Property market will survive test: REINZ

The Real Estate Institute believes the current flow of investment money into the property market will be a test, but one which it can survive, institute president Graeme Woodley says.

Commenting on recent reports which have identified a strong revival of interest in property investment, on the back of dismal performances by equity markets and managed funds, Woodley said the ‘flight to safety’ by many investors burnt by managed equity funds, back into investment property confirmed the Institute’s view that most New Zealand investors were happier with the level of risk provided by property.

"We have known for some time that property is a very steady performer when both risk and return are taken into account. The rental returns may not always as high as equities, in a good year, but equally you don’t get the big swings in value. What’s happening now is that money is flowing back into commercial and residential investment property, and at a considerable rate."

"That will be a big test for the market because too much money coming into the market too quickly could have the effect of inflating values unsustainably."

However the December residential statistics showed an easing of the national median price which suggested any big peaks in prices were unlikely to happen.

Woodley said the recent reports of international equity funds losing on average 28.to 35% of their value last year, and the local market funds finishing down two per cent made residential and commercial property investment look pretty appealing, and in terms of risk and return, second only to cash in the bank.

"The fact that the New Zealand sharemarket has been in the doldrums for so long is no cause for joy for anyone since it reflects the economic and commercial difficulties we face as a country."

But until these problems were overcome and the New Zealand sharemarket was again seen as an attractive investment avenue, property was providing a ‘safe haven’ for capital, much of which was retirement savings for ordinary New Zealanders," he said.