We pulled 12 gems from the torrent of property news this week to keep you abreast of the biggest insights affecting property investors 20-26 June 2020
In property news this week…
- Augusta Property releases annual result after hours
- Stride profit slashed
- Term deposit rates keep slip slidin’ away
- The biggest factor in NZ’s economic recovery isn’t what you think
- RBNZ leaves OCR and QE unchanged
- COVID economics – FAQs
- NZ Inc should prepare for a long lockdown
- First-home buyers borrow up large
- Dinesh, Rakesh & Prakash Pandey give landlords everywhere a bad name
- Mahendra Rajput gives commercial tenants everywhere a bad name
- Commercial landlords and tenants prepare for long winter ahead
- Retail ‘safety stock’ pushes industrial property demand
Augusta Property releases annual result after hours
Augusta Capital Ltd released its result to the NZX this evening, revealing it has gone from a $7 million profit in 2019 to a $27 million loss in the March 2020 year.
Augusta’s reported adjusted funds from operations fell from $7.74 million to $230,000.
NZX-listed property investor Asset Plus Ltd, 18.85% owned by Augusta and managed by Augusta Funds Management Ltd, reported a week ago that it made a $14.7 million net loss after tax for the March year after the value of its property portfolio was cut by $19.1 million.
Augusta’s primary earner, raising capital to manage funds, was decimated. After working towards the establishment of its tourism & general funds, the company ended the year establishing no new funds, compared to 4 the previous year.
Those new funds earned Augusta $7.98 million of deal fees last year, whereas the failure to complete the Property & Tourism fund launches lost the company $7.5 million in deal fees.
Stride profit slashed
Stride Property Group saw revaluations slash its 2020 profit by over $50 million, but the group has continued to pay dividends and forecasts similar returns to shareholders for 2021.
NZX lists the gross dividend yield on Stride shares (SPG) at 5.25% and the 52-week share price change as being down -$0.352 (-17%) from $2.12 to $1.77.
Term deposit rates keep slip slidin’ away
Let’s assume you are a retiree and your only source of income is the pension and interest on a $1 million term deposit at the current highest 1-year rate of 1.85% p.a. That puts you on a 17.5% income tax rate.
Your after-tax income from that whopping $1 million term deposit is a pitiful $15,468 p.a.
Check out all the latest rates on our NZ Interest Rates Forecast page.
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The biggest factor in NZ’s economic recovery is not what you think
Jacinda Ardern and Dr Ashley Bloomfield did a stellar communications job in persuading a team of 5 million to sacrifice a lot back in March and April to ensure Covid-19 was eradicated quickly and the economy could rebound earlier.
Then finance minister Grant Robertson and Reserve Bank of New Zealand governor Adrian Orr did a stellar job with a range of initiatives to keep cash-flow moving around the economy – between banks, firms, households, and the Government.
Our success in conquering the virus from China and keeping the economy going paid dividends with business confidence rebounding from record lows in April to improve through May and June.
With business confidence improving and restructuring plans set to be behind us by the end of the year, things were looking good for a significant rebound in 2021.
All that ended with the Government’s Covid-19 “own goal”. Their smug complacency at controlling Covid-19 has turned to bite them on the bum with revelations of the Health Ministry’s complete ineptitude in managing quarantine controls at the border.
Health minister David Parker ducking for cover and throwing the people’s hero Dr Ashley Bloomfield under the bus didn’t help either.
The resulting economic setback reveals the biggest factor in New Zealand’s economic recovery is not fiscal policy or monetary policy, but…
RBNZ leaves OCR and QE unchanged
The Reserve Bank of New Zealand (RBNZ) says the balance of economic risks still remains on the downside and it is prepared to provide additional stimulus as necessary.
It has left the Official Cash Rate (OCR) unchanged at 0.25% and the quantitative easing (QE) programme unchanged at $60 Billion at its latest review but says significant economic challenges remain.
COVID economics – FAQs
The deepest recession on record, a $62 billion government spend-up, faltering global trade, negative interest rates, a COVID resurgence, yo-yoing share markets…the headlines are now filled with this sort of craziness. No wonder people are asking questions!
ASB’s economics team has put together a COVID Economics “FAQ” to address some of the more common ones they’re hearing.
COVID Economics – Top 10 questions
- How is the economy tracking? Are we really past the worst?
- Are you worried about a second wave of COVID?
- What’s going to happen to my mortgage rate?
- And term deposit rates?
- What’s all this about negative interest rates?
- Are house prices really going to fall?
- Isn’t housing a great asset now that interest rates are so low?
- Was COVID-19 a death knell for globalisation? Should we go back to being a domestically-orientated economy?
- What’s going on with quantitative easing and the government’s whopping deficit? Won’t all of this get us into trouble down the line?
- My KiwiSaver balance has been all over the place. What is going on?
NZ Inc should prepare for a long lockdown
The outlook doesn’t look great for landlords with tenants dependent on tourism or international education.
Tourism and education businesses hoping for the borders to reopen to visitors, students and guest workers within months should challenge their assumptions, warns Bernard Hickey
Less than 5% of quarantine capacity will be available for non-residents. That means fewer than a couple of dozen people a day. That is a far cry from the 250,000 students and guest workers arriving each year pre-Covid-19, and the five million visitors a year forecast within a couple of years.
Any business model depending on those numbers is dead until either a very fast and very reliable test is available, or the parts of the world that provide the bulk of our tourists and students and guest workers are vaccinated. That could be years, rather than months.
First-home buyers borrow up large
Mortgage borrowing surged in May as would-be buyers emerged from a month of lockdown in April, with first-home buyers borrowing up large.
Monthly mortgage borrowing shot up 57% in May compared with the lockdown month of April – but the figure of $4.3 billion advanced was still down by about a third compared with the same month a year ago.
Dinesh, Rakesh & Prakash Pandey give landlords everywhere a bad name
Peter Eccles of collectibles store Eccles Coins & Bank Notes, a veteran Auckland CBD retailer, is astounded that he’s been locked out of his store after falling $3,700 behind on this rent due to Covid-19.
He said his landlord changed the locks to the store without notice on Wednesday. The issue now is that he can no longer access the $100,000 worth of stock in the shop.
Eccles said he had sought rent relief from CP Group, the landlord, which has offices in the same building as the shop, and was offered 15% rent reduction. [Only 15%; seriously?!!!]
CP Group is owned by richlister family the Pandeys. They have interests in a portfolio of hotels and resorts across the US, Australia and Fiji and commercial properties in New Zealand, Singapore and Malaysia.
The company that owns the Dingwall building from which Eccles’ business operates lists three directors, all members of the Pandey family: Dinesh Pandey, Rakesh Pandey and Prakash Pandey.
They are the exception who give commercial landlords everywhere a bad name.
Read the full article here (paywalled)
COMMENT: I shake my head in disbelief at the mean-spirited 15% rent reduction offer. Property investing is all about a partnership between landlord and tenant – we need each other. How much cashflow does an empty building produce? I personally gave a 50% rent reduction to a struggling commercial tenant. He has bills to pay and I have a mortgage to service, so we both shared the pain equally.
Maybe they have reason to want to get rid of their tenant? We obviously don’t know the full story, but the optics are not good.
Mahendra Rajput gives commercial tenants everywhere a bad name
Mahendra Rajput* unilaterally refused to pay his rent when the Covid-19 pandemic struck. Commercial landlords are generally very sympathetic to genuine cases of hardship, but very wary of opportunistic tenants.
It’s hard to believe Mahendra Rajput is not in the latter category. His business supplies food products to the two major supermarket chains, which as we all know did record turnover during the lockdown period. As did many of the companies that supply them.
The fact that Rajput refuses to provide financials to prove hardship adds weight to the ‘opportunistic’ perception. As does the Rolls Royce Ghost parked outside.
Professor Andrew Baum from the University of Oxford explains that landlords are not always the more powerful party in the relationship. “The landlord of a property might be a pension fund paying the elderly, and the tenant could be a private equity-owned business,” he said.
Lawyer Vicky Khandker agrees. “In some cases, landlords may be much smaller businesses than the tenants that occupy their premises, so the landlords may be left in a much more severe position than the tenants are,” she said.
Property Council chief executive Leonie Freeman talks of large tenants who announced that they’re refusing to pay the rent with no consultation. “This sort of approach can devastate the commercial, industrial and retail property sectors,” she said.
COMMENT: Most tenants are ethical businesspeople, but the few exceptions give commercial tenants everywhere a bad name.
[*Note: Mahendra Rajput is not his real name.]
Commercial landlords and tenants prepare for long winter ahead
The Property Council says the Government is wasting time in not ensuring a temporary measure suggested three weeks ago to support arbitration between landlords and tenants is put in place.
But Property Council chief executive Leonie Freeman wrote yesterday: “Rather than offering $6,000 to support landlords and tenants in funding arbitration, why didn’t the Government simply give $6,000 to tenants in order to meet their costs?
“Surely, this kind of support is of greater benefit than a minimal sum that is unlikely to go very far once the lawyers get involved. Personally, I have seen very few arbitrations settled for such a fee – often there’s another zero on that figure.
“While we wait, the country has moved on. On to recovery and on to preparation for what can only be described as a long winter ahead.”
“While the politicians do what they do best, our industry waits. For tenants and landlords to move forward, finalise agreements and plan for the future, we need certainty and clarity and – to be frank – we needed it in April.”
Retail ‘safety stock’ pushes industrial property demand
Demand for industrial property is surging in New Zealand as retailers hold stock in the wake of recent disruption to the sector, according to the head of CBRE’s supply chain advisory across the Pacific region.
Speaking at CBRE’s Talking Sheds webinar, Christine Miller said that, rather than pushing large volumes of inventory through sales clearance channels, retailers were looking to increase their levels of ‘safety stock’, which in turn required more operational industrial & logistics space, plus new distribution models.
“We’re seeing businesses indicate that they are going to hold product for up to 12 months in order to avoid pushing it into the clearance channels,” she said. “Previously, we have seen the inventory costs at around 20% of supply chain costs, but as we see safety stock & inventory levels start to rise, the percentage will increase as businesses look at their products to determine which can be stored to enter the market at more of a fullscale retail price.
CBRE NZ’s national director of advisory & transaction services for industrial & logistics, Claus Brewer, said: “In addition to inventory management in a low vacancy market, we are also seeing emphasis placed on road & rail connectivity as vital attributes for occupiers looking to build their regional & last-mile delivery capability.
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