Understanding what the future holds for the local and global economy is akin to looking into a crystal ball. Earlier in the year there was much speculation about whether the world was heading into a GFC2 (Global Financial Crisis). It hasn’t. One person who got this right was renowned economist, Cameron Bagrie, of Bagrie Economics.
The former ANZ chief economist predicted ongoing volatility and share market uncertainty, but no massive correction. So what does he think will happen to New Zealand’s economy over the next 12 to 18 months? Grumpflation.
In Bagrie’s language that’s the combination of grumpy growth and rising costs.
“Growth across the New Zealand economy has moderated and there is growing wariness that a downturn is around the corner,” says Bagrie.
“But I don’t like the term downturn. There are risks, notably offshore and I’m getting increasingly worried about places like China, but the New Zealand economy is in reasonable shape when we eye the bigger picture. Where the world goes we will follow though, and there are a lot of risks.
“The New Zealand economy does not have severe late-cycle excesses that can warn of a pending correction. The economy does have points of vulnerability, such as extended Auckland property prices, but not an array of warning signs,” he says.
“It’s no secret NZ has a love affair with property, particularly residential. However, increasing compliance, the extension of the brightline test and surging capital values are making residential investment less attractive.
CEO of established unlisted funds and property manager, Property Managers Group (PMG), Scott McKenzie, says the Group is seeing much more enquiry and investment in its direct commercial property funds from traditional residential property investors.
”We recently received two AA recommended ratings from FundSource for two of our retail funds – Pacific Property and PMG Direct Office Fund, one of the first unlisted funds and property manager in NZ to receive two,” McKenzie says.
“This recognition, coupled with the solidly performing commercial property sector are two of the factors driving interest in our funds,” he says.
The commercial property sector is enjoying a period of prosperity on the back of a strong New Zealand economy. What’s more, commercial property yields continued to outpace interest rates, offering attractive and easily accessible opportunities for investors¹.
Considering the above and the graph below, now may be a good time to dip their toes into the commercial market.
Compared to other asset classes including residential, bank bonds and listed property vehicles (LPVs), unlisted commercial property is currently delivering much better yields and providing exposure to diversified and passive property investment opportunities – models which are not easily replicable by individual investors.
Research(2) shows if you had invested $100,000 25 years ago in directly-held commercial property, the value of your investment now would be 7.75 times that at $775,000 (2018). It also states that following the GFC it took direct commercial real estate only three years to fully recover its loss of value (approx. 40%) versus equities which lost the equivalent value, which took six years.
“Investors gravitate back to tangible assets with easily identifiable revenue streams when markets are volatile and uncertain, just like we are seeing now,” says McKenzie.
“PMG’s business model ensures our debt to equity ratio is managed as conservatively as possible.
We offer investment funds diversified by sector and geography with multiple buildings and multiple tenants which ensures investor risk is managed, investor capital is preserved with regular and more reliable cash flow.”
“With a diverse choice of unlisted commercial investment funds, mortgage brokers and financial advisors can offer their clients alternative options and benefits.
“While we can’t predict the economic future, PMG’s 26-year proven track record of providing sustainable returns through a variety of challenging economic fluctuations, and our business model, puts us in good stead to weather any pending turbulence,” he says.
Content of the article is the opinion of Scott McKenzie and Cameron Bagrie and is not intended as personalised financial advice. You should seek independent financial advice from an authorised financial advisor before making any investment decisions.
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
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.