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Colliers International has just released their January commercial property Research Report for New Zealand and according to Alan McMahon, Director of research and consulting at Colliers International, the sharp cut in the Official Cash Rate (OCR) to 3.5% yesterday, and the consequent cut in term deposit rates for investors are sure signs of a weak economy, and thus hardly cause for celebration, but they represent significant positives for property investors.

Last month we highlighted how property’s risk premium was returning to historic norms. We estimated it to be 2.5% to 3% in both the US and NZ. These cuts accelerate the risk premium movement back to a level that makes property investment relatively attractive.

New Zealand 10 year government bonds have fallen to 4.2% and term deposits to a maximum of 5%, even if you leave $50,000 plus in the bank for five years (ANZ National Bank). Meanwhile good property investments are selling for say 6% to 8% initial yield. Of course it’s not that simple.

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