Confidence Building In The Purchasing Power

We’ll skip the talk about the weather and stay on a positive note in this edition of the NAI Harcourts business section.

After a great couple of days at the Hx Harcourts Conference in Christchurch, we’re back in Whangarei with great additional insights into the commercial market. The Hx conference is a fantastic opportunity for us to network and compare notes and experiences with our NAI Harcourts counterparts all over the country and the globe.

Hx provided guest speakers who covered the likes of the current finance climate, construction climate and an overall performance review of the last year. We came away with interesting observations from BNZ who elaborated on the selection structure of their commercial loans. When comparing ‘owner/occupier’ loans to ‘commercial investment’ loans, there are significant differences to note. A strong company with a good trading record and cashflow can see a loan of over 60% of the purchase price approved to purchase their own commercial premises. A commercial investment loan on the other hand, will be subject to a more detailed assessment by the lender involving the tenants’ business track record, building quality and NBS rating, area assessment and more importantly the investment experience of the loan applicant. A key point is that a first-tier lender lends on cashflow first and on security second.

We can see how this has had an effect on the Whangarei market as we have sold a significant number of properties to owner/occupiers in the past year. With the interest of investors mixed into these marketing campaigns, the buying power has clearly been with the owner/occupiers. Some interesting stats are that Whangarei commercial properties still sell at between 5% and 7% returns. While the interest rate on a commercial loan hovers around 8%, it is only paid over the borrowed amount.

Another interesting occurrence currently is that you can now obtain a 5% return on a term deposit with a bank. Which seems tempting as it would take almost no effort to obtain that 5% increase. However, with a 6.7% current inflation rate, a term deposit might not create the return you set out to achieve. On top of that, your term deposit earnings are taxable and capital gains on commercial property are not.

Last year, various economists predicted a short-term peak in the interest rates. Australia is now reporting a steady commercial property market with a strong industrial market. The New Zealand market is showing similar trends, especially in industrial. In Whangarei, the rate of enquiry on properties for sale and for lease has increased over the last month. It’s great to see the confidence build in the purchasing power.

Paul van den Berg
Commercial Sales & Leasing