Olly Newland: Safe tenancies way to prosper

Handed astutely commercial property is a winner. Photo / NZ Herald

Against the backdrop of the deepening international recession the New Zealand property market is set to enter a long flat stage later this year.

Given that the outlook could be worse, most of my property consulting clients are surprisingly upbeat and enthusiastic, seeing opportunities ahead.

Valuers and solicitors are also much more positive than a few months ago, and confirm that conveyancy has picked up.

Real estate agents report a substantial upsurge in open-home attendance and general inquiries.

What the statistics don't tell us

The problem with published real estate statistics is that they tell us what people were doing two or three months ago or even longer. Statements regarding whether the median price has risen or fallen is an equally rough means of measurement.

Different parts of the property market run at different speeds: luxury apartments are hot, shoeboxes are not; nice three-bedroom houses in leafy suburbs are hot, beach houses are not; do-ups are hot, ultra showy homes are not.

It would be much more useful to get a breakdown of the statistics into various property types, coupled with monthly summaries of contracts written up - whether they proceed or not - to show what people in the market are thinking.

Wealth creation

Some financial commentators regurgitate the hoary old theory that buying houses is "unproductive" and instead we should be creating jobs and wealth by means other than investing in property.

Yet investing in property is one of the most productive enterprises in which a nation can engage. To build or renovate a property employs architects, carpenters, painters, concrete workers, carpet-layers, appliance and hardware dealers, plumbers, electricians, landscapers, plasterers, and cabinetmakers, among others.

A property is not a static thing that is just about numbers. Ownership automatically creates wealth by creating employment.

Commercial property's future

The commercial property market will be the biggest winner from changed economic times - with the exception of mega-malls and specialist buildings, because their size limits the market for them.

Interestingly, a rise in the unemployment rate is not all bad, as it supplies a bigger pool of would-be smaller commercial tenants trying for a new direction.

The most-popular investments will be multi-tenanted, bite-sized investments - those under $2 million.

Owners of small businesses are often oblivious to a recession. And if they fail they can be replaced with another tenant willing to give it a go.

Reports of falling commercial property returns are for large buildings and shopping centres - big is not always better. Many such landlords may be badly burned.

Why would you leave your money in the bank at 3 per cent a year, minus tax, when good, solid commercial property can be bought showing 6, 7 or even 8 per cent before tax benefits, providing you have a safe mix of tenancies?

As a commercial and industrial property landlord, if you look after your tenants, they will thrive and so will you.

Treat them badly and they will simply wander off.

* Olly Newland is a property investor, consultant and best-selling author of six books. Visit www.ollynewland.co.nz for more information.

You can email your burning property questions to onewland@ihug.co.nz or andrea.milner@heraldonsunday.co.nz

NZ COMPOSITE COMMERCIAL PROPERTY

The Property Council's latest quarterly commercial property survey of income showed a drop-off in yields since March 2006 across the combined sectors of retail, CBD and industrial property nationally from 9.05 per cent to 7.2 per cent.

Capital gains peaked as high as 14.63 in June 2007, but had fallen to 2.1 per cent at the end of the last quarter.

Property Council chief executive Connal Townsend says yields remain stable in the commercial property market sector in contrast with dire numbers coming out of the share market, the finance sector and the banks.

The Property Council index is dominated by listed property trust holdings, Townsend says, and listed trusts reflect sharemarket movement.

"Commercial and industrial property is still returning a solid 7 per cent," Townsend says, "and there are strong gains to be made in capital growth when the markets inevitably recover, as long as you are prepared to patient and strike at the right time."

- Andrea Milner