Investors switch to real estate

The market for Auckland investment properties priced under $2 million is booming, as investors divert money from managed funds into assets they can control directly.

Charles Cooper, the managing director of Colliers Auckland, said the sub-$2m commercial investment market was the company's most active sector and Colliers was selling almost one a day - between 300 and 350 of them a year.

Colliers classified the commercial investment market as any property other than industrial or residential.

As such, it covered a wide range from offices, showrooms and shops to mixed-use properties, and could include anything from bowling alleys to former movie theatres.

He said there had been a lot of talk that the market was being driven mainly by Asian buyers, but that was not correct.

There was a wide range of buyers and they tended to have two main characteristics in common, he said.

Most had what Cooper termed "genuine cash" and so were not borrowing large amounts to make their purchases, and they had lost confidence in other types of investments such as managed funds. They were looking for investments they could control themselves.

There was a mix of first-time buyers and those who were starting to build a small portfolio of properties, he said.

Selling by auction worked particularly well in this market and Colliers was selling 80 to 100 per cent of such properties on the day of the auction.

Cooper believed one of the keys to that success was restricting the number of properties going under the hammer to five or six a day, instead of the mega-auctions some agencies favoured.

That meant the brokers could spend more time during the auction negotiating with vendors and potential buyers to achieve the best price, instead of trying to rush them through.

But in some cases properties are also being sold off-market.

Colliers broker John Davies contacted the owners of the New World supermarket building at Green Bay, which had been owned by the same family for 20 years, on behalf of a private investor looking for such a property. It was sold for $3.3m, providing its new owner with a 5.7 per cent yield.

Although debt was not a big part of the equation for most buyers, the current low mortgage interest rates were helping many raise their sights.

A buyer that might have been looking at paying about $1m for a property when interest rates were higher might look for something closer to $1.25m at the current low rates, Cooper said.

An indicator of the strength of the market was the wide range of properties which were selling.

A property in a great location with a strong tenant on a long-term lease would obviously have buyers lining up and achieve the best price, Cooper said.

But even vacant properties and bare land which could be developed were selling well if they were priced realistically.

Some investors were prepared to pay cash for a vacant property and go without any rental income for six months while they did it up and then looked for new tenants.

Most properties were achieving yields in the 5-8 per cent range.

Some recent sales handled by Colliers include:

7 Milford Rd. Mixed-use property. Sold at auction for $1.887m plus GST. Yield 6.7 per cent.

48 Barry's Point Rd, Takapuna. Retail premises sold for $1.49m. Yield 6.7 per cent.

Saturn Place VTNZ. Sold post-auction for $1.064m. Yield 7.3 per cent.

Saturn Place Beaurepaires outlet, sold at auction for $1.655m. Yield 7.1 per cent.

21-23 Nixon St, Grey Lynn. Office property sold at auction for $1.53m. Yield 9.6 per cent.

212 & 212A Jervois Rd, Herne Bay. Retail premises sold at auction for $985,000. Yield 6.88 per cent.

Sunday Star Times