Generation Rent: Is Investing The New First Home?

For millennials and Gen Z’s alike, buying a home is fast becoming a distant reality, but saving, and avocado toast, isn’t the issue. With the average house price rising to a national median of $987,401 and the average time to save for a deposit now over 10 years (according to the latest CoreLogic House Price Index), the goal post keeps moving.

Combined with the Reserve Bank of New Zealand implementing restrictions last month that limit lending of new loans to owner-occupiers with deposits of less than 20 per cent, it means many prospective first-home-buyers are finding themselves sitting on dormant savings says Matt McHardy, General Manager Investor Relationships at PMG. 

“In March last year, interest rates plummeted causing house prices to soar,” McHardy says. “We’ve since seen a growing trend of clients in their late 20s and early 30s coming to PMG with an interest in investing. They often have a full or partial house deposit sitting in the bank, earning very little interest while house prices continue to climb out of reach.”

Founded in 1992, PMG is an established unlisted commercial property fund manager that has witnessed multiple economic cycles through its nearly 30 years in business. McHardy himself is in his 30s, and says he often sees young Kiwis making financial decisions that will not help them in the long term.

“Millennials are the generation that has been missed. They’ve taken on more credit card debt, student loans and personal loans than those before, encouraged by a lightly regulated banking regime and without the financial education that’s only now hitting schools,” he says.

“Many don’t think they have the means to invest and they feel that commercial property investing is reserved for their parents' or grandparents’ generation – but it’s not the case. Investing to grow wealth over time can be meaningful, even with a small start, and it’s significantly more attainable than home-buying for the average Kiwi.”

Last month, PMG ran one of New Zealand’s first commercial property social media giveaways, gifting 1000 units of its PMG Generation Fund (the Fund) to one lucky winner. The Fund is a growing portfolio of strategically selected industrial and large format retail property assets, that has a minimum entry investment of around $1090.

“We wanted to show everyday Kiwis just how easy it is to access our Fund, and our social media competition was the way to do that” said McHardy.

This is the first step into commercial property investment for the winner, 25-year-old civil engineer, Nathan who said he’s much happier seeing a return on his savings than tackling residential property in the current climate.

“Investing is something I’ve always been keen on,” he says. “I’ve dabbled in Sharesies before, but I didn’t really know how to get started with commercial property. Honestly, I’d have done it sooner had I known it was an option for me.”

Nathan rents in a share-house in central Auckland and works full time, but like many Kiwis is deterred from entering the housing market by rapidly growing prices.

“I’d love to stop renting, but house prices are crazy. It’s hard to imagine it being worth it right now. I’ll be getting a monthly return on my PMG investment so my savings can actually grow, and I can get the kind of first home I want down the track.”

PMG’s Reinvestment Plan also allows investors to automatically reinvest, which means they get the added benefit of compounding returns.

McHardy believes there will be a generation of lifetime renters, but that doesn’t mean they can’t be set up for a comfortable retirement.

“There’s a misconception that residential property garners higher returns than other investments. However, when you look at the stats over the last twenty years, residential property has delivered around 300 to 400 per cent returns, compared to say, the NZX50 which has at times, doubled that.

“The main financial benefit to owning your own home is leverage, and by all means if it’s feasible you should do it, but if you can’t get on the ladder, there are other ways to grow your money. With technology, and the options available today, the ability for young people to invest is greater than it has ever been before.”

About PMG

PMG is one of New Zealand’s most established property funds managers. For over 29 years, PMG has been invested in delivering long-term sustainability and value for investors through proactive commercial property management and investment.

PMG’s purpose is to create value and security for people in property, including helping New Zealanders achieve financial freedom. It does this by offering a range of unlisted commercial property funds, which cater for the differing needs of investors and provide them with choice, diversification (spread of risk by having a number of properties) and regular income.

The funds PMG offers and manages on behalf of investors include PMG Generation Fund, a fund designed to make commercial property investment possible for all New Zealanders; Pacific Property Fund Limited, a fund which invests in geographically and category diverse properties; and funds which invest in category specific assets, including PMG Direct Office Fund, PMG Direct Childcare Fund, and PMG Capital Fund Limited.

PMG is licensed under the Financial Markets Conduct Act 2013 to manage Managed Investment Schemes (excluding managed funds), which invest in, or own, real property in New Zealand.

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