An article in the NZ Herald caught our eye recently. It stated that New Zealand’s gross debt now stands at $603.5 billion, equating to about $120,000 per head of population. Kiwis owe more than ever, but can debt help an economy recover? It got us thinking about our attitude to debt.
When it comes to commercial property acquisition, many of Viranda’s clients are committing to significant levels of borrowing, yet refuse to let Covid-19 hold them back. Despite a wildly turbulent year, commercial real estate has reacted in a surreal way – and it’s largely positive news from our camp.
The Reserve Bank’s measures to stimulate the economy has led to plenty of money going around, and investors have realised that ‘money in the bank’ is generating poor yield and income right now. Commercial property ownership is an appealing option. Low interest rates for the foreseeable future has also been encouraging, and servicing debt has become very manageable.
The industrial sector is still the hot performer thanks to the dynamics of demand and lack of supply, but to see ongoing yields of around four percent – that’s been surprising. As to be expected, the retail and office sector is vulnerable, unemployment is rising, immigration has dramatically reduced, household incomes dropped, and trends of remote working have emerged. It takes new strategies and clauses to fight these factors. Regardless, there have been incredible examples of landlords and tenants working together to combat Covid-based issues, along with banks (and even non-bank lenders) coming to the party to assist.
Viranda Director, Oli Wills, feels the attitude towards debt is mixed among clients “uncertainty can make people hesitant to invest, but the rebound in confidence happened quicker than anticipated. Our approach to property acquisition remains diligent regardless of the market conditions at play. Exposure to risk is factored in, quality of tenant is crucial, as is location and a robust lease agreement.” He says.
“We are still transacting strong levels of deals, expats are returning home, and of course with money in the bank doing very little at present we can make the dollars work harder (within sensible parameters) – especially given the low interest rates.”
As we kiss (albeit in a mask) a tricky year goodbye, we are feeling optimistic for 2021.
Please get in touch if we can help with your investment goals.
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