By Gareth Vaughan
Sharemarket listed property trusts appear to have been beneficiaries of the NZ$1.6 billion taxpayer funded payout to investors in the failed South Canterbury Finance (SCF), according to Macquarie Equities analyst Stephen Ridgewell.
In a research report entitled NZ listed property sector; Don't expect an Indian summer, Ridgewell notes the listed property sector began to outperform the broader sharemarket in September.
Aside from falling interest rates as the outlook for economic growth and inflation softens, and receding risk of more property related tax reform after May's Budget outlined the removal of depreciation on buildings from 2012, Ridgewell cites a re-weighting of domestic retail investor funds following the payout to SCF investors under the Crown retail deposit guarantee scheme.
"The property sector may be benefiting from a reallocation of domestic retail investor funds following the demise of the NZ$1.6 billion SCF, the largest financial institution failure in New Zealand in the last two decades," Ridgewell says.
"Investments in South Canterbury Finance were government guaranteed and the first payments were mailed out to investors in September."
SCF collapsed into receivership on August 31 triggering a NZ$1.6 billion payout to 35,000 investors' under the Crown guarantee scheme. Some 7,000 SCF bondholders received about NZ$350 million on September 23 with the failed finance company's debenture and deposit holders paid NZ$1.25 billion on October 20.
Despite the apparent attraction of retail investors to listed property Ridgewell says Macquarie retains an "underweight" stance on the sector, whose earnings face "severe headwinds." He notes the outlook for prime and suburban office, which accounts for 55% of the sector's assets, is poor with a looming supply glut in the key Auckland market threatening to push vacancy levels to between 15% and 20% by 2013, depending on tenant demand.
And although expecting retail rent growth to resume, Ridgewell forecasts earnings per share across the sector to fall 4.3% in the 2011 financial year and 8.9% in 2012.
The listed property sector includes Kiwi Income Property Trust, Argosy Property Trust (formerly ING Property Trust), Goodman Property Trust, Property for Industry, AMP NZ Office, Vital Healthcare Property Trust. (formerly ING Medical Properties Ltd) and DNZ Property Fund, which Macquarie doesn't analyse.