Foreign investment on the rise

Overseas interest in New Zealand commercial property shows no sign of abating, with foreign buyers having ploughed a record $1.1 billion into the market in the first seven months of 2007.

Saturday, August 18th 2007, 12:00AM

by The Landlord

At the CB Richard Ellis annual Market Outlook breakfast this week, the firm’s regional director of Institutional Investment Properties, Rob Sewell, said that while New Zealand’s overall market share of global investment flows appeared to be low, the trend was for rising foreign investment into the country.

Sewell says investment returns in New Zealand are exceeding those in Australia and this was underpinning continued interest in the market.

“New Zealand is attracting enormous interest due to expectations of steady growth, close proximity to Australia, minimal transaction costs and more importantly, the promise of income returns greater than 6%,” Sewell says.

While the rising cost of debt in New Zealand is placing pressure on yields to rise, Sewell says there is still considerable interest from buyers who could source offshore equity and debt at levels that allowed them to compete.

“Australia is the fourth largest savings pool despite being the 22nd largest economy, and there are fewer opportunities for Australians to invest locally so they must invest offshore,” Sewell says.

While New Zealand had received only a small portion of Australian foreign investment, this had the potential to increase, he says.

The recent acquisition by Valad of the Carter Holt Harvey portfolio for over $300 million was an example of the enormous Australian appetite for passive as well as active property investment opportunities.

In addition to Australian buyers, Sewell highlighted that Europeans investors are becoming increasingly interested in New Zealand.

European investors, especially from Germany, the UK and Switzerland, like the sustained growth, stability, perceived upside and the diversity of the Australian and New Zealand markets. Offices are the main sector of interest for these investors, with retail also emerging.

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