NZ direct property returns subdued across sectors

New Zealand direct property returns subdued across all sectors, Property Council / IPD show

IPD today announced the results of the Property Council / IPD New Zealand Property Index for the 12 months to end June, 2008. The total return for New Zealand ungeared direct property investments was 13.5%, a significant drop from the 24.1% return achieved over the same period to June 2007.

The main driving factor was the fall in the capital growth rate - from 14.6 % in June 2007 to 5.8% in 2008. Income return drifted downwards at 7.2% compared to 8.3% over the same period last year.

John Garimort, Director of IPD Australia, commented: “As with all real estate markets around the globe, the New Zealand market has been slowing. The inordinately strong returns of the markets which peaked in June 07 and continued through to December 2007 have a material and positive bias to the returns published for the period. But the second half of the year results, January to June have shown a marked decline for the New Zealand Property sector”.

“All the major use sectors are substantially subdued with the peaks in total returns experienced by the Office and Retail sectors over the last 18 months and the Industrial sector three years ago now back to levels last seen in 2003 with a fairly narrow spread of returns 12.4% Retail to 14.7% for the office sector and Industrials with 12.5%” “The sector is well and truly in the process of digesting the higher costs of credit where it is being made available to the sector; and the necessary structural changes to the pricing of risk; that has affected all asset classes” Mr Garimort commented.

It will be interesting to see how the REIT analysts react to the data released. Many have been marking down the fortunes of the listed property sector on the back of business risks and structure, debt management, and expected real estate market declines. With the release of the direct markets barometer for returns, we wonder if the discounts applied for declining real estate market returns have been overdone”.

See... Full release with secotr commentary and stats (PDF)

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