KPG - Kiwi Property Group Limited

[Baa_Baa]

With a recent report out for Home ownership stats in the next 10 years renting look sets to increase.

Return on investment per annum will focus on the rental income after expenses, that equates to the modest but 4-5 times better return than a bank deposit. In addition Auckland residential real estate has almost trebled in capital value in the past 10 years, keep that in mind, aside from directly owing property, there are a few other indirect ownership opportunities. It's a positive shift in investment strategy for KPG, suited to the long term money portfolio. This isn't imo a big portfolio % or a short medium term play. Just have some and don't watch the share price every day.

[Beagle]

For what its worth I think the average Auckland house price at $1.2m at about 12 times average combined household income is probably unsustainable so the capital growth prospects from here are probably very modest and the prospect of a fall in the medium term should not be overlooked..
I very recently looked at a property in West Auckland on a gross yield of just over 6%, (net just on 5% if I managed this myself) and decided against it.
One of the key reasons was the risk of tenant damage and most specifically meth contamination. Another was the inability to deduct the legitimate business expense of mortgage interest which means for the investment to be effective I would have to own it unleveraged. Frankly I can get much better returns on my capital elsewhere.

We have previously owned two apartments close to Lynn Mall and found them very problematic on a number of fronts. Budgeted yields with residential apartments are one thing, what you really get after inadvertent and willful damage, non payment of rent and other delinquent tenant behavior is quite another thing and that's before you even start thinking about possible moisture ingress and meth contamination risks and remediation costs, issues that are FAR more common than you think. Believe me as an accountant I have seen some absolute horror stories in my long career. It may look okay on a spreadsheet, in the real world its quite another thing entirely.

I would say residential apartment investment is substantially more risky than shopping malls.

[Waltzing]

BTR = the new Projects.

we all know what happened to those "Our house to bauhaus" projects turned out round the world. All demolished.

"Bauhaus to Our House" Tom Wolf.

[Habits]

For what its worth I think the average Auckland house price at $1.2m at about 12 times average combined household income is probably unsustainable so the capital growth prospects from here are probably very modest and the prospect of a fall in the medium term should not be overlooked..
I very recently looked at a property in West Auckland on a gross yield of just over 6%, (net just on 5% if I managed this myself) and decided against it.
One of the key reasons was the risk of tenant damage and most specifically meth contamination. Another was the inability to deduct the legitimate business expense of mortgage interest which means for the investment to be effective I would have to own it unleveraged. Frankly I can get much better returns on my capital elsewhere.

We have previously owned two apartments close to Lynn Mall and found them very problematic on a number of fronts. Budgeted yields with residential apartments are one thing, what you really get after inadvertent and willful damage, non payment of rent and other delinquent tenant behavior is quite another thing and that's before you even start thinking about possible moisture ingress and meth contamination risks and remediation costs, issues that are FAR more common than you think. Believe me as an accountant I have seen some absolute horror stories in my long career. It may look okay on a spreadsheet, in the real world its quite another thing entirely.

I would say residential apartment investment is substantially more risky than shopping malls.

Be careful not to compare different stuff... your lemons with someone elses Oranges. You are an accountant of many long years, we are landlords of multi unit properties of many years. A professional investor was selling his time for a modest fee a few years ago and he explained how to make multi unit large scale rentals work. I started with one rental block and very quickly grew to over 50 units. It has been a very profitable business for us and we still have a large number of rentals both self managed and through a prpty mgr. My kids have grown up watching us work diligently and knew thats what they wanted to do too and are doing now. Anything that is done right will see huge demand and BTR build to rent units are a proven concept in an environment where the govt are encouraging more long term professional landlords and fewer mum and dad investors. Btw new dwellings are not subject to the interest non deduction rule and can still deduct interest on borrowings. Did you not know that or are you being duplicitous

[LaserEyeKiwi]

Be careful not to compare different stuff... your lemons with someone elses Oranges. You are an accountant of many long years, we are landlords of multi unit properties of many years. A professional investor was selling his time for a modest fee a few years ago and he explained how to make multi unit large scale rentals work. I started with one rental block and very quickly grew to over 50 units. It has been a very profitable business for us and we still have a large number of rentals both self managed and through a prpty mgr. My kids have grown up watching us work diligently and knew thats what they wanted to do too and are doing now. Anything that is done right will see huge demand and BTR build to rent units are a proven concept in an environment where the govt are encouraging more long term professional landlords and fewer mum and dad investors. Btw new dwellings are not subject to the interest non deduction rule and can still deduct interest on borrowings. Did you not know that or are you being duplicitous

Congrats on building your investment property portfolio to that level, impressive!

To me the biggest risk for property investment has always been the lack of scale to spread risk, in that it is actually far more risky to own just one or two rental properties than it is to own a hundred. I’ve only ever had one or two investment properties at any one time, and that aspect worries me the most. Owning one or two means an adverse event that impacts your ability to rent the property is near catastrophic to the business, whereas that same event occurring in one dwelling of a 100 property portfolio is merely a small inconvenience that the income from your other 99 properties can more than cover. I always wondered if we would see a corporate landlord with something like 500 or 1000 properties list on the NZX as a vehicle for people to invest in New Zealand real estate without the single dwelling risk, now I guess KPG is going to become that to a certain degree.

[Shareguy]

Congrats Habits on your portfolio. I too invested in residential property many years ago and built-up a large portfolio which enabled me to retire in my 40s. Sure there can be issues with Tenants now and again. Understand that a lot of people don’t like taking on large mortgages but overall it has been very ,very easy. Most tenants are good people. The key is picking the right tenants, doing proper reference checks and credit checks. Most of our properties are now worth four or five times what we paid for them. When we started buying people were saying the same things the knockers are saying now, “they’re too expensive, how can you cope with all the tenant problems, interest rates will skyrocket,”I have heard it all.

At the end of the day there is one simple fact “there is only limited supply of land” and like it or hate it our population is going to keep growing.

So going back to KPG I think it’s going to be a game changer for them in a positive way with residential towers at Sylvia park. The ability to take the lift down with bars, restaurants and shopping at your doorstep. A train station right there is why I think it’s going to be a gold mine. I currently have a small position in KPG and do agree with Beagle regarding the risk regarding the current net asset value. The two large shopping centres that they are selling to fund this have been on the market for some time with no announcements made.

Delta is a game changer so I would imagine that anyone looking to purchase these assets would want these at a very attractive price considering the risks. So until they have concluded the sale and we can get some clarity on the future with COVID I won’t be adding to my portfolio.

[Waltzing]

Certainly going to be very interesting to see how this plays out and weather KIP is as good at BTR as they were at S Park in south auckland.

Its certainly not a failed property developer yet but 10 years is a long time to wait.

Should start to see if it works inside 5 years.

But on this basis OCA might be a better flip of the coin.

[winner69]

KPG presentation re BTR

I like the way the artist has judiciously placed green trees in the foreground to make a 12 storey apartment block less imposing.

Probably hard for same artist to make 25 stories at Lynn Mall not to look ugly as

[winner69]

……

It may look okay on a spreadsheet, in the real world its quite another thing entirely.

I would say residential apartment investment is substantially more risky than shopping malls.

Hey beagle, the media just said ‘the project looks good on a spreadsheet but in reality a lot of the assumptions made need to play out in reality’

Same commentator said the interest deductibility long term is no given

[Beagle]

Btw new dwellings are not subject to the interest non deduction rule and can still deduct interest on borrowings. Did you not know that or are you being duplicitous

I was simply referring to the fact that the unit I looked at buying if mortgaged would not enjoy interest deductibility. I wasn't referring to KPG's situation...but I think you knew that already. You must be really "impressed" that in real inflation adjusted terms KPG's share price has been going backwards for the last two decades, let alone comparing it with the property index which it has been woefully underperforming. That's quite an "achievement" in this booming market.

Original investors in RYM in mid 1999 have made over 55 times their money in just over two decades, (I got some of that), whereas over that same timeframe KPG investors have seen their shares go from 93 cents ($1.48 in 2021 real inflation adjusted terms) to $1.17, a loss in value of 21% in real inflation adjusted terms against a backdrop of the housing index more than quadrupling over that timeframe. Inflation calculator is here, have a play with it and draw your own conclusions. https://www.rbnz.govt.nz/monetary-po...on-calculator/

I think its crystal clear that over the long term KPG has been an absolute disaster as a property investment, (sort of okay if all anyone cares about is dividend yield). Two possible explanations present for this incredibly woeful long term underperformance. Investing in shopping malls is the worst possible asset class by a country mile and / or management are completely incompetent.

I'll leave you guys in peace which is, I am sure, what you really want...if people think it must be good buying because its at a discount to NTA or that this BTR thing is a game changer for KPG, and you trust management to deliver then good luck to you because I think its clear you are going to need it.