'Let’s be careful out there’ was the catchphrase for Hill Street Blues. Those who have been around a bit will remember the show. It’s probably an appropriate tag line for investing at the moment. Investing is getting tougher. Investors should always do their research. It’s even more imperative now.
The US Federal Reserve (Fed) is lifting interest rates. Global debt statistics are getting more attention; global debt has hit 225% of GDP. Emerging market economies in areas such as South America that have borrowed heavily are under the spotlight. Some have had to lift interest rates significantly to defend their currencies against US strength. Argentina has gone to the International Monetary Fund for help. Rising interest rates and a lot of debt is a bad combination.
Valuations are lofty. Statistically, the global economy is due some sort of downturn, if the historical 10-year pattern is any guide. The protectionist breeze is blowing stronger, which is not good for trading nations such as New Zealand, oil prices have crept up (there is both good and bad in that), populism is driving policy in the likes of Italy which is of concern for Europe, and geopolitical spats are rife.
It’s far from one-way traffic, however. The Fed is lifting interest rates for good reasons; growth in the world’s largest economy is robust and unemployment has fallen to 3.9%. The Fed may be hiking but other power-broker central banks such as the Bank of Japan and European Central Bank are not. Corporate earnings around the globe are good.
We want interest rates to move up from levels seen after the global financial crisis, with rates still negative in some parts of the globe. Extraordinarily low and negative rates in some countries is not a sign of economic health. Of course, we don’t want interest rates to move too far such that it derails the global expansion. That’s a tough balancing act to strike.
The housing market is facing huge changes. Affordability is becoming more of an economic and social issue which takes it into the political arena. The ability of investors to offset property losses against other income is being removed. A capital gains tax is around the corner. The bright-line test has gone from two to five years. Landlords are facing additional costs as requirements to provide healthier homes increase. Foreign buyers are less welcome.
The dairy sector is being hit with pending environmental taxes (water, nitrogen, carbon); shifts in freshwater regulations and Mycoplasma Bovis. We are at “peak cow”. But it’s not all bad.
The commercial property sector is not immune but at least it’s not getting the same degree of policy-maker attention. It’s somewhat outside the political sensitivities of affordability and the environment (though not completely so in regard to making buildings more environmentally friendly).
Vacancy rates are low across the commercial sector, particularly in Auckland. The New Zealand economy is still performing solidly, despite low levels of business confidence, and economic growth is a key driver of the commercial property sector. The Reserve Bank and Treasury are both expecting the New Zealand economy to perform solidly over the coming years amidst the obvious global risks.
Capacity constraints are constraining the construction sector which makes life favourable for the existing stock of assets.
One of the world’s leading investment firms (Blackstone) just signed to buy $635 million of assets in Auckland. That’s a huge shot in the arm for investor confidence and New Zealand’s economic story.
Our own central bank does not expect to lift interest rates until late 2019 or 2020. We are, however, what economists term ‘late cycle’. It always pays to be vigilant - more so ‘late cycle.’ Seek diversification.
Read this article and other stories from the country's leading investment and commercial minds in our free 24-page 2018 Commercial Property ThinkBook.
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.
Head of Investor Relationships – Central and Lower North Island
Investor Relationships Manager – Waikato, Auckland and Northland
Investor Relationships Manager - South Island
Investor Relationships Associate - Tauranga
Investor Relationships Support - Tauranga
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.