New Zealand real estate, his fellow countrymen have listened.