Expected Commercial Net Yield in Auckland

[chrisgoh]

"The owner did not have IEP report. The BC management are not planning to get the report until it is pass into law. The building was built around 1980s, seems to be in good condition"

The act around earthquake prone buildings needing to have minimum 34% NBS was passed ages ago. It is law. How this is implemented varies by council or territorial authority in their terms. There was also an amendment act, which I thought came in to force in July whose main purpose is to be more specific on how the process is enforced I think but haven't gotten around to researching it properly.

Let's be clear - there needs to be an IEP unless the building is relatively new. I don't know whether 1980s is new enough to be up to scratch. You will be forced to bring the building at your cost up to standard at some point if it's not. This is a potential significant liability. You can ring the council about this and get their view as there can be exceptions. For a property I purchased in Hamilton the council told me it was new enough to match their earthquake standards, had been consented by them and they were happy with it.

FYI in Auckland this is not a real risk rather a legislative risk IMO. NBS is aimed at earthquake prone areas and the government took a broad brush approach and did not vary by the seismological stability of different areas as they got caught by surprise with Christchurch. Auckland is seen as very low seismic risk by NZ standards. However, it cannot be ignored despite this. Banks don't like to loan if below minimum NBS, buyers don't like to buy and at some point if below the minimum you will be forced to bring it up to standard.

Thanks for sharing Scouser. The legislative risk will impact investors sentiment and that should reflect on the yield. Better be safe than sorry unless we have high risk appetite and able to improve the %NBS without a fortune.

[chrisgoh]

Ditto for me on the NBS affecting lending or insurance and I'm down to 34% though in Hamilton. I've heard anecdotally of issues with minimum NBS in earthquake prone areas such as Wellington. Be interested to know of any real feedback.

I would avoid earthquake prone areas for commercial properties. Stability and peace of mind are what I seek for in commercial properties.

[chrisgoh]

Well, I'm pretty sure an IEP is not a requirement, not in Auckland anyway.

And if built in 1980 then should be fine. It's pre 1976 you have to worry about.

Yes it's a legislative thing, not really a safety thing.

Mine is at 53% in Auckland, never had any hassles with insurance or lending against it.

Right, I think Auckland and Hamilton should be fine for now until the legislative requirement kick in. Nevertheless, good to have >50% NBS.

[JBM]

Not in Auckland(rural deep south) but have signed up industry/retail mix building 10.55% net yeild, 25yr lease (10yr fixed term) tenant(Nationwide tenant) pays all outgoings and takes care of all cladding paint work etc ...