Is Property Part Of Your Plan?

Income for retirement – residential versus commercial property investment.

By PMG Investor Relationships Manager Rory Diver

New Zealanders have had a long affinity with residential property investment and history suggests this has been for good reason, with Reserve Bank of New Zealand (RBNZ) figures showing the sector has delivered 531% in capital growth over the past 30 years[1].

Since the 1987 share market crash, property investment has been seen as a way to hedge against the volatility of shares while delivering regular rental income and capital growth over time. Undoubtedly, residential property investment has been a primary driver of wealth creation in New Zealand, but recent legislative changes suggest the outlook for the sector is not so bright for investors.

Residential legislative changes

The Government has recently announced a raft of changes designed to improve housing affordability. This has resulted in the extension of the ‘bright-line’ test from five to 10 years.

For investors, this means newly acquired investment property (excluding new builds) will incur income tax on any profits from a sale within 10 years of purchase. Essentially this is a form of capital gains tax.

From 1 October 2021, interest deductibility can no longer be applied to newly acquired investment properties (other than new builds) and will be phased out entirely over a four-year period. This increases investor costs as they will pay a higher proportion of tax on rental income. Additionally the ability to repeatedly borrow and buy more property by leveraging against the equity in existing properties has been a major benefit to residential property investors, but this has also been restricted, with investors now having to comply with a 60% loan-to-value ratio (LVR).

These three key changes come on top of the Healthy Homes Guarantee Act, which last year introduced standards to improve the quality of rental housing in New Zealand, and recent changes to the Residential Tenancies Act, which improved tenant rights and stability. The consequence of these changes has increased landlord costs – maintenance and repairs to bring residential properties up to standards, management fees, or the cost of your time if you are managing an investment property yourself. All these aspects should be factored in to determine if a residential property investment will deliver the lifestyle you desire.

Is the juice worth the squeeze?

For the past 20 years, we have been in a falling interest rate environment. Low interest rates aren’t great for savers but are good for borrowers as this encourages spending and investment, which has a multiplier effect on asset prices. Overlay this with a demand-supply imbalance and New Zealand residential property prices are now some of the highest and most unaffordable in the world relative to our wages.

Wage growth has been outpaced by rents, which in turn have been completely outpaced by property prices – this has had the net effect of reducing yields to investors.

Data from REINZ suggests that as of December 2020, the average gross cash yield for residential investment property in Auckland is 2.9% per annum [2]. This varies from region to region, but the reality is once you account for costs and taxes, your net yield could be less than 2%. If you are looking to generate income, there are certainly other investment opportunities worth considering.

Time to consider commercial property

Commercial property includes office buildings, retail premises, warehouses and industrial buildings. Tenants are usually businesses that pay rent to occupy space in accordance with lease agreements.

Commercial property returns are typically higher than residential properties, but there are potentially greater risks and barriers to entry for investors. Higher initial capital is required (lower LVRs are applied to commercial property) and there is far greater complexity around the negotiation of lease structures and building due diligence. Seismic strength and building condition need to be investigated far more thoroughly than residential property. There are many more things to consider when investing in commercial property.

Rental income from residential property is heavily tied to household income, however, commercial rents are more dynamic, with landlords able to charge much higher rates per square metre, which increases potential returns. Reliability of income can also be superior in commercial property due to the prevalence of longer-term leases, whereas residential tenants prefer much shorter leases often with break clauses to allow vacation of properties at short notice.

Making property investment accessible

Commercial property funds offer many of the same benefits of direct commercial property ownership. These include providing regular, passive income, capital preservation and value appreciation over time – but a fund is without the stress and hassle of managing the property yourself.

Buying units or shares in a commercial property fund can give you exposure to multiple commercial properties, which improves the diversification of your investment within a property asset class – meaning your cash returns are not reliant on any one location, tenant, asset type or industry.

At PMG, our investors can enjoy the benefits of investing in commercial property from an initial investment of just over $1000 [3] , and we have historically delivered a return range of 5.5-7% per annum, paid either monthly or quarterly [4]. Our funds are also set up as Portfolio Investment Entities (PIE) that have a capped tax rate of 28%. In contrast, residential property investors are facing increasing tax burdens, with the highest income tax rate now at 39%. If you are placing your hard-earned cash in the hands of a fund, it’s important to choose a manager with a proven history of performance and strong governance. Ideally, they would be licensed under the Financial Markets Conduct Act 2013 (FMCA), which oversees investment schemes like the ones we offer at PMG.

PMG is one of only a handful of commercial property funds managers to hold a ‘Managed Investment Scheme’ licence. PMG’s values are founded on providing a high level of transparency across all our investment funds, and because we’re overseen by an independent supervisor and conditions imposed on registered Managed InvestmentScheme managers, this provides investors greater regulatory protection compared to reduced powers of residential landlords.

Given the recent changes to the residential property investment landscape, now more than ever is the time for investors to consider investment alternatives in more productive asset classes. For investors who like the stability of bricks and mortar but are wanting reliable returns without the hassle of managing their own property, investing in a commercial property fund might be the answer.




2 Capital Gains & Rental Yield Report - Q4 2020

3 PMG Generation Fund has a minimum investment of 1,000 units, and at $1.09 per unit equals a minimum investment of $1,090. Other PMG funds have different minimum investment requirements. Please visit for further details.

4 The gross cash return is based on historical performance of the various PMG funds. Past performance does not guarantee future performance or returns of each fund or the funds collectively. Please refer to for current metrics and more information. Prospective investors are recommended to seek professional advice from a Financial Advice Provider who takes into account their personal circumstances. All information is correct as of 11 June 2021.

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Meet your investor relationships team

With a range of investment funds to suit New Zealanders of all ages and stages, it's easier than you may think to invest. Give one of our knowledgeable pmg Investor Relationships Managers a call for a no-obligation chat, or visit our FAQ page.

Matt McHardy
Matt McHardy

General Manager Investor Relationships


Rory Diver
Rory Diver

Investor Relationships Manager


Ben Cant
Ben Cant

Investor Relationships Manager


Kay Karl
Kay Karl

Investor Relationships Support


4 steps to investing with pmg

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1. Reach out

To start investing with PMG, register your contact details via phone or email. Alternatively, make an enquiry via our contact form and we’ll have someone from our Investment Relationships Team meet you.

Watch PMG’s history video to learn more about our approach to commercial property investments, along with the five funds within the company. We encourage you to speak with a friend or family member who knows us, and we also recommend you chat with a Financial Advice Provider for specific advice to suit your unique situation.

Look through our current investment offers to find the right PMG fund to suit you. After downloading, carefully review the associated Product Disclosure Statement(s) for the offer(s) you’re interested in. Investing with us is straightforward – either apply online using our secure and confidential investor portal, via the printable form on each fund page, or reach out to your local PMG office to fill out the relevant paperwork.

Our lines of communication are always open. If you have any questions, reach out to your local PMG Investor Relationships Manager. Whether it’s a general catch up or discussion around the latest developments with your investment, we’re here to help.

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