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Monday, April 20, 2020

Frank Newman: Property market metrics


The impact of the lockdown on the property market is becoming clearer. And it's significant.

The NZX listed Kiwi Property Group (KPG) has this morning released details of its latest valuation as at 31 March 2020. It owns a substantial portfolio and range of property types so it is a useful insight into the way the market as a whole has been impacted.


The Company’s retail portfolio declined by 20.8%. Their shopping centres were the most affected. The capitalisation rate increased from 7.5% to 8.1%

The office portfolio decreased by 1.6%. The weighted average capitalisation rate remained unchanged at 5.5%.

In the commentary, the Company said, "the valuation assumptions around rental growth, vacancy, downtime, leasing up allowances and trading conditions have all softened. The challenging investment market conditions and an expected decline in capital inflows are also contributing to an expansion in capitalisation and discount rates."

It will be some time before the residential property market metrics play catch-up. In the absence of hard data, the ANZ is predicting an annual decline of between 10% and 15%, "with downside risk".  Some are more pessimistic.

What we can say is the property market is in for a rough ride and there challenges ahead for low-equity investors.

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