Investing in four walls and a roof

Ever thought about owning the local butcher shop or cleverly converting a local house into a doctor’s surgery?

For those who have dabbled in residential property, owning a own piece of commercial property can be a natural next step.

For many who feel they have already have enough equity in the residential market, there is the reassurance of no link between the commercial and residential markets.

Although it could be argued that both the commercial and residential property markets are near the peak of their cycles, property experts say this is just coincidence. The conventional wisdom is that the commercial property cycle does not mirror the residential cycle.

Connal Townsend, chief executive of the Property Council of New Zealand says: “The two are completely unrelated. At the end of the day commercial property is a completely separate industry, which is not affected by the residential ups and downs.“

“Commercial property is driven hugely by the Australian superannuation funds, which continue to pump money into
New Zealand because they can do twice as well here (with no stamp duty).”

“They are not linked, except both cycles are confidence based,” explains Peter Aranyi, director of training centre Empower Education and also the author of Commercial Real Estate Investor’s Guide.

The two markets have different drivers, adds Derek Harries, RB Richard Ellis director.

“Commercial property is driven by tenants and leases,” says Harries. “You might have a lease of three, five or 10 years which guarantees your income over the tenant of that period.”

“Residential is about supply and demand and driven by interest rates. The higher the interest rates, the fewer the buyers that there are around. It is quite a different equation.”

What wealth coach Martin Hawes likes about commercial property is that it is remarkably low maintenance.

“There is a no obsolescence factor,” he says. “With residential you have to redo kitchens and bathrooms, now tenants will demand a dishwasher. Industrial property is four concrete walls and a tin roof. It’s pretty straightforward.”

“You have very good tenants or long-term tenants on long leases who pay rates, insurance rates and maintenance. In all it’s fantastic.”

The yields for residential investors are gross while the commercial yields are net.

“When these properties come on the market they are often gone in a couple of phone calls.”

For the full report, please visit www.nzherald.co.nz 

Source: The New Zealand Herald

Iconic Queenstown building facade to be restored

A dilapidated but iconic Queenstown façade is to be restored to its former glory in an ambitious development plan covering a site that borders Rees, Shotover and Beach Streets, and encompasses several buildings.

Queenstown company, The Mountaineer Limited, was granted resource consent earlier this week for its $30million plan to develop the historic former Mountaineer Hotel site in Queenstown’s town centre.

The original hotel building dates back to the 1880s and the height of Queenstown’s gold rush. It enjoyed a long and rich history as a hotel before being converted to house restaurants and retail in the 1980s and 1990s. Extensive interior and exterior alterations, subsequently left to deteriorate, and the crowding effect of neighbouring buildings has left the original structure in poor condition with a façade that is ripe for restoration.

Tony Butson, director of The Mountaineer Limited, said the site posed a number of development and restoration challenges but he was confident his company had developed a plan that met the complexities of the site.

“Under the Queenstown Lakes District Plan, The Mountaineer façade is protected within an historic precinct, while other buildings and vacant land on the site require a modern development. We worked with heritage architects Oakley Gray to learn about the building and its significant aspects to ensure heritage values were retained,” said Mr Butson.

All work to the heritage areas of the development will meet conservation practice set out in the New Zealand Charter for the Conservation of Places of Cultural Heritage Value.

“An exceptionally high standard of skill, care and workmanship will be undertaken in consultation with the tradesmen and conservation professionals.”

The four-level building, plus basement, will house shops, a café and offices. Development is scheduled to start in September 2007; completion is expected by November 2008.

For the full report, please visit www.scoop.co.nz 

Source: The Mountaineer Limited

Property investors urged: “Don’t buy second hand”

Mom and pop property investors are being urged to abandon the traditional model of buying a second-hand property, ‘doing it up’ and then either selling it or renting it out, because it is unlikely to be a viable investment, particularly in
Auckland.

Managing Director of property brokers KEY2 (MREINZ), Russell Benshaw, says buying new property from developers is not only perfectly safe, but buyers won’t have to deal with the unrealistic expectations of sellers which pervades the current climate.

“Don’t get caught up in the feeding frenzy. People are paying too much for second-hand property at the moment because they fear losing out. We have had experienced property investors coming to us for new angles, because they recognise that the second-hand market is no longer viable.”

“Investors are turning to new property because of strong tenant demand (long term tenants want to live in nice homes), low maintenance and higher cash deductible allowances,”he said.

Mr Benshaw said building regulations mean that not only is new property safe, but developers are unlikely to build in areas that don’t stack up as a sound investment.

“Our advice is look for new property in a street where most people are owner occupiers, because there is less competition for tenants and the overall neighbourhood is better maintained.

“Furthermore, changing lifestyle trends mean we now encounter more people than ever who are committed to being lifetime renters – but they insist on good quality property.”

Mr Benshaw said Australia is also popular with experienced investors at the moment because new property inflation there is driven by demand and supply, and not heavily by public sector costs as it is in New Zealand. Australia’s growth is sustainable because it is driven by demand.

Property investment is heavily governed in Australia to protect property investors, even more so than in New Zealand.

Mr Benshaw said his message was simple: “Don’t buy second-hand property in New Zealand unless you have another specific use for it in the future, either for retirement, for the kids or because there is an opportunity for a better deal”.

For the full report, please visit www.scoop.co.nz 

Source: KEY2 Media Release

Building and construction sector remains solid

April’s building consent figures continue to confirm ongoing stability within the building and construction sector, says chief executive of the Registered Master Builders Federation, Pieter Burghout

 Today’s report from Statistics New Zealand shows the value of residential building consents for April 2007 was $575 million, a significant increase of $131 million (ie 30%) on April 2006.

The number of building consents for new housing units issued in April was 1782, an increase of 220 from April last year.

Even without apartments in the equation, there has been a slight increase in consents issued last month. For the year ended April 2007, the number of consents issued for residential buildings remained steady – with a 2.4 percent increase – while the value of these rose by 12 percent to $845 million.

“The increase in the value of consents in April 2007 continues the trend we have seen in recent months where the quality end of the housing market remains strongest overall. Most Registered Master Builder members are still reporting good volumes of work ahead of them – meaning a positive outlook ahead, at least for the short-medium term,” Mr Burghout says.

Commercial building consents showed a significant jump of $88 million in value for April 2007 compared to the same period in 2006, although the overall trend in value over the last 12 month period remained fairly flat.

“Overall, the building and construction industry continues to enjoy the general ‘steady as you go’ nature of the current environment. We continue to expect some softening throughout the remainder of 2007 and early 2008, but certainly the current trends remain very positive.”

For the full report, please visit www.scoop.co.nz 

Source: Registered Masters Builders Federation

Estate agents back reforms

Two senior real estate figures yesterday accepted reforms which will gut their industry body and give home buyers redress when they are ripped off.

Associate Justice Minister Clayton Cosgrove has proposed setting up an independent body with investigative powers to better protect consumers.

He was unapologetic about taking away compulsory membership of the Real Estate Industry Institute of New Zealand and setting up another body to fulfil its key roles.

“I think the message out there that the community has given us is pretty simple, that they want protection.“

“I think this sets a platform for reinventing confidence in this industry. If you are a shonky land shark out there today, you now become an endangered species. My advice is go and look for another occupation, there are plenty of them.”

Mr Cosgrove said it was “sad” that good real estate agents’ reputations were hurt by others.

Murray Cleland, the institute’s president, said most of the changes were well targeted and came as no surprise.

The institute had reviewed its code of ethics, engaging former Consumers’ Institute chief David Russell, Mr Cleland said. His report on proposed changes would go to the institute’s national council on June 20.

For the full report, please visit www.nzherald.co.nz 

Source: The New Zealand Herald

The housing conudrum – what to do?

A housing boom that just won’t quit has business leaders worried. By a ratio of two to one respondents to the Mood of the Boardroom survey say they are concerned about the affordability of housing.

Their concern is understandable. Five years of house-price rises have turbocharged consumer spending through the wealth effect, which has people borrowing and spending on the strength of their rising housing equity.

It is one of those good things you can have too much of. It has resulted in an economy seriously off balance, with spending growing faster than incomes and demand growing faster than the economy’s ability to meet it.

The upshot is high interest rates and a sky-high dollar.

And with buying a first home out of reach for more people, they have one more reason to head for the airport departure lounge, compounding labour shortages.

Chief executives are split almost 50:50 on the merits of one measure mooted to cool the housing market – a capital gains tax on investment properties.

Gains people make by trading in investment properties are already taxable and, as a signal to the next commissioner of Inland Revenue and more active property investors, the Budget boosted funding for enforcing that provision.

Respondents were also split on the suggestion of getting rid of interest deductibility on investment properties. That would be a dramatic change to the tax laws.

As far as moves to expand the supply of housing go, respondents recognise that house-price inflation is largely land-price inflation and are more than two to one in favour of making more land available for subdivision. A similar proportion is against more investment in state housing.

One of the drivers of the market is the conviction that the best way to accumulate wealth for your retirement is not to save through vehicles such as superannuation schemes, but to borrow money and buy housing.

That is a rational response to the contrast between the tax laws’ longstanding lenient treatment of housing on the one hand and stringent treatment of other forms of savings, such as superannuation, on the other.

Small businesspeople see things pretty much the same way as the big end of town, except that far more – 78 per cent – oppose a capital gains tax on investment properties.

For the full report, please visit www.nzherald.co.nz 

Source: The New Zealand Herald

City council building fees hammer homes

Higher city council building fees are making it even more difficult for first-home buyers to enter the booming property market.

Councils across Auckland are proposing fee rises to cover the costs of the Government’s new building regulations, designed to prevent another leaky homes fiasco like that in the late-1990s when many developments were given consent but not inspected thoroughly.

However, builders and property developers say increased building consent fees, number of inspections and infrastructure levies – up to $30,000 – are costs that are being passed on to buyers.

A property developer building a million-dollar home in the swanky Auckland suburb of St Heliers, who asked not to be named, has spent more than $30,000 on council fees – more than the survey, engineering, geotechnical and architectural fees combined.

He said Auckland City Council’s proposed fee increase, 4.9 per cent on top of an 18 per cent rise two years ago, was bad enough but the sheer number of fees “just tally up”.

“You can’t get building consent for less than $10,000 when it used to be $1500 or $2000 a few years ago. There’s no doubt it’s pushing up house prices.”

Today, professional engineers and geotechnical experts review the developers’ plans, write a report for the council, which is reviewed by council officers, who visit the site – and charge more than the original engineer for their time.

If consent issues are raised, the original engineers are sent back to visit the site, as well as the council staff.

The stricter Government regulations on building homes to prevent liability for leaky homes – and the subsequent increase in inspections – had gone too far, the St Heliers developer believed.

Property investors spoken to by the Herald on Sunday said new homes should meet the cost of impact on infrastructure, but council fees were making property more expensive.

Ashley Church, chief executive of the Auckland Property Investors Association, said an increase in building fees was clearly a factor in making houses unaffordable in the city.

Pieter Burghout, chief executive of Master Builders, said the cost of building a new house had increased by $150,000 in the past five years.

About 25 per cent of that was attributed to rising industry costs – materials and labour – and of the other 75 per cent, Burghout said half would be the result of increased land prices and the rest council levies.

For the full report, please visit www.nzherald.co.nz

Source: The New Zealand Herald