Foreign property buyers shy away

Foreign buyers are shunning New Zealand investment property, their share of deals falling from a quarter of the market three years ago to just 8 per cent last year.

But the sector is picked to recover soon on the back of low interest rates and poor returns from other classes of investments.

Zoltan Moricz of CB Richard Ellis has just completed an investment transactions monitor tracking $5 million-plus deals. It shows that in the past five years, a quarter of all non-residential investment property deals went to foreign buyers but the numbers have since plummeted.

"There has been little interest by foreign buyers in 2008, with 89 per cent of the sales volume from local purchases, 8 per cent from foreign buyers and the rest undisclosed," Moricz found.

Last year, 63 per cent of buyers were private, 8 per cent unlisted real estate trusts, 7 per cent managed funds, 5 per cent syndicates, a further 5 per cent government sector, 4 per cent corporate, 2 per cent trustee and the rest unknown.

Investors were the single largest type of vendor last year, accounting for nearly 80 per cent of the properties sold. That proportion was higher than in previous years.

"We have seen a major reduction in the proportion of properties sold by developers and this reflects the difficult market for developers with less newly developed properties entering the market. On average over the last 10 years, developers have made up around 15 per cent of the vendors each year," Moricz said.

He found a big reduction in the number and value of deals. Sales of investment real estate in the three main centres fell 72 per cent last year compared with 2007.

Auckland sales numbers fell from 153 in 2007 to 63 last year, Wellington from 36 to 16, and Christchurch from 15 to 9.

Moricz predicted last year would prove to be the trough and the market would rise this year. More distressed properties would hit the market and the number of mortgagee sales would also rise, he said.

Low returns from other asset classes and falling interest rates could drive more people to consider real estate, too, he predicted.

Auckland deals make up about three quarters of the total but the value of the city's property sales volume fell by 72 per cent from $2.7 billion to $754 million.

Last year's biggest Auckland deal was the sale of the freehold interest in the 2.9ha former Cook St council depot site for $43.5 million. This is the site of the planned $2 billion Rhubarb Lane mixed-use development and it was sold at auction. This was also the largest transaction nationwide.

The Abu Dhabi Investment Authority's $126 million purchase of a half share in AMP's Lion Breweries development in Newmarket was not included in the analysis.

"Although it is a property deal, it was a buy into the equity of a fund," Moricz noted.

Wellington's sales volumes fell 77 per cent from $630 million to $143 million, with the sale of Sovereign House on Manners St, a 12-storey 1980s building sold by Prime PropertyGroup Ltd (Eyal Aharoni) to Anaro Investments Ltd (Ian Little & Natalie Evans) of Oamaru for $19.6 million the largest recorded transaction.