Latest news with #TheProsperityProject
NZ Herald
12 hours ago
- Business
- NZ Herald
Commercial property versus residential: Scott O'Neill shares insights
Interviewing him on The Prosperity Project podcast made it seem as though investing in commercial property is an absolute no-brainer and it was tempting to conclude I should immediately sell out of residential to get in while the going's good. But then, he co-owns a business that shows people how to invest in commercial property, so I wondered whether I should be taking it with a pinch more salt. I didn't think he was wrong or misleading me about commercial property's virtues, but I thought – surely it's not as simple as that?! Capital gains Commercial property is a good alternative to residential property, O'Neill said on the podcast, because 'the 30, 40 years of [residential] growth might not be as good over the next 20 or 30 years'. ANZ chief economist Sharon Zollner agrees that 'there is no way we can repeat the real gains in house prices seen over the last 20-30 years. Who would be buying them? No one could afford them'. However, does that necessarily mean commercial property would be any different? It's a little more complex to answer that (or, after researching this, I'd argue – a lot more complex!) 'It can be like comparing apples and oranges – you can do it, but you might not necessarily be providing the right comparison,' the head of research and strategic consulting at JLL New Zealand, Chris Dibble, says. Residential prices 'can be more sentiment-driven, versus commercial/industrial sectors being more income-focused' Dibble says, plus there are fewer commercial transactions to compare, there are different valuation methods, lease agreements, and the outlook can differ by sector. Rental returns But it's not just about capital gains. 'It's about growth and cashflow,' O'Neill told me on The Prosperity Project, and the yields are much better than residential. 'You know, 6 or 7% net sounds a lot better than 2% net.' It certainly does – and JLL's data show net commercial yields in New Zealand can range from 5% to 8.38% – depending on the region and whether it's office, industrial or CBD retail. In residential, the median gross yield is 4.52%, according to Opes data, but that's gross – ie before you factor in costs like rates, insurance, maintenance and property managers (which are covered by the tenant in commercial leases) so the net yield for residential could easily be 2%. However, Dibble says: 'The reason those returns are higher is about the risk and return – for example, as you can imagine, capital expenses like recladding or reroofing commercial premises tends to be a lot more expensive than for a residential property.' Lending Those higher returns in commercial can unlock more lending, O'Neill told me. 'If you've got equity and they [the bank] say no more lending for residential, you can actually still keep going in commercial, assuming the asset you're buying has enough income to cover its interest rate.' Mortgage broker and founder of Squirrel, John Bolton (who is a commercial property investor himself), says that does make commercial property particularly appealing to some types of investors. 'Where it can be attractive is for older borrowers who may have large amounts on term deposit with the bank, so they have lots of equity and can generate a good return without having to factor in their income.' However, Bolton says that lending approach can be both a blessing and a curse. 'They [the bank] expect the income on the property to be more than 1.3 times the debt servicing cost – but can go up to 1.8 times. It typically means you can't borrow more than 40-50% of the property's value, you need much more equity. With commercial loans, you also have an annual review. If the valuation has gone down, if you've got a vacant property, or a property with issues, the bank can ask you to pay back some of the lending.' 'I love commercial property,' Bolton says, 'but it definitely carries significantly more risk than residential. It's not somewhere to go if you're a highly geared investor.' A point on which he and O'Neill agree. Interest rates I asked Scott O'Neill whether commercial investors are subject to much higher interest rates than residential investors. He told me: 'It might be half a per cent higher than your normal residential rate.' That differential varies, according to Bolton, but in some circumstances can be lower than residential rates. 'Commercial properties are risk-graded, so it does depend on the type of property. Bigger commercial loans can have rates that are better than residential loans, but smaller commercial investors tend to get 1-2% above residential rates.' The episode with O'Neill is well worth a listen (I know, I would say that) but I'm now a little less gung-ho about commercial property being my next investment than I was immediately after talking to him. There's a lot to consider, and while O'Neill's suggestion that commercial property is a lot less politically exposed is an excellent point, I think I'll remain a vilified residential property investor, for now. Listen to the full episode of The Prosperity Project for more. The podcast is hosted by Nadine Higgins, an experienced broadcaster and a financial adviser at Enable Me. You can follow the podcast at iHeartRadio, Apple Podcasts, Spotify or wherever you get your podcasts. New episodes are released every Monday.
NZ Herald
25-05-2025
- Business
- NZ Herald
Is more means testing on the cards after big Budget changes?
'It's, of course, a way of keeping a lid on costs, and it also just aligns with the philosophy of a right-leaning government versus a left-leaning one, which is just less state support, and a little bit more take care of yourself.' Perhaps suggesting it's more about the political philosophy than cash flow, Tibshraeny says the savings from the KiwiSaver means testing, in particular, are meagre. 'The Inland Revenue reckons means testing that government contribution would only save $40 million a year. That isn't much money at all for the government.' She says the policy went against official advice. 'The officials advised the Government to just scrap the government contribution altogether rather than means test it. It would've gone down like a lead balloon with the public if politicians did that.' In fact, that wasn't the only policy that eschewed official advice. The Government was also warned against raising the default KiwiSaver contribution rate in the current economic climate. 'They were worried about the impact it would have on businesses and thought that it might actually offset some of the positives in terms of what the Government's trying to do to stimulate growth and support businesses.' Tibshraeny says means testing can annoy some voters, but in recent conversations she's had with the new head of the Treasury, Ian Rennie, there seems to be an appetite for it. 'He talked a lot about the need for means testing, and I just guess the cost of having all these universal policies - the Government giving money to people who don't really need it.' Listen to the full episode of The Prosperity Project for more The podcast is hosted by Nadine Higgins, an experienced broadcaster and a financial adviser at Enable Me. You can follow the podcast at iHeartRadio, Apple Podcasts, Spotify, or wherever you get your podcasts. New episodes are released every Monday.
NZ Herald
18-05-2025
- Business
- NZ Herald
What to avoid doing when trying to buy your first home
With the prospect of another cut to the Official Cash Rate this month likely to improve things for borrowers, first home buyers are being advised they still need to ensure they have their finances in order. Senior adviser and director of The Loan Market, Cameron Marcroft, told Nadine Higgins on The Prosperity Project podcast that it's a great market for first home buyers. 'The lending criteria has got a little bit easier now, the rates have dropped as well. When rates are dropping, it also means that the test rate that the banks use to assess you drops as well, so that means clients can borrow more'. But that doesn't change the fact that how you manage your finances matters when it comes to getting a mortgage. For example, Marcroft says your credit card can count against you, even if you don't have an outstanding balance owing. 'The limit is what the banks use to put against your expenses – the general rule of thumb is about 3% of that limit. So, if it's a 10k limit, $300 would be put against their expenses every month. So, what it does is it just drags their borrowing ability down.' He says options to boost your ability to borrow include reducing your limit or getting rid of your credit card for a while. Marcroft says while banks are no longer going through expenses line by line like they did before the Credit Contracts and Consumer Finance Act (CCCFA) legislation was amended, it's still important to paint a positive picture. 'If you're spending large in a certain area and showing certain trends in these bank statements, it's really important for us to provide commentary around, 'Hey, we were spending that money because we didn't have many commitments. Now we're getting into a large mortgage, we know damn well we can't spend there'.' Marcroft says while interest rates are low and banks are busy, he doesn't expect house prices to boom anytime soon. 'I don't see that probably happening again for a long, long time. I really think we'll see a gradual climb in property prices.' Listen to the full episode of The Prosperity Project for more advice on getting sorted for your first home. The podcast is hosted by Nadine Higgins, an experienced broadcaster and a financial adviser at Enable Me.
NZ Herald
11-05-2025
- Business
- NZ Herald
How to have your dream wedding without blowing the bank
She says couples often do things in the wrong order by starting with the styling first. 'You should start with your budget, then you should create your guest wish list, and then you should decide on the style of the day - and very much in that order. So, it's your guest list that fundamentally dictates your budget.' Wanting something fancier than you can afford isn't just an issue for those with a small budget, Braid says. 'Even when we are doing these high-end budgets, their budget doesn't necessarily align with the vision that they're seeing from these weddings happening in Dubai and in the States where budgets are really an afterthought.' But she says there are a number of ways to economise that your guests won't notice, including some tricks of the trade. 'We have been known on really beautiful events to serve Moët or Tattinger and use the bottle and showcase the bottle post-ceremony. 'And then when we get to the sit-down reception and we've got speeches and toast, we're out the back topping those glasses up with Deutz or Lindauer. 'A lot of the time guests have got no clue that they're not still being served that fancy champagne from earlier.' Braid recommends not skimping on things like a great photographer but advises there are areas that aren't worthy of investment. 'We don't really advocate having favours, because 99% of the time we are picking them up at the end of the night, we are reboxing them and handing them back to our client the next day to take home. So actually, they are a colossal waste of money.' Listen to the full episode of The Prosperity Project for more insights into the rising costs of weddings, and other tips to try and keep things within budget, including why destination weddings could save you in the long run. The podcast is hosted by Nadine Higgins, an experienced broadcaster and a financial adviser at Enable Me.
NZ Herald
27-04-2025
- Business
- NZ Herald
Financial Resilience Index reveals how concerned Kiwis are about money
Fewer people are worried about house prices, inflation and interest rates – but at the same time, fewer people feel prepared for retirement, financially confident, and secure in their jobs. With so many people worrying about money so often, Kirk Hope says, 'there's no doubt there's emotional and psychological consequences from that'. Kiwis' financial confidence isn't matched by their financial literacy, which hasn't improved in the past five years. 'I might say, 'yeah, I'm highly financially literate' and then get five out of 10 questions wrong, which shows I'm probably not – because highly financially literate would mean probably 80% plus. If you don't know that there's a gap, that's pretty problematic as well.' Hope says the financial services industry, which the council represents, needs to do more to ensure Kiwis understand financial concepts. 'Sometimes financial language can be actually pretty alienating to people. So, if we can really cut to the chase and talk to people in their own terms, I think there's a real opportunity there. Because financial literacy in and of itself as a term is pretty alienating, right? It's like, what the hell does that mean?' Hope says it's also important to address the stigma around seeking help with your finances. 'If you are feeling unhealthy, you go to the doctor. If you don't really have a handle on your finances, you certainly need to go and talk to a financial adviser or someone who can help you understand what's going on'. Listen to the full episode of The Prosperity Project for more about the financial resilience of Kiwis. The podcast is hosted by Nadine Higgins, an experienced broadcaster and a financial adviser at Enable Me.
