Property fund managers are still looking for Kiwis to invest including landlords who want to exit the game. Photo / Getty Images
"Kiwis have jumped into share investing with gusto" and property funds are changing as providers look to target cashed-up landlords who have sold or are thinking about it.
One large building group that has a $300 million partnership with the NZ Super Fund has launched a new capital-raising investment fund to build and sell houses directly to homeowners.
It says the fund could appeal to disgruntled mum and dad landlords who want to sell their rental properties but stay in the property space as "we envision in the next 10 to 15 years there will be a lot more corporate landlords".
The Financial Markets Authority said easy-to-use online investing platforms, a buoyant market, spare time and cash as a result of pandemic lockdowns meant "Kiwis had jumped into share investing with gusto".
But many newer investors had never experienced a market event where share prices had dropped significantly and during a market downturn, people did not want to be in the position of having to sell investments at a loss.
One commercial investment company boss said, "When the tide goes out, you know who has their undies on".
Classic Capital's corporate investor manager Raymond Gatfield said the new capital raising investment fund would allow it to build significantly more homes faster.
Last year, Classic Group secured a $300m Kaha Ake [Stronger Together] partnership with the New Zealand Super Fund that would focus on supplying the chronic land shortage to meet the demand for quality, affordable housing.
Classic Group and Classic Capital currently manage about $48m in private funds.
Gatfield said traditionally a developer would buy land, get resource consent to subdivide it, then either on-sell the sections to builders who built homes, or build the homes directly and sell houses to ''mum and dad''.
''With the Land and Build Fund, rather than having all the risk around consenting and land development, the risk in this fund is purely getting a piece of dirt, building a house on it and selling to mum and dad. We have removed the land development and resource consenting components''
In his opinion, things were riskier in the consenting process and splitting up large blocks of land.
The first Kaha Ake initiative would be in Warkworth South and plans were already in place for about 530 houses in a new community suburb called Waimanawa.
Classic Capital was offering a fixed return of 7.5 per cent per annum paid out quarterly.
He said Classic Group, which started in Tauranga and was now nationwide, had 25 years of experience in residential and commercial builds alongside land development.
"Classic has built about 600 to 700 houses a year in the last few years, so we have a very sound track record."
Gatfield estimated its house build cycle was four to six months. Classic Developments has developed more than 4000 land lots to date and has a current land supply of more than 3000 sections.
The minimum investment was $250,000 for wholesale investors that met Financial Markets Conduct Act 2013 criteria.
"So it's a perpetual fund that keeps revolving and recycling the cash."
Gatfield said the fund could appeal to landlords who had sold or were thinking about selling but still wanted to be in the property space.
The majority of landlords were mum and dad investors and the regulatory landscape was tougher.
"We envision in the next 10 to 15 years there will be a lot more corporate landlords due to potential regulation of the industry. This will leave a hole in the investment space where historically rental properties have sat. The Land and Build fund provides an excellent return with the backing of residential property assets."
Property Funds Management [PMG] chief executive Scott McKenzie said this year the company would mark its 30th anniversary and it had endured ''multiple economic cycles and seen recessions''.
He said it was a changing world and there were higher levels of volatility and uncertainty from an economic and geopolitical perspective.
But in his view, commercial property, or 'land, bricks and mortar' investments were still a viable option because regular cash returns could be sustained throughout fluctuating markets.
PMG, an unlisted commercial property funds manager, with its head office in Tauranga, had grown from small beginnings. When McKenzie, who was also a shareholder, started 10 years ago there was three staff and they looked after about $80m in commercial property investments, primarily in the North Island.
That portfolio has ballooned to more than $800m in commercial property around the country, and it employed more than 30 staff with additional offices in Auckland and Christchurch.
Last year, one of PMG's Funds, PMG Generation Fund, acquired the high profile Bethlehem Town Centre for about $107.6m and more than 2000 investors, including some from the Bay of Plenty had bought shares through its Generation Fund.
In a first, PMG partnered with online investment platform Sharesies and InvestNow to bring that offer to the market.
"We have great respect for the innovative work Sharesies have done to simplify the investment landscape and build financial literacy."
McKenzie said its clients invested for the long term and the Generation Fund had a forecast gross cash return of 5.26 per cent p.a that was paid monthly.
"Our oldest investor is 95, the youngest is six months old and we go beyond the grave, with one family it spans four generations."
For example, he said, if you had invested $100 into commercial property in 1993 today the investment would be worth more than $1400.
McKenzie said PMG was licensed by the Financial Markets Authority but it was seeing some newcomers to the market who were unregulated.
"So what that means is they don't have to meet the same level of threshold when they are putting together an investment for clients or investors. So investors need to be aware if they are investing in unregulated offers, or as some people call them wholesale offers, that they are asking the right questions and really understand the risk they are taking."
There was an old saying, McKenzie said, that "when the tide goes out you know who has their undies on".
"Unfortunately, when we go through economic cycles some companies will be more exposed than others."
Craigs Investment Partners head of private wealth research Mark Lister said it liked commercial property investment and used NZX listed companies like Goodman Property Trust, Precinct Properties and Property for Industry.
"There are about 10 or so share market listed property funds that invest in a range of property assets. We use those companies because there is a lot of transparency about what they are doing and they give out a huge amount of information.
"There is nothing they can hide so they are very easy to scrutinise and analyse."
Lister said those companies owned bluechip buildings and properties like the Vero Centre in Auckland and Sylvia Park Shopping Mall and the Highbrook Business Park.
"When we invest in property we want to get exposure to the best quality assets that we can get in the best locations. The quality of the tenant is also crucial and that is why we are only interested in the best of breed."
Lister said share market listed companies were also very liquid and you could buy and sell and get in and out of them very easily.
Traditionally commercial property investments were attractive for older investors because of the income stream, which could return 6 per cent on capital as opposed to the banks that might have term deposits of 2 to 3 per cent.
"I mean a good quality commercial property is great because regardless of what the capital gain is doing you still have that rental stream rolling in and you can use that to live off."
A Financial Markets Authority spokesman said its 2021 annual investor confidence survey of 1000 New Zealanders showed 21 per cent of Kiwis own shares and 13 per cent were invested in a managed fund.
Only 1 per cent have property syndicates, although that might also be counted in managed funds, he said.
New Zealand Property Investors' Federation president Andrew King said the idea of more large corporate landlords had been bandied around for a few decades.
It had been asked if the big institutional players and groups like fund managers and insurance companies had a role to play in providing rental properties.
"Previously the cash flow hasn't been there. They like the capital gain but they don't like the cash flow. There tend to be lots of layers of management and they find it hard to match the owner-managers as they do a lot of work themselves."
However, King said commercial property investment had worked well for the institutions.
By his own admission, Sam Opie says his chosen profession was never "going to line his pockets with gold".
The retired school teacher has no regrets with career choice. He planned for his future minus superannuation, and is happy with his decision to buy rental properties and invest.
"Good luck with living on $250 to $300 a week", he said of the pension.
He has a property manager and long-term tenants "who love me and my wife because we are fair and get stuff done".
However, Opie said while he agreed with some of the Government regulations like Healthy Homes it was becoming tougher to be a landlord.
"One minute you think, you know, I've set myself up for my retirement, I'm set for the future. And then they [government] almost treat us as being bad people."
So eight years ago he diversified into commercial property shares with PMG, an unlisted commercial property funds manager, which he had been following since its inception.
Opie, who lives in Pyes Pa, said he wanted to invest his money into New Zealand and did not understand the share market, which was in his view "too volatile".
He liked PMG because it was founded in Tauranga and appreciated the hands-on approach.
"I love that they have quarterly meetings that I can go to as an investor and ask questions. I also like to hear about what they are investing in and why. I feel like part of the team."
The returns were healthy and beat the bank, he said.
"Charity begins at home", Opie said, and he was impressed how PMG treated its staff, gave to charities, and had set up a charitable trust to assist financial literacy in schools.
His KiwiSaver went to PMG and he was in two funds "so we get a lovely income".
The difference between a wholesale investor and property syndicates
* Wholesale investors are defined in law and, broadly speaking, are people or organisations who have sufficient previous investing experience, which means they don't require disclosure.
* Wholesale investment offers can promise attractive returns but don't have the same protections as retail investment offers.
* Property syndicates are often advertised as providing regular income, with attractive returns quoted.
* Syndicate structures can be complex, there are risks to be aware of, returns are only estimates, and you may struggle to get your money out.
Understanding market volatility
* Share markets rise and fall, which is a normal part of investing.
* The importance of an emergency fund, having ready access to money you've set aside in an on-call cash account will mean you're not caught short financially.
* Be deliberate. The first step in managing your response during a market downturn is to have a plan. Know how much risk you can take.
* When choosing an investment product typically higher-risk investments are more volatile.
* Diversify your investments. It might sound complicated, but it's just a fancy way of describing having a mix of different types of investments.
* Drip-feed. This means regularly investing the same amount of money - for example, $20 each pay period.
* Don't freak out. If there is a market event, remember that it's time in the market that matters. History has shown that investments in the share market have grown more over the long term [10 years or more] than almost any other type of investment.
- Source Financial Markets Authority
The cost soared from $580m to $924m but output capacity is up on original expectations.