A REVIEW OF THE MARKETS – November 2018

Auckland commercial property sale spike

 

There has been plenty of media reports and general chat around Auckland’s housing market flattening, but commercial property continues to fire, with a strong spike in sales occurring in the past 12-months.

Commercial and industrial sales data across the country (year to date) shows that 2018 is set for another $10 billion turnover, and could easily reach a new record high.

When the results are broken down by region, Auckland represents almost two-thirds of all sales activity by value and a third by volume. Average sales value of commercial and industrial property is just under $4.5 million, the highest on record and almost double the national average.

Typically, the headlines report on the top-end of the sector, yet our research show that nearly 85% of all commercial and industrial sales across NZ are transacted for less than $2 million – certainly making it an easier opportunity, albeit competitive, to enter (and exit) the market.

“There is no doubt that the commercial market has performed well across all sectors over recent years. We do not envisage any major changes to this in the short to medium term, especially given the lack of quality stock available. However with the compression of yields, it makes it paramount to seek the best advice in securing the right asset, one that provides a secure investment throughout any changes there may be within the market.” – says Oliver Wills – Director, Commercial Property.

 

Foreign investment in NZ

 

We have seen foreign investment at the top end of NZ’s commercial property market rise in the last year, however recent tightening of the overseas investment regime could be sending a message to potential investors that NZ is no longer one of the easier economies to conduct business dealings with.

 

At Viranda, we are looking forward to seeing what the second stage review of the Overseas Investment Amendment Bill (OIA) will reveal. Associate Finance Minister, David Parker, recently shared, “We know that steps can be taken to simplify the rules for those making productive investments in our economy, while adequately protecting our most sensitive assets, including our pristine land – the envy of the world.

“In the second phase of our reform we will ensure New Zealand remains an attractive destination for beneficial, long-term foreign direct investment, while examining ways to ensure prospective foreign investments are consistent with NZ’s national interest.”

We believe the next rewrite is likely to make it clearer to applicants what information they need to disclose, and will be more explicit around whether an application is likely to be approved or not. But at this stage it is not known when this review, or any proposed changes will take effect.

 

While foreign investment makes some people uncomfortable – we only need look at history to see that discouraging business activity makes it harder for prosperity to continue. Despite some of the changes to the OIA, we are seeing flexibility in other areas, particularly with the Overseas Investment Office’s (OIO) ability to grant exemptions on a case-by-case scenario.

 

If compliance with the Act is “impractical, inefficient or unduly burdensome” the OIO may feel empowered to take an accommodating approach. Investors could also meet the “benefit to New Zealand” test, among other qualifying checks.    

 

Viranda is immersed in property investment and land development strategies every day – understanding the acquisition process, legal requirements and possible implications on behalf of clients is our area of expertise – so please contact us if you would like to discuss the current climate.

 

Sources:

https://www.beehive.govt.nz/release/next-phase-rewrite-overseas-investment-rules

Commercial Property Sales: CoreLogic report Nov 2018.

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