The future of property investment

The future on property investment. Photo / Supplied

Why residential property investors are now switching to commercial property.

In this opinion piece, Farhad Moinfar, director of Citadel Capital, says better returns, tax breaks and growing demand are driving investors to the commercial property sector.

The Government's recent announcement on tax changes to residential housing will mark a profound shift as investors move to greater yields and security from the commercial and industrial property markets.

It may well signal, as some commentators have already prophesied, the end of the residential property market for investors.

Kiwis are inherently drawn to bricks and mortar investment – they can see it, stand in it and understand it. Residential property has always been king for the 'mum and dad' investor, through its historic combination of affordability, tax efficiency, ease of tenant management and availability of financial leverage.

Auckland's median house price has steamed past $1.1 million and the latest punitive tax changes affecting residential property investors such as the 10-year Brightline (capital gains tax by stealth), and the removal of interest cost deductibility, without doubt heralds the end of residential property as a viable investment.

Coupled with the new 40 per cent LVR restrictions and the punishing obligations arising from amendments to the Residential Tenancy Act, it is clear mum and dad investors are being driven towards the commercial and industrial property sector.

Citadel Capital is engaged in the development of such properties; we are seeing a groundswell of enquiry and demand, in no small part due to this government's policy.

The inherent affordability, tenant-ability, tax efficiency and leverage equations which once fuelled the residential markets are now contributing to the growing appeal of small format commercial and industrial property.

Photo / Supplied.

Citadel Capital is engaged in the development of such properties; we are seeing a groundswell of enquiry and demand, in no small part due to this government's policy.

This new asset class, which Citadel has brought to the market, offers investors an accessible price point to enter the sector. Innovative designs which cater to the latest workplace trends can be configured to suit any tenant requirement – from a motor mechanic to small digital printing press or craft brewery.

For less than half the level of investment and deposit, investors who previously only considered apartments or small houses as a rental investment can now participate in the rapidly growing commercial and industrial property market. Importantly, it also allows investors to diversify or expand portfolios as well as securing the stronger cash flow streams afforded by commercial property.

In this current environment, commercial and industrial yields are roughly double that of a comparable residential investment.

Commercial and industrial property investors can deduct mortgage interest costs against their income and moreover, post Covid-19, investors in commercial and industrial property can now depreciate buildings, fixtures and fittings—another significant tax advantage over the residential market where this is not possible.

Ahead of the curve, Citadel Capital has been at the forefront of transforming the level of investment and new interest in industrial and commercial property. In the past 6 months, Citadel have generated in excess of $100m in sales across 220 strata-titled industrial units spread over numerous projects in Auckland's burgeoning North-West growth node, based around The Foundry in Hobsonville and Ironworks in Westgate.

Following the sell-out of all four previous developments, Citadel's latest project in the pipeline, The Foundry 3, is set to offer investors an exciting opportunity to diversify and take advantage of the return that this new asset class has to offer.

The Foundry 3, offering 43 industrial units priced from $359,500 is now 60% sold out. Investors can register their interest for the remaining units at Foundryhobsonville.co.nz.

Photo / Supplied.

The pandemic has accelerated how society views industrial and commercial property; there is now an appreciation for workplace adaptability, stylish features and premium location inherent in this appealing non-residential market category. Citadel's commercial developments have delivered an accessible and affordable entry point with flexible, compact industrial units that provide uplift and significant value to owner-occupiers, business tenants – and investors.

Industrial property has come a long way since the brickyard backwaters of ports and railyards that many people used to mistakenly associate with this category. Instead, what we see now is commercial and industrial property infused with creative, contemporary designs. They are futuristic, flexible, and purpose-built workspaces perfect for businesses that no longer want a large underutilised floor space and looking for entry-level investment opportunities in prime locations.

Commercial and industrial property now bridges the gap for those driven away from residential housing by offering an affordable, easily tenantable, tax efficient and leverageable proposition – exactly the four factors stripped from housing investment.

With barriers to entry removed, fewer restrictions on ownership and with superior returns, it is no surprise that now is the time residential investors are shifting focus to commercial and industrial property.

If you are looking for a smart alternative to residential property investment this might just be the right opportunity for you. Register your interest at foundryhobsonville.co.nz, visit the on-site sales centre at 102 Hobsonville Rd, open daily 10am-4pm or contact Citadel on 0800 368 637.