New Zealanders Urged to Shift Wealth from Property to Productive Assets

Investment Expert Cites Economic Growth and Generational Opportunity

New Zealanders are being encouraged to reconsider their strong affinity for property investment, with experts suggesting a pivot towards assets that actively fuel economic growth would benefit the nation.

The Case for Diversification

Jeremy Williamson, head of private wealth and markets at Craigs Investment Partners, believes there’s a growing momentum to move away from an over-reliance on property. He argues that while property will always hold a place in the New Zealand psyche, a strategic shift towards more productive sectors of the economy could unlock significant national benefits.

“We think that’s great for a number of reasons,” Williamson stated. “New Zealand is always going to have an affinity with property investment but there are so many benefits for us as a country if we can turn the dial away from it, into more productive parts of the economy.”

He questioned the collective benefit of merely trading houses amongst citizens for wealth creation. “What does it do on a national scale for us if we’re just buying and selling houses back to each other to create wealth? I don’t necessarily believe for the collective it works.”

Williamson highlighted historical returns, noting that $100 invested in a New Zealand house 30 years ago would now be worth nearly $600, whereas the same amount in New Zealand shares would have grown to $1100.

Shifting Perceptions and Generational Experiences

The traditional comfort of tangible assets like property is giving way as New Zealanders’ understanding of other investment avenues expands. He pointed to the 1987 sharemarket crash as a factor for older generations but believes a new cohort, with positive experiences in non-property assets, is emerging.

While the ability to leverage property investments, such as requiring only a 30% deposit, has been a drawcard, Williamson suggested even a small shift of capital, perhaps 10%, from property to other assets could yield significant positive impacts.

He expressed concern that over-allocation to property exacerbates inequality and inflates an asset class, making it inaccessible for younger generations. “We over-allocate to property, we’re reinforcing inequality through investment in an asset class that isn’t productive. We’re inflating the asset class and putting it out of reach for the next generation.”

Investing in productive, growing companies, he argued, has the power to positively transform the economy, leading to increased tax revenue and more opportunities for future generations.

Market Realities and Future Outlook

Gareth Kiernan, chief forecaster at Infometrics, noted that residential property investments yielded an average annual return of 9.5% over the decade to March, including rent and capital gains. This figure is comparable to the 9.34% per annum return of a typical aggressive KiwiSaver fund during the same period.

However, recent market fluctuations, including house price falls in 2022/23, have underscored that property price appreciation is not guaranteed. Escalating insurance costs and local government rates have also increased the operational expenses for rental properties.

Kierna suggests that KiwiSaver has fostered greater familiarity and comfort with financial investments among the public. Coupled with the expectation of limited capital gains in housing due to affordability issues and low rental yields, demand for property as an investment may consequently be tempered for some time.

Rupert Carlyon, founder of Koura KiwiSaver, concurred with the need for New Zealand to diversify its investment base away from property. He cited concerns about potential negative impacts on property prices stemming from global negative population growth trends, alongside slowing growth, falling real wages, and higher interest rates driven by inflation.

Carlyon pointed to Bitcoin as the top-performing asset class of the past decade, delivering a remarkable 45,000% return. He acknowledged its evolution from a speculative asset to mainstream acceptance, evidenced by ETFs and central bank reserves. While such exponential growth is unlikely to be repeated, he noted Bitcoin’s continued potential for growth given its current market capitalization relative to other assets like gold and major tech companies.

“While it is highly unlikely that we see this type of growth again – it is important to point out that Bitcoin is still a small asset class compared to others,” Carlyon cautioned. “With a market cap of US$2.4 trillion it is only 10% of the value of gold, just over 50% of the market cap of Nvidia and tiny compared to the value of the real estate market. If adoption continues we expect to see some of these gaps close. Though while less risky than it was a few years ago, risk still exists. It is important that investors remain diversified and don’t place all their bets on any single asset or asset class because history shows assets will always move in cycles.”