New Zealand’s ageing population will lead to a significant wealth transfer in the coming years.
While this applies to a range of asset classes, it is particularly relevant to the commercial property sector. Many properties across the country have long been held in family trusts and proven fruitful investments.
But with age comes maintenance and capital expense requirements, and as the current generation of asset owners look to retire or release their holdings, younger generations of these families are left with a number of questions to answer.
Gawan Bakshi, Associate Director of Investment Sales at Colliers, says investors need to consider their options as ageing assets require decisions to be made.
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“As these properties are now likely mortgage-free, families should be examining whether to invest meaningful sums of money to modernise or enhance the asset or sell up and let the next owner undertake that investment,” Bakshi says.
“A debt-free $2 million to $2.5 million property may feel comfortable and produce steady cashflow from rental income, but it can also represent dormant equity and the question for the next generation is whether that capital is positioned to maximise long-term wealth creation.”
Bakshi, who specialises in asset sales in the $2 million to $15 million range across Auckland’s central and southern suburbs, says well-capitalised buyers have the chance to substantially grow their investment base in the coming years.
“The focus for these asset owners should be dollar-value wealth creation not simply percentage growth. While an asset currently valued at $2.5 million may appreciate to $3 million in the next market upswing, recycling that into a higher-quality asset could potentially create a much larger gain in the long run.
“Many family trusts are reaching a natural transition point with parents retiring and the next generation taking greater responsibility. Younger family members have a longer investment horizon and should consider how they can grow the family balance sheet over a multi-decade period as that will provide greater future returns.”
Bakshi has transacted a collection of properties this year where families have recognised the need to part ways with an existing asset to utilise the funds elsewhere or acquire another property with a brighter long-term outlook.
“With term deposit rates continuing to provide less favourable returns, commercial property remains a compelling investment opportunity for those looking to place their capital strategically. Asset owners need to be thinking ahead around how they can maximise their future returns.”
- Supplied by Colliers
