Our fixation of property as an investment is not healthy

by Alistair Helm in


The most popular story on the NZ Herald today is the "investor" who is selling his land in South Auckland for over $40m - having bought it in 1993 for $630,000.

By his own admissions he did not buy it as an investment - merely for his turf business.

The story is garnering huge readership and I would assume a lot of people will be associating this to the huge rises in property prices we have seen over the past few years and the extensive media coverage recently. Many may be wishing they had invested in land and equally they may be thinking about the next opportunity to buy land or property. 

It strikes me our fixation on property as the focus of investment is so narrow minded, and as many people too often comment a drain on the economic potential as it locks up investment dollars in unproductive assets.

There are a number of things that frustrate me about the coverage of this story.

The story is headlined as 'Investor sells land worth over $40m' - he states he was not an investor - just a business person making a business decision.

It is a single story of a single person who had $630,000 to spend on their business in 1993 - allowing for inflation that would be equivalent of over $1m today - no small sum. His options were many - he could have invested the money in many ways but he chose to invest it in growing his business. That part of the story seems to be overlooked as the focus is all about the price of land and the great investment return it delivers.

The inference of the story is that $630,000 into $40m is a stellar return - 40 times over 21 years - seems good. But hold on; if that sum had been invested in a safe and secure bank deposit it would be worth $2.3m today. So the $40m sale is actually a 20 times return over the average cost of capital rather than the simple view of a 40 times return that the original calculation shows.

A 20 times return or even a 40 times return is not stellar in the context of business investment. A 100 times return is stellar in business but unheard of in property or land investing. Investing in business is all about early stage investing - believing in the business. 

A great demonstration of the investment potential was coincidentally actually reported in the Herald today but does not capture the headlines. Sadly business stellar performance and investment just never makes the headlines.

Orion Healthcare is preparing for its IPO - launched in 1993 by its founder Ian McCrae the business is a stellar example of kiwi tech capability. It along with the likes of Xero and Vend are trailblazing global software solutions that are the best in the world in their respective marketplace and in the process creating billion dollar companies. Orion is likely to IPO at a valuation of $800m  - not  a bad return on the investment made by its early supporters and founding CEO who holds the majority of shares in the company.

This type of business is what we should see showcased  in the headlines to provide stimulus to the next generation of kiwi kids, entrepreneurs and investors rather than articles about perceived wealth in land.