Auckland CBD Commercial advice

[Joshua Fong]

I think there is a slight but important difference in how commercial and residential is valued. A house is a house and there is a "value" to it because all houses of similar specs and attributes will be worth about the same. But commercial tends to be valued based on the prevailing "cap rate", and hence much more sensitive to interest rates. This is due to the fact that commercial property is only valuable if it is tenanted and collecting income. Hence, I would think that residential is not as "sensitive" to interest rate changes, because of the way they tend to be valued. That is my understanding and how I see it.

[d2ba]

I think there is a slight but important difference in how commercial and residential is valued. A house is a house and there is a "value" to it because all houses of similar specs and attributes will be worth about the same. But commercial tends to be valued based on the prevailing "cap rate", and hence much more sensitive to interest rates. This is due to the fact that commercial property is only valuable if it is tenanted and collecting income. Hence, I would think that residential is not as "sensitive" to interest rate changes, because of the way they tend to be valued. That is my understanding and how I see it.

I don't think you can compare apartments to houses or units , again I'm asking why they are not considered as risky as commercial once interest rates rise---has this scenerio been really tested with apartments in Auckland in particular? After the OCR was introduced there was sudden increase in rates but not so many apartments around .in every open home for apartments I've been to the agent is providing a rental evaluation sheet, owner occupied or not.

http://www.rbnz.govt.nz/monetary-policy/official-cash-rate-decisions

[Wayne]

I don't think you can compare apartments to houses or units , again I'm asking why they are not considered as risky as commercial once interest rates rise---has this scenerio been really tested with apartments in Auckland in particular? After the OCR was introduced there was sudden increase in rates but not so many apartments around .in every open home for apartments I've been to the agent is providing a rental evaluation sheet, owner occupied or not.
http://www.rbnz.govt.nz/monetary-pol...rate-decisions

A commercial building needs a commercial tenant to be useful.
An apartment just needs someone to live in it.
People buy apartments to rent but they also buy them to live in, the same can't be said for commercial buildings - there is your difference.

[Nick G]

They're very different. The residential properties I've been looking at my valuer uses a cap rate since they're cash flow based and one thing I can say is it makes it really simple to work out how much equity you can gain just from a rent number.

[JBM]

Yes IEP 67%+ along with a decent fixed term lease .that give a good 8%+ net ....that's not located in some backwater surrounded by empty commercial is very hard to find >> so far for this investor .... I can find many low IEP's that look great ...but will need many $$$,$$$ spent
and even with insurance covering them with sub 32% NBS