Cash to be made in bricks and mortar

Many of us own a house, but how much money can be made from other property investments? We check the latest property data. By ANNE GIBSON.

Many investors want to get a foot in the door of the property scene, seeing the returns from bricks and mortar as stable and attractive.

In fact, latest figures show that property does better than many other forms of investment.

Investors often wonder how they can get reasonable returns in today's low-interest environment.

With low interest rates, investing in property can be attractive. But what sort of property is best right now?

Investors should check the Property Council investment performance index to gauge likely returns.

The index is widely seen within the industry as offering an objective view of the sector.

Figures released this month are for the year to June 30. They show investment property is not increasing in value overall and in many cases the value of buildings is dropping, sometimes by nearly 7 per cent (Auckland CBD office blocks). In fact, all sectors of the office market fell in value.

But the income returns from investment property are excellent. This is the cash return investors are getting after expenses like rates, electricity bills and maintenance. For example, lower-grade office buildings in the central business districts of the main cities showed a 12 per cent return.

The good news is that in all categories total returns, both capital and income, are in the black, even in the volatile Auckland CBD office sector.

The figures show property has continued to outperform the share market, Government stock and corporate bonds.

For example, the Property Council investment performance index compares the returns from various types of office blocks in various locations with bonds and shares and shows that property has outstripped the other forms of investment.

Total returns for the June year show Wellington CBD offices returned 8.53 per cent, followed by non-CBD offices at 7.69 per cent.

Behind that comes Auckland non-CBD offices at 7.2 per cent, C-grade CBD offices throughout New Zealand at 7.01 per cent, bonds at 6.98 per cent, equities at 6.68 per cent (based on Stock Exchange figures) then CBD office blocks at 4.42 per cent and Auckland CBD office blocks at 1.1 per cent.

The capital returns, or the increase in the value of the properties, were negative in many cases but this was more than offset by rental income.

So what is the best property investment?

The answer is shops, in their various forms. Bulk retail was the top earner, showing an 11.89 per cent return, made up of income of 10.07 per cent and a capital return of slightly under 2 per cent (usual story, very little capital appreciation in the value of the asset but a great renter).

But you have to be a big-time investor to get your foot in the door of the bulk retail scene. The Property Council's definition of this type of investment is a shopping centre with a series of stores with floor spaces greater than 1000 sq m, so a bulk retail centre, like those at Albany and Manukau, would cost millions to buy.

Shops generally do better than offices or factories. The retail property return of 10.33 per cent for the year was more than any other form of non-residential property investment.

"Retail property is a strong investment choice with outstanding returns, outperforming all other property market sectors," said Nicole Humphries, the Property Council's research manager.

"Bulk retail is a strong sector, consistently recording over 10 per cent annual income returns and capital growth since the indices' inception in June, 1996."

But what about factories and warehouses? Because many property investors take their first step into non-residential real estate investment through the industrial sector, its performance is widely watched.

The total returns from industrial property in the year to June 30 were a healthy 7.97 per cent. The best performers were factories and warehouses in East Tamaki, which returned 10.73 per cent.

Income returns drove these results, with rent from East Tamaki industrial property up 10.66 per cent and capital growth a tiny 0.08 per cent.

Mt Wellington industrial properties were also good earners with income of 10.38 per cent partly offset by a capital value loss of 1.37 per cent, giving a total return for the year of 8.92 per cent.

Christchurch industrial did better than that, returning 9.22 per cent in total. On average, Auckland industrial properties returned 7.88 per cent.

"The supply and demand dynamic is more balanced in the industrial sector, with strong and stable income returns providing steady annual income returns consistently over the 10 per cent level," said Nicole Humphries.

* The performance index is based on information from 19 property groups. It tracks 44 retail properties worth more than $800 million, 148 industrial properties worth more than $540 million and 130 CBD and non-CBD offices worth more than $1.9 billion.

Property NZ