Kiwis have a strong connection to property for various reasons. Many of us own homes, so we’re quite familiar with the tangible nature of property—whether it’s made of bricks, mortar, or weatherboard. Unlike financial markets, the property market tends to capture our attention, and we often discuss trends with friends and colleagues who have experience in property investment. It’s common to have connections in the property sector, and Kiwis are generally open to sharing their experiences with property ownership, unlike discussions about finances.

Property has been a favored choice for investment due to its historically superior returns compared to cash and bonds. In recent decades, property returns have even been competitive with equities. The availability of leverage adds to the appeal, as banks and lenders can provide up to 65% financing for investment property. The tangible nature of property also provides a sense of security for Kiwis, especially during economic downturns.

There are risks:

Investing solely in property comes with its share of risks. For instance, there’s a concentration risk, especially when it takes a while to sell property during market downturns. Managing risks associated with events like fire, earthquakes, and weather is crucial. Additionally, overseeing both the property and tenancy involves dealing with the potential challenges posed by problematic tenants.

Leverage is another factor to consider. While gains can be significant in a rising market, they are equally magnified in a declining market. Given the current stretched property prices, rental yields might be low, and there’s no guarantee that property will consistently provide historical returns. It’s essential to navigate these risks carefully in the realm of property investment.

Investing in listed property or managed funds specialising in property is an alternative to directly purchasing real estate. These companies or funds are publicly listed on stock exchanges and own diverse properties like office buildings, factories, and shopping centers. Their revenue comes from sources such as rental income, leasing, and property management. Additionally, they may hold shares in other companies with property holdings.

One advantage is the possibility of owning a diversified portfolio of commercial property without the direct hassles of ownership. Listed property provides an alternative avenue for those interested in the real estate market, and it allows investors to tap into the unique cycles of commercial property, which often differ from residential property.

Moreover, these investments can be part of managed funds, where property is integrated into the overall portfolio, often through partnerships with listed property companies. It opens up opportunities for income generation, not only through regular earnings but also potential profits from property sales.

Property syndicates have a different legal structure to managed funds and can be riskier. The Financial Markets Authority advises that:

Property syndicates are often advertised as providing regular income, with attractive returns quoted. However, syndicate structures can be complex, there are risks to be aware of, returns are only estimates, and you may struggle to get your money out.

https://www.fma.govt.nz/consumer/investing/types-of-investments/property-syndicates/