According to the latest data from the Reserve Bank of New Zealand (RBNZ), the value of all the country’s houses now surpasses $1 trillion (albeit with about a quarter of that tied up in debt).
KiwiSaver, by comparison, is getting on to about $50 billion – or 5 per cent of the residential property market.
Yet despite the national obsession with houses prices, relatively few Kiwis could claim to be ‘property investors’: most of us (a dwindling number, perhaps) just buy a house to live in with a vague assumption that its value will increase year-after-year.
Even the currently much-maligned rental property owner class hardly falls into the professional investor category. Ministry of Business, Innovation and Employment (MBIE) published figures in 2015 showing an estimated 130,000 private landlords in New Zealand: about 80 per cent of those owned one rental; 17.5 per cent collected rent on two-five properties.
Residential property rental yields in the country have also trended down over the last decade as capital values spiked ever-higher.
A government-commissioned report in February 2018 – titled ‘A Stocktake of New Zealand’s Housing’ – found average residential property yields have fallen from about 6-7 per cent in 1997 to 3.5-5 per cent as at 2017.
As New Zealand’s well-known financial information website, Sorted, points out, too, residential property is not a set-and-forget asset class.
“Property investment usually involves more work than saving money in the bank or investing in shares and managed funds,” the Sorted site says. “Most investors spend a lot of time looking for suitable properties to buy, finding and managing tenants, and arranging for maintenance work to be done.”
Not to mention dealing with real estate agents…
But even if they overly discount the negatives, Kiwis intuitive attraction to property is not entirely mis-placed: the asset class does have a long history of producing both income and capital gains.
However, investing in a single rental property – as 80 per cent of the New Zealand residential landlords appear to – carries more risk than most landlords may realise.
As well as a significant ‘liquidity risk’ (ie owners may not be able to sell the property when they need the cash), the typical Kiwi landlord suffers from an extreme lack of diversification.
While owning more than one rental may spread the risk somewhat, by focusing only on New Zealand residential housing investors lock themselves out of a vast global property market that still offers the core attributes of the asset class – regular income plus potential capital gain.
Most retail investors, of course, don’t have the wherewithal to buy commercial property outright. But they can, nonetheless, access the income streams flowing out of the countless offices, factories, warehouses and retail spaces that underpin the real global economy.
For New Zealand investors listed real estate funds provide the simplest entry (and exit) point to the commercial property market. Listed property funds – also known as real estate investment trusts (REITs) – can specialise in regions or sectors or take a global approach.
InvestNow, for example, includes six listed property funds on the menu ranging from the home-based Mint NZ REIT to a couple of global roamers offered by AMP Capital and Auckland boutique firm, Pathfinder. The Fisher Funds Property & Infrastructure Fund also provides InvestNow clients with the opportunity to access a diversified set of global real estate assets.
John Berry, of Pathfinder Asset Management, says “property funds provide diversification to an investment portfolio, including as an inflation hedge. Within New Zealand these generally focus on office, industrial and retail sectors, while offshore they can include storage units, data centers, cell towers, residential property and forestry. Funds investing in listed property stocks have the advantage over unlisted property investments by being liquid (meaning the property stocks can be bought and sold easily). The returns a property fund generates from listed property stocks will be a combination of both dividends and capital growth”.
Listed real estate provides investors with exposure to long-term trends such as construction and upgrading, driven by changes in demand influenced by demographic trends.
As Carlie Eve, Mint Asset Management, explains, “With a low level of long term correlation to the NZ and US main market indices and bonds over the last 10 years a Listed Property Fund provides investors with added diversification across the risk and return spectrum”.
Listed property funds current available on InvestNow.
|AMP Capital Australasian Property Index Fund||A passively managed portfolio which provides access to Australasian property investment opportunities through a single fund. It aims to generate medium to high returns over the long-term by investing in listed property securities in New Zealand and Australia.||3.33%||6.54%||8.22%||0.42%||Download|
|AMP Capital Global Property Securities Fund||A global portfolio of property securities listed on stock exchanges in developed and emerging markets around the world. It aims to generate medium to high returns over the long-term by investing in a broad range of property regions, sectors and securities through a single fund.||(1.28)%||1.17%||7.58%||1.34%||Download|
|ANZ Investments OneAnswer Property Securities Fund||The Property Securities Fund invests mainly in New Zealand and Australian listed property assets. Investments may include listed companies, funds or trusts that invest in property, and cash and cash equivalents.||5.29%||7.03%||10.69%||1.12%||Download|
|Mint Australia New Zealand Real Estate Investment Trust||This fund targets a total return from investing predominantly in Australian and New Zealand shares which generate income and capital gains for investors from the ownership and management of commercial property assets.||4.18%||5.80%||8.68%||1.52%||Download|
|Pathfinder Global Property Fund||The Fund is designed to provide NZ investors with a liquid, diversified, currency managed global property exposure. The Fund will directly hold between 50 and 100 listed property stocks, including an allocation to New Zealand. Property stocks often behave differently to the wider stock market and are regarded as having an element of inflation protection.||(1.27)%||3.82%||–||1.00%||Download|
|Salt Investment Funds Enhanced Property Fund||The Fund’s strategy is to invest in a portfolio of shares of New Zealand and Australian property trusts, companies and other securities with exposure to property and property-related sectors. The Fund’s investment objective is to outperform the S&P/NZX All Real Estate Gross Index benchmark by holding “long-only” New Zealand and Australian property and property-related securities, short selling securities, holding cash and levering its assets.||7.95%||8.95%||–||1.27%||Download|