News & Opinion

Outlook for New Zealand remains strong

10 April 2017

Outlook for New Zealand remains strong

 

While we are already one quarter through 2017, I wanted to both reflect on 2016 and share some projections for 2017. In 2016 PMG raised $65 million across three offers, culminating in our largest capital raise of $44 million in December. I will remember 2016 as a year of feeling very humbled by the huge amount of support we received from our investors throughout all three offers. I’d like to personally and sincerely thank our valued investors - some of whom have invested with PMG for 25 years - for their interest in PMG’s portfolios, and for putting their faith in us as property and fund managers. We don’t take that trust lightly and will do everything in our power to ensure you get the most out of your investments with us.

I’d also like to acknowledge our partners and suppliers who helped us achieve so much in 2016. Despite global volatility, last year was a great year for the New Zealand economy. The NZ share market (NZX50 Gross Index) returned 8.8%, bonds (BNZ 090) returned 5.15% (as at Feb 17), term deposits increased 3.5% (one year) to 4.2% (five years) and the IPD Property Index showed 13.9% (total return) for 2016. The cash yield for property trusts were also up with Argosy returning 5.9% (as at Feb 2017), Goodman Property Trust 5.2% (as at Feb 2017) and Property For Industry 4.7% (as at Feb 20171). Our own Pacific Property Fund Limited had an annualised cash return in 2016 of 7.36% ($2.2m of distributions).

Global economic predictions for 2017 paint a similar picture of volatility (although uncertainty has become the new norm in macro-economics). Global bank UBS has identified five main risk areas for 2017:

1) Trumponomics – non-delivery on Trump’s promises.

2) Rising protectionism by a number of western countries.

3) Geopolitics.

4) Populism leading to European disintegration.

5) Withdrawal of central bank support².

Despite this international picture, New Zealand has a strong economic base and the outlook remains strong for business and property. The events to watch that could affect New Zealand’s economy this year are the liquidity of New Zealand banks (as they manage their own balance sheet funding to comply with APRA and Reserve Bank requirements), a possible trade war between China and the US, and any more Eurozone uncertainty. However, as positive net migration continues to occur, with more Kiwis coming home (or not leaving), New Zealand will see ongoing asset price inflation.

We will also see the local commercial property market remaining strong and buoyant. This thinking was recently reconfirmed when the room was completely full at Collier’s commercial auction³ on 9 March 2017. At the auction, assets under $10 million were hotly contested achieving yields between 5.2% and 5.8%. This local and global picture reinforces to me that PMG is on absolutely the right track with diversification as our focus, including diversification within our existing funds, as well as launching new funds for different property categories.

Economist and business professor, John Kay, was recently quoted saying “get rich slowly” and “stay rich, once you are”⁴. Diversification across commercial property is an excellent mechanism to achieve this as part of an investor’s overall investment portfolio approach. Overall, NZ is well placed in the global context. While volatility and uncertainty does offer risk, having a longterm investment strategy based on diversification in commercial property, we believe 2017 will be a positive year for the country, PMG, and our investors.

 

Scott McKenzie

Chief Executive Officer & Director