A Year of Challenges and Opportunities

We recently welcomed our investors and potential investors at Tauranga Racecourse for a panel session discussing the current commercial real estate market, and the potential challenges and opportunities for investors in 2023. Joining PMG’s CEO Scott McKenzie was Craigs Investment Partners Investment Director Mark Lister, KPMG’s Tax Partner Rob Hill and JLL’s Head of Research Gavin Read.

The key takeaway from the event was for those seeking to grow their investments, was to think about what signs may be out there signalling market conditions are on the improve, and seek specialist advice, rather than waiting until market conditions fully regain before looking for investment opportunities.

According to Scott, New Zealand is currently at the most interesting part of the economic cycle and although property prices are seeing a softening of asset values, our strategy remains focused on creating a robust property portfolio that can see investors through this period and into the next.

Macro-economic view

Mark Lister shared his macro-economic outlook and the influence of the pandemic, and the resulting government fiscal stimulus which was implemented around the world to ensure economies didn’t collapse. The pandemic didn’t have nearly as much of an impact as was predicted, so stimulus then resulted in rising inflation, with central banks across the globe then having to put in measures to normalise interest rates to bring inflation down, sending many countries like New Zealand into a what is hoped to be a short-lived recession.

Mark’s view was that New Zealand’s economic outlook is in a comparatively good state, with plenty of reasons to be optimistic. Although he shared that there may well be more economic bumps on the way, with many Kiwis still coming off their fixed interest rates, the country is nearly at the turning point for confidence in the market, and as an investor, it’s always a good time to look out for opportunities.

What tax changes may be on the horizon?

Tax policy has become something of a pre-election battleground for parties jostling for a seat at the top table. Rob Hill noted that any changes to New Zealand’s tax rules are unlikely to be passed before the election, so the question really is will they survive the election?

With no changes signalled to the current multi-rate Portfolio Investment Entity (PIE) structure provided by some investment opportunities, Rob Hill says he expected that this tax-efficient avenue will seemingly remain open to investors after the election.

In terms of what investors should read into tax policy conversations, it’s becoming more and more important to consider the net rather than gross returns of investment offers, and reiterating the sentiment of macro-economic insights, looking for opportunities that can yield sustainable returns over the longer term.

Commercial property trends

Gavin Read shared insights on commercial real estate, noting that property yields tend to lag behind the broader economy, and there’s likely to be a little more softening to go in terms of capital asset values in the residential market we might see house prices bounce along.

From an investor point of view, he said New Zealanders are likely to still be cautious and sit on the sidelines in terms of investments, as they try to manage their home finances within the context of the rising cost of living and may are going to sit on savings and feel more comfortable having cash liquidity.

Some of the biggest trends in commercial property are seeing more partnerships and collaborations with existing tenants and investors banding together to have more buying power in a higher interest environment which helps spread investment risk.

Another key trend Gavin shared is in the build-to-rent space which is likely to see plenty of international and domestic investment in the sector and will help support more homes for Kiwis in the places that New Zealand needs to intensify and grow.

Watch the full panel discussion on our YouTube channel here.

Disclaimer: The information in this article is of a general nature and was current at Tuesday, 15 August 2023. It is not intended to be regulated financial advice for the purpose of the Financial Markets Conduct Act 2013 and does not take your individual circumstances and financial situation into account. PMG does not provide financial advice. Please seek advice from a licenced financial advice provider before making any investment decisions.

Any wholesale investment opportunities referred to by PMG are not intended to and do not constitute an offer of a financial product, unless explicitly stated as such and supported by a current disclosure document. Any wholesale offers that are made will only be open to persons who fall within the exclusions applicable to offers made to Wholesale Investors as set out in Schedule 1, clause 3 of the Financial Markets Conduct Act 2013 (or to any other person to whom an exclusion applies under Schedule 1 of that act.