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April 2012 Keeping track of the property markets in New Zealand is like to trying to control a group of five-year-olds which has just munched its way through a basket of sugar-coated Easter eggs…… it’s all over the place. A month ago for example we were noting that residential properties in Auckland sitting in the $500,000+ price bracket were moving far quicker than the average days on the market statistic suggested. Now, it’s stock in the sub-$500,000 around Auckland that is literally flying off the shelves when vendors are realistic with the pricing expectations. Believe what you read in the mainstream media… the buyers are there in their droves. We’re hearing similar stories coming through from the residential markets in the bigger provincial cities too – indicating first home buyers are fuelling demand across the entry-level price brackets. This burst of activity over the first quarter of the calendar year may be short-lived though as residential listing numbers are decreasing – the combination of houses selling quickly, and few new listings coming onto the market. This may well see asking prices rise noticeably in the short-term. How first home buyers will react to that scenario is yet to be assessed…. will they see the upward pricing trend continuing, and purchase to ‘get on the escalator’, or will they be somewhat demoralised by the lack of selection available to them and revert to a state of hibernation? The rural market meanwhile, now well and truly back on its feet, is ticking over steadily, although certainly not what the real estate industry would call ‘spectacularly’. What we have seen, is that there has been a consolidation of real estate agency brands in the rural sector – with smaller regional or provincial town agencies struggling to keep up with the sales volumes of their bigger nationally-focussed counterparts. A rural property sector trend we tracked in the first quarter of the year shows little sign of being addressed – that is a dearth of new listings coming onto the market. Part of that has been the result of successfully deleveraging rural debt so that farmers feel less financially pressured than they did some 15 months ago, and part of it has been the result of farmers feeling more comfortable with the long-term prospects for primary produce. Overall, it’s a case of ‘steady as she goes’ although watch out for a drop off in the number of smaller real estate agencies competing for business. Over in the commercial and industrial property markets, the trends, as in the residential sector, are erratic. For example in one of our big Auckland commercial auctions recently, a portfolio of retail and fast-food investment properties in the sub-$1million price range flew off the auction floor. In fact, we sold 12 of them consecutively – so there is obviously money out there looking for a good home in which to generate sound income returns. Conversely, activity thinned out as the higher-valued offerings came up. Industrial stock is getting harder to sell – reflecting that the general economy is still fragile, and at least a year off solidifying any improvement in the pace of recovery. That stock is being squeezed in a pincer scenario. On one side, investors are still nervous about the prospects for their tenant’s business sustainability, while owner/occupiers are remaining cautious about the prospects for growth and any subsequent need for larger premises. This is going to be a long, slow recovery. February 2012 As has been the case so often over the past three years, the direction of the property markets is all over the place - depending on which sector you are reviewing, and whereabouts in the country you are focussing. Take the residential market for example. In Auckland, that geographic segment is gathering quite some momentum – most noticeably in the $500,000+ price bracket, where stock is moving far quicker than the average days on the market statistic suggests. That average days is being pegged back by, I believe, over-priced homes whose vendors have little motivation to move on. Elsewhere in the country though, the residential sector is somewhat more circumspect although there are signs of confidence solidifying - which is the first step toward growing. While still ticking along, real estate sales people are having to work far harder to get deals done as buyers still amble with no real motivation or sense of urgency at this stage, although there appears to be strong undercurrents brewing. The justification for this? The latest set of disclosure statements from the bigger banks such as ASB, BNZ and Westpac all show that they are increasing the number of home loans to buyers with up to a 10 percent deposit. Concurrently, credit data agency Veda has announced that more mortgage applications were made in the December to February period than at any time since 2005. Rural sales volumes meanwhile have dwindled slightly since the end of January, as landholdings which had been on the market for some time were finally sold off – thereby clearing out what had become a backlog. Those in the countryside are now seeing what the residential property market saw in the final quarter of 2011 – a dearth of new listings leading to greater competition among buyers. A generously wet summer, as if we need any more reminding, has seen bountiful pasture growth levels this year – thereby alleviating that usual stress off farmers’ radars, and leaving them less inclined to take their property to market while things are going so well in the business Over in the commercial and industrial property markets, the trend we have seen of late is for a number of bigger sales being recorded. These higher-end sales have been across the board in property type – commercial office space, prime CBD development land, and large industrial premises leased back to existing tenants who have freed up their capital commitments. Most of the bigger sales have been in Auckland and Wellington – perhaps suggesting that regional and provincial investment funds of between $2million - $5million are still in the bank awaiting the right opportunity, or that investment money has already filtered into the bigger cities where economic recovery is most likely to gather pace first. January 2012 Welcome back to 2012 – after a ‘summer’ holiday break which rather reflected New Zealand’s real estate markets…. that is to say conditions were markedly different around the place depending on whereabouts you were in the country. In most of the residential property regions, for example, with the slight exceptions of Auckland and Christchurch, lower-than-average stock listings and sales volumes, combined with flattish prices mean the mood is subdued and market sentiment is uncertain. Those lower-than-average housing stock levels in Auckland though are proving to be a double edge sword. While they do to a certain degree underpin pricing, many wanting to sell are reluctant to take their property to market because their on-going selection is limited. Further south, while ‘quakes continue to rattle Christchurch, an increasing amount of capital is making its way to the property market as insurance relocation pay-outs come to fruition. We expect to see growing demand for both housing and bare land stock in this region of the housing market. A consequential increase in the supply of bare land is already evident. Damp weather throughout the upper part of the country this holiday period dampened the traditional buzz of buying interest for baches and holiday homes in coastal and lake towns such as the Bay of Islands, the Coromandel, the Rotorua/Taupo lakes district, and Nelson Bays. Fine spells toward the end of January have given this sector somewhat of a belated kick-start. Conversely though, Queenstown and Central Otago – undoubtedly buoyed by the higher than average number of sunshine hours - reported stronger than usual numbers of visitors showing an interest in the open homes which ran over the holiday period. As the cliché goes, behind every dark cloud is a silver lining, and the weather across most of the North Island was no exception for the rural sector. At a time of the year when grazing pastures have traditionally been turning brown and wilting under the relentless summer sun, this year’s bountiful rainfall meant that the heavyweight dairy production regions of Manawatu, Taranaki, King Country, Waikato and Bay of Plenty were blessed with lush green pastures covered in grass. This has boosted production confidence early in the year in these areas and underpinned the gradual return to the rural real estate market confidence that was building throughout 2011. The counterbalance of course has been that Otago and Southland have instead undergone prolonged dry spells. A number of Mid and Lower North Island receivership farm sales being drip-fed to the market in a controlled fashion over the coming weeks will continue to see plenty of choice offered to potential buyers, and this should see a healthy injection into sales volumes as concluded deals are recorded in the second quarter. Meanwhile, activity in the commercial and industrial property sectors, has been muted – as it always is during any January period. With most of the country’s accountants, legal professionals and business advisors taking their annual Christmas and New Year holidays running well into the final quarter of the month, this sector of the property market is always the last to return back to business en-masse. And this year has been no different. I’d say that expect commercial and industrial sales activity to pick up from February onward, but that leasing activity will remain relatively even-keeled as business plots a ‘steady as she goes’ course until the end of the financial year. December 2012
Seldom in New Zealand’s history have we seen a year so packed with what can truly be labelled as ‘life-changing’ social events. I’m particularly referring to the Christchurch earthquake, the Rugby World Cup, and the General Election. In any one year alone, the occurrence of just one of these events would have been the foremost social phenomena of the calendar. But to have all three in the space of 12 months caused considerable social, political, and financial ramifications across the population. Each in their own right impacted on the smooth flow of society – and ultimately on the social habits of New Zealanders…. including the trading of property. And all came on top of an economy slowly recovering from years of recession. The resulting social turmoil from these events, combined with ongoing instability in the world’s financial markets, has made forecasting property trends incredibly difficult this year. The classic scenario being in August for example, when in the space of 48 hours Kiwi trading banks hiked mortgage rates to reflect a ‘speeding up’ of the economic recovery, then when the US economy began rapidly imploding and the Reserve Bank of New Zealand responded accordingly, the mortgage rates underwent a complete U-turn. Yet despite everything that went on in New Zealand throughout 2011, property transactions continued to be made. It just shows that no matter what life throws up at the property markets, deals will always be successfully concluded. The fundamental drivers of the residential property market are still the same now as they always have been – death, debt, divorce and desire – although the percentage splits may have changed somewhat over the past three years. Similarly with rural property – where global and national demand for primary produce continues. While demand is relatively constant, produce prices have changed, and that has seen the market valuations and motivations move accordingly. Just look at the value of vineyards to understand how price per hectare is directly related to, and calculated by, returns on investment. And for the commercial and industrial markets, as in any sector of the economy, there have been winners and losers. The losers have had to downsize premises, or in some unfortunate cases, close. The winners, and there are plenty of companies who have thrived over the past three years, conversely have grown their businesses and expanded premises accordingly. 2012 looks equally hard to predict for the property markets. What I can safely say is that after surviving a tumultuous 12 months, we all deserve a damn good Christmas break and New Year holiday with friends, family and relations. May I take this opportunity to wish all PropertyLive readers the best for the festive period, and hope you have time and opportunity to truly enjoy this magnificent country over the holiday break. November 2011 The pendulum which reflects business, economic, and social confidence in New Zealand continues to swing markedly between optimism and pessimism at increasing speed. No sooner had the All Blacks lifted the rugby world cup and the ticker-tape parades were held, than the salient spectre of a General Election campaign appeared on the horizon and coverage of ongoing financial instability across Europe re-emerged in the headlines. Oh how short were rugby’s victory celebrations? No sooner had the Rugby World Cup finished though, than a surge of new residential property listings came onto the market. Data reflecting this comes not from any Real Estate Institute of New Zealand monthly reports, nor data from QV, nor any one real estate agency’s books – but by simply lifting up the ‘houses for sale’ supplements of the daily metropolitan and provincial newspapers, and in the likes of the Property Press. The increased number of listings is plain to see. With a mix of four week auction campaigns and traditional price-attached marketing, the natural flow-on results from this listing influx may take another few weeks to filter through into sales stat’s. However what can be said is the traditional spring flood of activity is more a gradual building of momentum – albeit a month or so later than usual because of the Rugby World Cup. Elsewhere in the real estate markets, optimism is also on the improve. The rural markets are now stable following years of downward pricing and volume trends. Stability does equate to transactions, although still nowhere near previous levels and volumes, a noticeably increase is evident. As I have mentioned several times previously, purchase price expectations for productive rural land and assets are now being calculated through business model matrices – that is return on investment, and productivity outputs - and not with an expectation of substantial capital growth. This is fundamentally a huge mindset shift for a sector of the property market which traditionally assumed that prices would only ever head in one direction. Consequently, this mindset change is taking a while to become accepted and commonplace – and therefore some vendors and buyers are being left on the sideline when it comes to transactions. Meanwhile, the commercial and industrial property market for both sales and leasings has seen a lift over the last few months. While deals are still getting ‘done’ – although not at the volume seen three year ago, transaction numbers are upon the same time last year. One can only speculate that business confidence is muted because of international factors - the ongoing European debt crisis, in association with the slowing down of economic activity in both Australia and China who play such a significant part in New Zealand’s economic wellbeing. Domestic consumer spend – which drives our retail and manufacturing markets - is cautious, as those Rugby World Cup credit card bills come through, combined with the upcoming election and the uncertainty that generates should the new Government of whatever leaning decide to introduce any new policy. While over the short term at least, business profits are being diverted from investment and expansion plans into consolidation through debt repayment, there is still interest and activity in the commercial property market as companies move through the various life cycles. October 2011 New Zealand is now fully immersed in the euphoria and fervour of the Rugby World Cup. Interestingly, at a period when the European economy is wobbling precariously and New Zealand’s credit rating was being downgraded, the nation’s attention was more focused on Dan Carter’s injured groin and knocking over the Wallabies. Behind the excitement of the rugby though, uncertainty over the Euro’ zone’s stability continues to temper the positive economic data coming out from the Government and economic analysts in New Zealand. Home buyers, for example, are in the starters block and are ready to take off in the traditional spring burst of activity, but this year are nervous about jumping the gun while peripheral economic factors remain in the headlines. Unfortunately, that hesitancy comes at a price. For every month that ticks by, it means one less month of access to the comparatively low mortgage interest rates on offer from the banks through a low official cash rate. Similar trends are being seen with commercial property – where both investors and owner occupiers have stepped up to the mark, but want to be totally comfortable that all is well with the wider world before embarking on the next step of purchasing. Interesting, institutional investors such as DNZ, Robt. Jones Holdings, and NPT are back in the commercial markets – on both sides of buying and selling equation. While each of their business motivations are obviously different, the recent increase in multi-million dollar transactions show that these big players are willing to make moves when the appropriate opportunities arise. For them, standing still and doing nothing is no longer an option. The question now is: how long will that attitude take to filter out to the sub-$1million commercial sector and out to provincial cities? Meanwhile, the rural market is a somewhat different scenario. While commodity prices are off their recent highs from earlier this year, they are still well above historic averages. A recent fall in the value of the $NZ has helped maintain higher primary sector revenues for the meantime. With subsequent higher incomes for farmers, a percentage of those working the land have taken the opportunity to stabilise and even pay down their mortgage debt levels. As a result, many farmers are no longer under the financial pressures they were a year to two ago, and are therefore taking a more circumspect and considered approach to selling. Rural buyers are still out there looking for opportunities, but deals are taking longer to conclude – a fact the latest Real Estate Institute of New Zealand statistics show, with the average length of time from listing to selling a rural property doubling since 2008. September 2011 For those potential property buyers looking to take advantage of the ‘cheap money’ available through historically low floating interest rates lately, the good news is that the status quo is set to continue and there will most likely be no rise for the foreseeable future. While New Zealand is now well on the way to recovery from the recession of the past three years, global confidence conversely has taken a hit during the early part of August – sparked up by the credit downgrade of the US, the subsequent sharemarket capitulations, and ongoing worries in the European currency and sovereign debt markets. What was looking likely for an OCR price rise in September has been put on ice. That’s great news for budding real estate buyers and those paying down household and corporate debt as quickly as possible. I’m forecasting an extended five to six-month OCR breather is on the cards. In recent months the Kiwi economy has recorded a lift in business confidence across most sectors, a rise in domestic economic activity, a lift in consumer confidence – albeit slight - a solidification of the employment figures and corresponding slight increase in number of hours worked on a weekly basis, and commodity prices remaining at elevated levels. August 2011 July 2011 New Zealand is now well entrenched in the winter cycle – with the ensuing general lethargy that entails. However, while on the surface the property market activity may appear to be lacklustre, below the radar there are a considerable number of deals happening across the board which support the growing economic recovery. For example, the commercial and industrial markets are active in sales of primary-grade stock around the $1million mark which are being snapped up by both small investors and owner/operators. Similarly, we have seen strong activity with primary-grade investment stock valued upwards of $5million which is attracting interest from cashed-up family trusts whose bank deposits are coming off two to four-year terms - which were paying in the realm of seven to eight percent interest. Over in the rural sector, mid-to-high-end value dairy farms (circa $5million+) are attracting strong buyer interest – no doubt buoyed by Fonterra’s payout forecasts, and underscored with the potential for the $NZ to begin drifting back into the 70-cent range. There has been a raft of sales in the Central North Island, North Canterbury and deepest Southland regions to showcase this trend. The big headline grabber for most of the media though has been that activity in the greater residential property market has slowed markedly. I use the word ‘greater’ very carefully though, as with all statistics, there is the headline figure, then there is the real story behind those statistics. It is the ‘story behind the story’ which gives some insight into what is really happening in that ‘greater’ residential property market. While listing numbers are certainly down across the residential sector as a whole, the fall as a percentage has been smaller among the bigger agencies. In times of economic fragility when domestic budgets are restrained and greater certainty is sought – particularly pertinent for a major decision such as selling the family home - people will shift their spending habits to safe and trusted brands. Brands with reputations, a history of service, and with the minimum risk associated. It’s a scenario which also translates to the commercial/industrial, and rural property markets. That is why many smaller, independent, residential real estate companies are finding their listing numbers ravaged at this time of year, while those agencies with national exposure, international marketing expertise, and substantive, proven systems with back-office support, are continuing to increase market share ahead of their competition in a declining volume market. In corporate speak, this phenomenon is known as a ‘flight to quality. In layman’s terms, it’s known as ‘survival of the fittest.’ June 2011 With little impact for the greater property markets in New Zealand though, this was essentially a Budget of social policy. The result was that the property markets continued ticking along unabated in a ‘gentle’ fashion – both before and after the Budget reading. This is in stark contrast to the 2010 Budget with its ramifications for commercial property owners and residential property investors - through the likes of changes to deprecation rules, and removal of loss attributing qualifying company status. I describe the current property market as ‘gentle’, which should not be confused with the term ‘fragile’. Gentle refers to sustained and calculated property buying activity at moderate levels with no hint of frantic behaviour. Fragile, which I believe is a state now behind us, is a nervous buyer market hesitant to show any signs of movement for fear of potentially snapping back into another quarter of negative growth. Gentle is a term which can be extended across all property market sectors at present – residential, commercial and industrial, and rural. The deals are being done, but at lower volumes than the lead up to 2008. And that’s fully understandable. With New Zealand now moving into the winter quarter, there is an expectation that our real estate sectors similarly hibernate through until spring. However, that traditional hibernation of activity was relative to coming off the summer/early autumn peak. With the peak being considerable lower and broader this year, I’m picking the drift to the ensuing quieter winter months will be far more shallow and gradual. That’s for the residential and rural sectors. On the commercial and industrial front, there is, anecdotally, more activity being generated out of Auckland than the other cities. Again, this is probably indicative of our biggest city and financial powerhouse continuing its emergence from recession. Industrial sales and leasings are leading the recovery trend, with commercial property filling in second spot, and retail real estate seeing the most gentle activity as consumers tentatively begin lifting their spending habits to take advantage of relatively cheap imported goods courtesy of New Zealand’s high exchange rate. What we don’t know about yet in the commercial and industrial sector, and to some extent the rural scene, is the rumoured billions of dollars being transferred into New Zealand from patient Asian investors looking at big property portfolios. With Asians being renown as ‘counter cyclical’ investors, we could well see some major plays evolving through this channel over the coming winter period. Watch this particular space closely… something may well be about to happen which could take the market by surprise….. May 2011 The country has now had time to digest the implications of the Christchurch earthquake from a financial perspective, and with the calming benefit which time delivers. The initial outpouring of emotional empathy following the ‘quake has largely been replaced with some sense of ‘getting back to business’ for the rest of the country. For the property markets, that return to a pre-February 22 state of mind is seeing both the positive and the negative financial ramifications of the disaster. On the plus-side, the Reserve Bank’s March cut in the Official Cash Rate has certainly made floating mortgage rates even more attractive in the short to medium term – helping stimulate interest in the residential and commercial property sectors. The initial shock of the Christchurch ‘quake devastation put the brakes on the wider housing market for no other reason than people had their minds focussed on helping their fellow New Zealanders in a myriad of ways. With earthquake recovery operations now well underway, the previously selfless New Zealand mindset is slowly returning to its own domestic affairs. And for home buyers/sellers, that means getting their individual plans back on track and looking at open homes again. What of the industrial property sector? Businesses with low or no exposure to the Christchurch economy continue to fare at sustainable levels as their customer base and demand for their goods or services remains intact. Auckland and Wellington in particular are testimony to that – with retail spend generally holding its own, as are the tourism and hospitality sectors. That stability equates to underpinning business continuity at current levels. While that may not see the country move through the economic downturn recovery phase as quickly as expected pre-quake, it reflects that things shouldn’t get any worse. For the commercial property sector, that means a slightly slower ‘steady as she goes’ approach – with many bank economists pushing their predicted recovery pick up forecasts out to late 2011/early 2012. The big hit on the minus-side has been the dent in the public’s frail emotional psyche, which was just returning to an up-beat mode before February 22. The ‘quake has once again engendered an air of nervousness into the economy – nervousness over employment, nervousness over rising Government debt to assist in the Christchurch rebuild, and nervousness over the pace of economic recovery. This will once again see a reversion to household and corporate debt reduction rather than increasing investment – putting somewhat of brake on what would otherwise be a healthier housing real estate market and any resurgent commercial property market. Meanwhile in the rural sector, the real estate market is still biding it’s time before showing any discernable nationwide recovery trends. This hesitancy precedes the highly encouraging data which came out in the latest ANZ Commodity Price Index at the beginning of April. The index recorded its seventh straiWeek by week as this year moves on, there is a growing wave of positive sentiment building behind the direction of the New Zealand economy over the short to mid-term. For the first time in years, banking economists, fiscal forecasters, commercial analysts, the Reserve Bank, and business survey statistics, are all pointing in the same direction, and are consequently espousing identical commentaries….. The ANZ, the BNZ, Westpac, the Roy Morgan consumer confidence survey, the The pace of New Zealand’s economic recovery is being picked to gather pace in the second half of this year – spurred on by such factors as the Christchurch rebuild spend kicking in, the Rugby World Cup visitor influx (both international and domestic), and rising offshore revenues. With the upturn in the economy, the general feeling is that the Official Cash Rate will begin climbing early next year. What does this all mean for the property markets…? Buying real estate is essentially a confidence-based decision. For most, that confidence is based on the ability and sustainability to repay the loan or mortgage required to fund the property purchase. • On the residential scene, that confidence is based on security of employment – and the better the outlook for employment, the greater the buyer confidence. Sustaining that property buying confidence, is banking confidence – with a loosening of lending policies. Which takes us right back to the banking economists and their forecasts of the economic recovery gathering pace over the next eight months. The underlying factors, the ‘boxes’ in effect, in all these sectors, are now being ticked in increasing numbers by prospective buyers. We in the real estate marketing business are seeing a greater prevalence of ‘pockets’ of sales spikes occurring across all sectors and regions. Yes, even Christchurch and Canterbury - where sales in high-end residential homes, industrial premises, and farms, have all continued to trade solidly …. even after the ‘quake. Auckland’s residential and commercial real estate markets are gathering momentum faster than the national average – as the media is acknowledging. It is only a matter of time, and that could be some six months away, before this spreads nationwide. No matter if the past few years were a ‘U’ shaped recession or a ‘double dip’ recession, the corner has been turned, and, baring any further major domestic economic turmoil, it is now no longer a matter of ‘if’, but ‘when’ the property markets will fizz again. What I can say with certainty, is that those property buyers/investors/speculators who pay close attention to the signs – the ones who got out early in 2008/09 - are already back in the game…. In a battle of wills, those buyers are backing their patience against the patience of the banks who are drip-feeding forced rural sales onto the market. April 2011 The country has now had time to digest the implications of the Christchurch earthquake from a financial perspective, and with the calming benefit which time delivers. The initial outpouring of emotional empathy following the ‘quake has largely been replaced with some sense of ‘getting back to business’ for the rest of the country. For the property markets, that return to a pre-February 22 state of mind is seeing both the positive and the negative financial ramifications of the disaster. On the plus-side, the Reserve Bank’s March cut in the Official Cash Rate has certainly made floating mortgage rates even more attractive in the short to medium term – helping stimulate interest in the residential and commercial property sectors. The initial shock of the Christchurch ‘quake devastation put the brakes on the wider housing market for no other reason than people had their minds focussed on helping their fellow New Zealanders in a myriad of ways. With earthquake recovery operations now well underway, the previously selfless New Zealand mindset is slowly returning to its own domestic affairs. And for home buyers/sellers, that means getting their individual plans back on track and looking at open homes again. What of the industrial property sector? Businesses with low or no exposure to the Christchurch economy continue to fare at sustainable levels as their customer base and demand for their goods or services remains intact. Auckland and Wellington in particular are testimony to that – with retail spend generally holding its own, as are the tourism and hospitality sectors. That stability equates to underpinning business continuity at current levels. While that may not see the country move through the economic downturn recovery phase as quickly as expected pre-quake, it reflects that things shouldn’t get any worse. For the commercial property sector, that means a slightly slower ‘steady as she goes’ approach – with many bank economists pushing their predicted recovery pick up forecasts out to late 2011/early 2012. The big hit on the minus-side has been the dent in the public’s frail emotional psyche, which was just returning to an up-beat mode before February 22. The ‘quake has once again engendered an air of nervousness into the economy – nervousness over employment, nervousness over rising Government debt to assist in the Christchurch rebuild, and nervousness over the pace of economic recovery. This will once again see a reversion to household and corporate debt reduction rather than increasing investment – putting somewhat of brake on what would otherwise be a healthier housing real estate market and any resurgent commercial property market. Meanwhile in the rural sector, the real estate market is still biding it’s time before showing any discernable nationwide recovery trends. This hesitancy precedes the highly encouraging data which came out in the latest ANZ Commodity Price Index at the beginning of April. The index recorded its seventh straight monthly rise in a row, to yet another record high - with 14 commodity prices measured by the index rising and three unchanged. For the first time in 17 years there wasn’t a single decrease in the price of any individual commodity in the basket of 17 commodities that ANZ monitors. That is a very powerful piece of data. In a battle of wills, those buyers are backing their patience against the patience of the banks who are drip-feeding forced rural sales onto the market. March 2011 Just when the New Zealand economy, and the property markets as a consequence, looked like they were finally ready to move on to the next phase of recovery, we were hit with the Christchurch earthquake – the single biggest disaster to hit this country. As a nation, our thoughts and condolences continue to go out to all those in Christchurch – to those who have lost loved ones, those who have lost their homes, and those who have lost their livelihoods. The coming months and indeed years will test the resilience of not only Cantabrians, but New Zealanders as a whole. The quake struck at a time when forecasts for New Zealand’s economy had taken a decidedly upbeat turn. Business confidence had resumed an upward trend – both through investment and profit forecast levels – which delivered encouraging news for the commercial and industrial property markets. Fonterra had announced strong payouts – which brought good news to the rural property sector, as featured in the article below in the National Business Review. This was supported with big farm sales recorded by Bayleys in Taranaki, Hawke’s Bay and Southland throughout early and mid-February. Meanwhile, across in the residential property market, activity was once again beginning to gain momentum with mortgages becoming cheaper – as outlined in the commentary below by both interest.co.nz and stuff.co.nz – and listing volumes and buyer enquiry levels rising. It is still too early to predict just what effect the Christchurch earthquake will have on the wider property markets throughout New Zealand. There will be ramifications, and these will become more apparent in the coming months as the Christchurch population takes stock of how this major event has impacted on their personal and professional lives. We as a country have not seen an event like the February 22 earthquake before in recent memory. Likewise with the recession of 2008-2010, an event most of the world had never experienced before. Such enormous events like these tend to throw standard forecasting parameters out the window – even for the foremost of bank economists or market analysts. The Canterbury’s rural property market will remain largely unaffected as a result of the earthquake. Conversely, the commercial and industrial sector in Christchurch will be changed forever as building owners within the CBD look at their rebuild options, and companies within the CBD relocate – either out to the suburbs, or elsewhere in New Zealand. The Christchurch residential property sector is the big unknown. Early indications are that values and volumes will take a significant hit, and that any recovery in both these figures for the city will be extremely slow. The challenges thrown up by the recovery processes and demands that will ensue from the Christchurch earthquake, will be substantial. The greater New Zealand property market, like our national spirit, will be dented in the short term. But like our spirit as New Zealanders, it will recover quickly and forge a steely determination to once again ‘roll up the sleeves’ and move on. On the wider property picture, what I can say is that the roller coaster ride for New Zealand property will continue, and while there may not be the dips and peaks seen of late, there certainly will be some tight corners and fast spins as we move into unchartered territory. No matter what comes out of the Christchurch quake, people will still need homes in which to live. Businesses will still need premises from which to operate out of. For these reasons, while economic recovery from the Christchurch disaster may be long and protracted, the property markets outside the city will recover considerably quicker. February 2011 January 2011 December 2010 Welcome to the final PropertyLive commentary for the year – and what a year it has been for New Zealand’s real estate sector. In all, it has been a year where the carefully calculated predictions of most economic analysts, financial commentators, and real estate experts were continually defied. The property markets started 2010 highly optimistic that the pace of the wider economic recovery begun in 2009 would continue on. It didn’t. Then property buyers ‘sat on their hands’ and waited for the Government’s Budget announcement on tightening property investment anomalies, and the removal of real estate depreciation rebates across the board from next year. Once the implications of this tax reconfiguration were absorbed, winter – the traditionally quiet season for real estate activity – kicked in. The predicted spring resurgence of activity in the residential property sector – which usually blooms in September – was far later emerging this year. And when it finally did, in November, activity levels were far lower than historical averages. There’s no denying that 2010 has been a tough year for many New Zealanders, and the real estate sector as a natural consequence of that - as highlighted in the news features below from stuff.co.nz and nzherald.co.nz However, and it is a big ‘however’, for virtually every vendor who took property to the market this year as the result of lending pressure – be it receivership, mortgagee or ‘encouraged’ by lending institutions – there have been buyers who have bought extremely well. Buyers who have astutely invested in property which will deliver solid returns – either ongoing in yields, or through capital growth in the long term. Note… long term. In the years to come, there are a large number of real estate buyers and investors who will do very nicely indeed out of buying in this recession – as the nzherald.co.nz piece below explains. Where to for New Zealand’s property markets now? In the immediate future, the residential market will quieten as we lead into the Christmas/New Year period - with all the associated socialising that entails. Then sometime around December 25, the nation heads en-masse to the beaches, lakes, camping grounds and holiday resorts for a couple of weeks off. Coastal and waterfront locations such as the Rodney District, Coromandel, Bay of Plenty, Taupo, Rotorua lakes, Taranaki, Nelson/Marlborough sounds, Queenstown/Wanaka, and Central Otago lakes districts traditionally record high levels of buyer interest over this vacation period as holidaymakers envisage themselves living this lifestyle annually. The article below from nbr.co.nz spotlights this. For the commercial and industrial markets, buyer activity tends to wind down in the days just before Christmas and goes on holiday until the end of January when investors come back invigorated and enthused. The rural market operates similarly – with many of those working the land taking time off to spend with families at holiday homes and baches. With New Zealand’s agricultural sector ‘doing it hard’ in 2010 – as featured in the articles from stuff.co.nz - they too deserve a break May I take this opportunity to wish all PropertyLive readers the best for Christmas, and trust that the break over the New Year is enjoyed with your families and loved ones. I think I speak on behalf of the country when I say we truly all deserve a summer holiday this year, more than previously, and hope that the country as a whole comes back in 2011 reinvigorated and ready to once again get our economy back on track to a gradual and steady recovery. Happy Christmas…… Mike Bayley November 2010 It’s quite astounding to see just how much influence the arrival of warmer – and drier – weather has had on the psyche of the New Zealand population, and as a consequence, the wider New Zealand economy. The impact on the economy of a long wet winter should not be underestimated – from the cafes and hospitality establishments whose turnover dropped when fewer people went out for brunch or a glass of wine after work, through to ITM Cup rugby crowds where fewer spectators chose to brave the elements and sit in the stands (along with all the other usual hotdog and beer). And who wanted to go shopping in the wet for anything other than groceries? Quite simply, Kiwis stayed at home where it was warm and dry. That hibernation mentality quickly transferred through to the mainstream economy… and the real estate market - most notably in the residential property sector. Hence, the residential sales volumes for July, August and September were well down on historical averages. After all, there was simply no time to get houses into their best state for sale when week after week it rained. Spring arrived… a month late, spurring the banks into action to try and invigorate lending – as outlined in the article below from stuff.co.nz Meanwhile in the commercial and industrial property sector, the lack lustre economy – suffering additional strain from the weather as I previously mentioned – stagnated through lack of spending stimulus and confidence. Many businesses, like individuals, ‘hunkered down’ for the winter quarter and maintained their focus in survival mode. Again, this constricted capital expenditure levels which, again, impacted on wider recovery and/or growth. Wage increases were consequently minimal, which again, underpinned subdued retail spending levels. For property investors paying careful attention to the state of the general economy for any indication of a ‘pick up’ on which to launch a ‘buy’, few factors stood out in the short term which indicated a strengthening of the recovery curve between now and Christmas – despite the Official Cash Rate being held stable at three percent. Activity was still prevalent though in the forced sale arena – with mortgagee, receivership and bank-pressured vendors being, on the whole, more attuned to where the market now sits, and therefore more able to react quickly to offers on the table. I foresee that while these drivers will continue to underpin activity for the remainder of the year, we will see more unpressured stock coming onto the market. Elsewhere, business confidence and trading in the rural property sector has been founded on a number of ‘swings and roundabouts’ indicators. Activity continues to remain sluggish, despite numerous long-term positive signs for the sector as a whole - such as higher commodity prices and robust international demand for products. Countering this though is the high value of the Kiwi dollar against the greenback – something, like the weather, which is beyond our control. Weather did however, make business tough for sheep farmers – particularly in Southland. Now though across the country, with saturated ground water levels working in tangent with the arrival of sun and warmth, grass growth has been prolific – a plus for the sector, as indicated by the article below from stuff.co.nz October 2010 It is now clearly evident that the growth curve for New Zealand’s economic recovery will be gradual – rather than at the pace previously predicted at the beginning of the year – and will stretch well into 2011, and even into 2012. Deleveraging continues at both a corporate and household level – taking a large slice of credit and spending capacity out of the domestic economy... including the discretionary housing market, and the mid’ price range of the commercial and industrial property investment sectors. This paying down of debt of course had to be made, as the credit-fuelled years of 2004 – 2007 were unsustainable. Over the medium to long-term, this restructuring of debt/net worth ratios now will position companies and individuals to move forward on much firmer financial footings in the future – as outlined in the BNZ commentary below featured on interest.co.nz Just as things looked to be steadying, following a lean June to August quarter for the country’s real estate sector as a whole, Christchurch was hit by the earthquake – with ramifications spreading far wider than just the Canterbury region. The economic effect of the earthquake is still to be quantified, although it is clear there will be some direct impact on a lower gross domestic product (or gross domestic income) figure. Then, as the Canterbury clean up was in full swing, the devastating snow storm and ensuing rain struck the Southland rural sector. Like the earthquake, the effects of the Southland storm – killing tens of thousands of lambs and ewes – will reduce future production capacity from the region. Again, the impacts of this will flow further north. For every ‘action’ though, there is of course a ‘reaction’. On the positive side, the Reserve Bank’s response to the slowing down of financial recovery - combined with recognition that the Christchurch earthquake will have a broader impact on the country’s economy - has been to hold the official cash rate at three percent, with governor Bollard strongly indicating that it will likely remain at that level for the near future. Good news for those looking to fund real estate purchases with finance. stuff.co.nz reports that top-end property sales are strong. Immigration levels have steadied, according to the latest Government statistics, and are now tracking along long-term net migration averages of around 10,000 people per annum – as mentioned in the article below from stuff.co.nz Good news for the residential market, buoyed by the final arrival just recently of warmer weather and less rain – both factors which encourage a sizeable part of the residential sector to place their properties on the market for sale. Fonterra has announced its second highest payout – $6.70 per kg, up from $5.21 last year. Good news for New Zealand’s vitally important rural property sector at a time when this sector is nervous as shown by the article below from the New Zealand Herald. However within that recovery, all sectors of the property market remain fragile, and it will be quite some time to come before any bullish confidence returns – meaning buyers and sellers all have to base their decisions on very sound fundamentals if they are to move forward. September 2010 We’re now officially in spring – and just as the green shoots of vegetation are beginning to rise from the soil after a winter of hibernation, the country is waiting for stronger signals that New Zealand’s real estate market is beginning to emerge from its winter slumber. Winter is traditionally a quieter season in the real estate calendar across all sectors, and this year the degree of sluggish activity over the period was exacerbated by the ongoing effects of recession recovery – with an added dose of household debt deleveraging, some significant fiancé company failures, and general corporate caution thrown in for good measure. However, with the rise in temperatures, real estate agencies throughout New Zealand have reported a gently rising volume of listings and the number of buyer enquiries since mid August. I expect that this lift will continue to develop throughout the remainder of the year as the Kiwi population, and its psyche, thaw out. As it was in 2008, the level of inactivity seen in June and July this year was simply unsustainable, and a resulting swing upward to a higher level equilibrium is inevitable. The rural sector - while close to the bottom of its cycle, if not there already - remains nervous, as mortgagee and receivership offerings continue to come onto the market… offering good buying opportunities for those with access to finance. It remains to be seen as a result of the property fallout from the now defunct South Canterbury Finance. Land owners in the rural sector will be waiting with nervous anticipation as to how the receivers will deal with South Canterbury’s impaired loan book. This theme of waiting for sharply priced properties to come to the rural market is being replicated across the residential and commercial and industrial sectors too… and there are now some great buying opportunities out there in the marketplace through mortgagee and receivership sales for those with funding streams. With interest rates still at relatively low historic levels, deposit equity for many home buyers having been built up over the past 12-18months, and vendors becoming more realistic with price expectations, homes are becoming more attractive – as outlined by the article from interest.co.nz featured below. The ‘supply’ side of the equation is however handbraking any great recovery to volume levels – a factor which is tending to skew statistics, as shown in the article by QV featured on the Bob Dey Property Report, below. Interest in commercial property is recovering, and the constraints of ongoing tight lending conditions are easing. As with the other sectors, activity levels here will improve gradually as banks, like investors, increase their appetite for supporting this portion of the property market. The general consensus I’m hearing from around our agency network, is that there is an air of subtle positivity around the country - that people are waiting for a spark to raise spirits in the final quarter. That ‘something’ spark may warmer weather. It may be the looming prospect of Christmas. It may be the injection of $1.6billion into the economy from South Canterbury investors receiving their deposits back…. August 2010 There’s a gap emerging in New Zealand’s property markets which is making life harder for everyone out there involved in property transactions – buyers, sellers, and of course real estate sales people who are trying to get both sides of the equation to balance up. It’s a gap that stretches across all segments of the property sector – country, commercial, and residential. Mentally toughened by the flow-on effects of a tight economy, Kiwis are becoming increasingly ‘hard nosed’ when it comes to sitting around the property negotiation table. On one side, sellers are digging their heels in, believing they can hold out for several thousand dollars more – which often simply isn’t there any more as the flexibility and luxury of being able to command a ‘premium’ has, in most cases, been eroded away. Conversely, buyers are also digging their heels in – often mistakenly believing they hold the upper hand by simply coming to the table with an offer. Yes, there are some vendors who are forced by external forces to accept ‘bargain basement’ offers. They are however the exception, and not the norm. For the overwhelming percentage of the market, it’s a scenario of finding the equilibrium between ‘perceived’ value and ‘actual’ value – where in many cases, the levels between the two are different. So what are the factors driving a wedge down the pricing gap? Essentially, it boils down to price expectations. Narrowing that price expectation gap will require a consumer mind shift. Just as the message of domestic deleveraging has finally sunk in with many New Zealanders – as covered by the article from interest.co.nz below - so too will the message of setting realistic price expectations eventually get through to all sides of the property market. For the real estate market, those parties who have realistic and moderated price expectations – as both buyers and sellers – will be successful in their respective ambitions. One of the many positive lessons to come out of this recession is the appreciation of becoming more financially responsible – as highlighted in the rural review from interest.co.nz featured below. When both sides of the property transaction equation come to the table with responsible and well-founded calculations, it is far easier to get a deal done. An important aspect of the property market’s recovery over the coming months will depend on more buyers and sellers taking up this new responsible approach to their negotiations. July 2010 The unease which has hovered over the New Zealand property market this year continues to pervade like a fog. Occasionally, like a lighthouse shining through the mist, there are signals of where the economy – and consequently, the greater property market – are heading. But as in any fog, everyone is reluctant to increase the pace at which they are moving in case they come across unforeseen hidden obstacles. For the first quarter of the year, many looking to buy or sell property were cautiously waiting for the Government’s Budget announcement and the implications for property investment. The issue was extensively covered throughout the media – including the articles below from interest.co.nz With the Budget news digested from May, there were forecasts, myself included, of a return to ‘normal activity’ in the autumn and early part of winter. That appreciable lift in activity has failed to eventuate. Why? Perhaps because the wounds inflicted by the recession of 2008/early 2009 are far deeper than many commentators had appreciated. Decades of economic and business trends and patterns have been thrown by the wayside by the consequences of the global financial meltdown. In that respect, New Zealand’s property sector is no different. Turnover in the normally reliable rural property sector for example, is now limited by the tight lending criteria instigated by banks whose hands, that is lending capability, have been restrained by a lack of capital from offshore, which the Real Estate Institute of New Zealand highlights in the article below from interest.co.nz In the commercial and industrial markets, many property owners are holding onto their properties – because there’s not a lot else around on the market to tempt them into new opportunities. The same could be said of the ‘middle’ residential market. The economy is gradually recovering – as reflected by the rise in the official cash rate in line with growth and subsequent inflationary expectations. Commodity prices off the land are rising – and, as bank economists say in the article from the National Business Review, below – are set to continue growing. Beacons of light like these news snippets continue to arise on a weekly basis. The big question still remains though: ‘How long will the deleveraging process for New Zealanders continue before investment funds begin to find their way back into the property market, or residential owner/occupier buyers begin to feel more comfortable about making the all important offer?’ Optimistically, for those who want to ‘play it safe’ in the property market, the scenario for a discernable lift in activity now looks like emerging in the third quarter of this year – leaving the intervening winter months as an opportunity for those with an entrepreneurial lean or a keen eye for sharply priced real estate to make a tactical move. Supporting this, with more official cash rate rises looming over the coming months, those making real estate buying decisions sooner rather than later will be well positioned to take advantage of the fixed interest rates currently on offer. June 2010 New Zealand’s economy currently appears to be in a cycle of ‘two steps forward, one step back’. There is a growing tide of economic positivity coming through on a weekly basis - with employment levels firming up, business confidence growing, forecast higher dairy payouts, and a rising number of building consents – as outlined in the article by the Bob Dey Property Report, below. Balancing that out however, there still remains an underlying degree of economic nervousness. That nervousness is to be totally expected considering the massive economic turmoil of 2008/2009 which impacted everyone in some way or another. What does this mean for the property market? Real estate agencies, their personnel, vendors and purchasers are all having to get their heads around operating in a more cautious market… where buyers and their financiers are far more analytical about spending levels and debt/serviceability ratios – as featured in the article below on stuff.co.nz This cautious approach was strongly reflected in the build up to this year’s Budget – with its removal of depreciation claw-backs in investment property, explained by the National Business Review below. While much of the media’s Budget focus was on residential investment property, the implications were equally impactful on the far bigger commercial property sector. What was overlooked was that many ‘mum and dad’ investors throughout New Zealand own small to medium sized commercial investment properties – either on their own or through family trusts. There was also considerable financial tax implication for larger corporates – many of whom own the premises they operate from. Accountants are undoubtedly crunching numbers for their clients right now, but it would be safe to assume that even though depreciation rebates are to be removed from investment properties next year, there will still be large numbers of investors in both the residential and commercial sectors who will see value in some of the offerings coming to the market. However, as I pointed out earlier on, buying levels will reflect a higher degree of cautiousness... but they will be realistic. And for the truly motivated vendor, most importantly, there will be acceptable offers forthcoming. For vendors at the opposite end of the scale – as featured on the TV3 coverage below – they may be in for a long wait to conclude a sale. As most astute residential property investors will testify, they make their money in property when they buy, not necessarily when they sell. The same can be said for commercial property investments…. buy well and the investment allows for far greater leeway for generating returns. Pay over the odds, and acceptable returns on investment will of course be harder to justify. This is a factor vendors will have to understand. Buyers will pay a fair price for property. In most instances, that fair price reckoning will be underwritten by banks or lending institutions. However, the days of vendors ‘raking it in’ or ‘creaming it’ are gone. Meanwhile in the country real estate market, the wider rural economy has been invigorated by recent news of higher milk solid and share payouts from Fonterra, highlighted below in the article posted on stuff.co.nz This lift in farmers’ income earnings will provide a much-needed step along the recovery path of the rural property market, by creating some degree of leeway for banks to readjust their lending schedules. These have been tight over the past 15 months - one of the reasons why this sector has been so quiet of late. Those New Zealanders with vested interests in the commercial and/or residential property investment sectors will be eagerly waiting to hear the Government’s decisions on any pending redefinition of property depreciation clauses, or capital gains tax implementation – as outlined in the commentary by Crockers Property Management below. It is evident through several months of sluggish property sales volume figures that a large percentage of the market has been holding off from making any asset-buying decisions until the May budget. For some inexplicable reason though, this ‘wait and see’ mentality encroached onto the residential owner/occupier market – hence the slower than usual sales activities in that sector of the market, as reported below by stuff.co.nz It has confounded the real estate industry to understand why residential owner/occupiers would be bothered with any change to investment tax regulations, as they are buying property in which to live, not to make any commercial gains. Still, if the media report something often enough, eventually people begin to believe it. As the saying goes though, all will be revealed on May 20. This ‘sitting on hands’ inactivity from February through to April has caused is a log-jam of what I forecast will be pent-up activity on both sides of the property equation. Buyers who noticed stock levels withering away will have continued to build up deposits or equity levels as they waited for the budget, while vendors held back from placing their stock on the market… because buyers were supposedly in a holding pattern. When everything is laid out by the Finance Minister on the 20th, watch out for a quick return to higher transaction volumes. There is a business cliché though which says ‘fortune favours the brave’ – covered off in the article by the National Business Review below. So for those property investors who continued ahead with their business objectives while others bided their time in the wings, I believe the budget will have little effect on their long-term operations. Meanwhile in the rural property sector, the market is still relatively subdued, although sales are ticking along where vendors are realistically priced and buyers see value in the farming units. Bringing the Crafar portfolio of 16 farms in receivership to the market created an immense amount of interest last month– both locally and nationally, as highlighted by the media coverage below from the National Business Review. How this portfolio offering eventually ends up is anyone’s guess at this stage - as discussions are taking place with large corporate investors interested in buying the offering in one hit, and from the local farming community in New Zealand looking to purchase individual titles. For regular followers of this PropertyLive column, the foreign investment news will come as little surprise. In January this year, we pointed out that corporate activity will underpin the recovering New Zealand property market throughout 2010. The Asian farming offer is just one aspect of that corporate involvement in property. By comparison, corporate activity in the residential sector – that is predominantly small ‘mum and dad’ style investors with one or two domestic properties rented out - has been subdued for much of this year, as those with obvious vested interests waited for a definitive indication from the Government on residential property investment and tax implications. Some clarity was given by the Prime Minister in February – most notably around the issue of depreciation. Then just as the market digested that mooted shift in policy, and accordingly factored the implications into any property purchasing price, Finance Minister Bill English outlined a proposed Government review of self-employed wage earners and their tax links to investment property, as covered in the article below from stuff.co.nz. While the maths involved – how a household on $100,000 wage/salary income per annum could reduce its tax liability to just $10,000 – made for headline-grabbing reading, the reality is, as Mr English said, that such activity only involves some 10,000 households. Let’s put that into perspective… it’s the population of a small Waikato or Canterbury town. For the vast majority of those involved in smaller property investment, at this stage, there are no indications of major changes to tax credits. Especially so for commercial property investors – as highlighted in the commentary below from infonews.co.nz. However, until the Government comes out and definitively tables its policy in the May budget, the residential property investment market will continue to remain subdued overall, as referred to in the article below from scoop.co.nz. Consequently, this will see the percentage of owner/occupier purchasers increase in sales data. Simultaneously, I believe those investors ‘waiting in the wings’ for a greater degree of certainty, will continue to consolidate their capital for a couple more months to come. The resulting log jam of demand – depending on the finer details pending within the Government’s budget announcement – could well see stronger across-the-board buyer interest returning in the middle of the year, similar to what the residential property market witnessed last year with a rapid rebounding of pricing levels from the 2008 lows. Over in the commercial sector meanwhile, investors are continuing to pay greater credence to lease terms and tenant security. Again, this is reflective of a gradual recovery in the wider economy rather than a ‘bust/boom’ curve. March 2009 Waiting for the Government’s announcement on possible new tax implications for property investors was akin to waiting for a tsunami to wash up on our shores….. everyone knows about it, no-one knows exactly what size it would be, everyone holds their breath until it hits - and when it does, nothing much happens - then several hours later, it’s back to ‘life as usual’. Months of speculation and crystal ball gazing, while making for great debate or commentary, barely amounted to a ripple on the property market. It did however, apply the brakes to the lower value end of the market, to create a ‘wait and see’ period. This compounded the usually slower trading levels seen throughout New Zealand in January and into February, as outlined by the article in NBR below, as most of the country was still on holiday, or busy enjoying summer. Seasoned residential and commercial investors alike, while interested in what the Prime Minister had to announce, were not, I suggest, ‘overly nervous’. While hyped up for headlines sake, there was never really the option of introducing a wide-sweeping property gains tax. And the thought of removing the ability to transfer investment losses into a Loss Attributing Qualifying Company (LAQC) would also struggle to find support among the Government’s previous middle-ground voters who hold property investments. With batteries recharged from what has been an enjoyable summer for most of the country, the property market is now starting to gather momentum again as the wheels of commerce build up a head of steam. This will be helped by one of the fundamental drivers of property demand – immigration – with NBR reporting below that migration numbers have hit a six-year high. So what’s going on in New Zealand’s real estate world….? Most of the residential market – with investors now aware of Government’s intentions for tax reform – is meandering along as would be expected in a recovering economy. Normally, February sees sales volumes begin to pick up. I say ‘most’ of the market, as interestingly, higher value homes in the $2million - $3million+ range in Auckland and Wellington have seen a resurgence in buyer interest this year – with Bayleys sales consultants completing a number of deals in this sector. However for most New Zealanders, this year, as with last year, will be unlike any seen in recent history as the New Zealand and global economies recover. This is uncharted territory, and recovery, I suggest, will be gradual. Similarly, the commercial sector is shifting into second gear as investors pay greater credence to lease terms and tenant security. Again, this is reflective of a gradual recovery rather than a ‘bust/boom’ curve. The rural sector however, is still at the mercy of closer scrutiny by lending institutions – as evidenced in the editorial featured below through scoop.co.nz. This is important to note, because when the rural sector is pumping, so too is the rest of New Zealand. Such is the importance of revenues generated from one of New Zealand’s biggest industrial sectors. Medium and long term indices are showing greater positivity – with the ANZ’s latest commodity price index as seen on interest.co.nz linked below - showing a strengthening in lamb prices in the UK, skin and beef prices up to their highest levels since September 2008, wool prices up substantially, log prices on a 14-month high, and seafood on a nine-month high. Further benefit from these trade stats’ is currently being stifled by the NZ$ remaining at historically high levels against the £British and the Euro – again lending potential impetus to further upsides in the commodity sector. It will only be a matter of time until the former categories of these indices begin to help loosen the tight grip from the banks and financial houses on the rural sector. January 2010 To many observers of the property market, 2010 has gotten off to what, on the surface, could be considered a ‘quiet’ start. However, when several unrelated events in the property market are combined, the start to 2010 has been far from sedate. Firstly, was the announcement in the rural property sector, as featured in infonews.co.nz below, that Carter Holt Harvey had placed 29 of its highly spec’d Central North Island dairy farms on the market – with a combined estimated value in the region of $224million. This is the biggest corporate farm sell-down of its type ever seen in New Zealand – and news of the sell-down sent reverberations around the global farming property markets, as well as obviously attracting strong interest from local potential buyers. A week later came the announcement of another corporate farming sell-down, albeit on a much smaller scale – with four farms run by the same owner being sold through receivership. As an aside, I’m proud to say that Bayleys is handling the marketing of all three of the portfolios mentioned above. While much of the media’s attention focuses on the hype and emotion of the residential property market – such as in the article from the National Business Review highlighted below - more can actually be learned about the state of the New Zealand economy currently from looking to the wider sectors of the rural and commercial property markets. Fact - more than $300million worth of property being placed on the market in just three campaigns. Fact - the size of these three deals alone should not be underestimated as they represent approximately 10 per cent of the monthly value of the residential property market. Fact - when taken together in context, these three corporate-backed real estate sell-offs show that the New Zealand economy is now in a ‘wash-up’ phase of the economic tsunami that hit in 2008. New Zealand is through the worst of the ‘hurt’ phase of the recession, and is now widely regarded as being in recovery mode. However, this recovery phase, which I predict will track at current pace well into the third quarter of the year, will continue to unravel the consequences of the previous ‘hurt’ cycle. I believe what we are seeing now in the total property market – but particularly in the rural sector - is only the beginning of similar sales scenarios to come. Banks are tightening their lending policies and reducing lending margins – meaning many borrowers are having to either repay their borrowing principal or sell down their real estate exposure. Concurrently, a realigning of business activities means fringe properties not essential to core business, will be sold off as part of corporate rationalisation. This could also be likened to the residential property sector with owners downsizing or selling off highly leveraged rental properties. Either way – it’s an indication that more corporate real estate is coming onto the market in the very near future. Archives
Veda’s financial statement detailed: “We know the Auckland property market is heating up and the rest of the country will follow - but these statistics tell us what is coming down the track - there is a lot more heat in the property market and interest is well above pre-Global Financial Crisis levels.”
Concurrently, home loan approvals topped NZ$1 billion in value for three straight weeks in December, according to the Reserve Bank - the first time this has happened since December 2007.
Interest rates appear to be steady for the immediate future, but a dawdling economy – even though it is dawdling in the right direction - is still prevalent. This is failing to inspire any real spark for re-igniting the enthusiasm of those in the property market. It’s almost as if we need the energy injection of another Rugby World Cup to get spirits moving again.
These factors have underpinned the three sectors of the real estate markets which are so intrinsically linked to the wider economy. Interestingly, New Zealand’s big four banks - ANZ National, ASB, Bank of New Zealand and Westpac – all noted recently that while their total lending had reduced during the March quarter through general personal and corporate deleveraging, mortgage lending actually increased by $476m in the period, sending a positive signal to the housing and commercial property markets.
This points to individuals and companies taking advantage of the low interest rates, buoyed by the confidence supplied by the domestic factors I have just mentioned. And it should continue for the remainder of the year.
However, as every economist and financial commentator has found out over the past three years, forecasting medium to long term trends has proved virtually impossible as the goal posts keep constantly shifting – shaken by natural disasters, a huge change in the human psyche of personal saving and spending, and both Europe and the USA’s sovereign debt levels.
Does that effect the rationale behind buying property – whether it be a home, a farm, a factory or a retail outlet? Not if the emotional or business fundamentals remain sound.
While the fundamental requirements for property ownership endure – such as a residential dwelling to raise a family in, a more appropriately sized premises for business activity, or an investment opportunity from which to derive income - what has changed over the past few weeks is confidence.
But confidence has a way or rewarding those who engage with it. It’s that old adage….. “fortune favours the brave.” In the property markets, the brave are those who are buying now.
Most of the country’s economic focus over the past seven to eight weeks has been around pre-Budget speculation on evolving Government policy, followed by the usual post-Budget analysis on household disposable incomes and tax revenue tinkering of various sorts.
REINZ sales figures, commodity prices, mortgage application numbers, building consent applications, Reserve Bank Governor Alan Bollard to name a few… all forecasting the same thing.
• For commercial and industrial markets, that confidence is based on the security of the business occupying the premises as either an owner/occupier or tenant – and the better the outlook for production and sales, the greater the buyer confidence.
• And for the rural markets, that confidence is based on the security of primary produce sales and pricing – and the better the outlook for beef/lamb/wool/diary/timber, the greater the buyer confidence.
ght monthly rise in a row, to yet another record high - with 14 commodity prices measured by the index rising and three unchanged. For the first time in 17 years there wasn’t a single decrease in the price of any individual commodity in the basket of 17 commodities that ANZ monitors. That is a very powerful piece of data.
While caution, like cash, is now king in the rural property sector, I can tell you that there are still a substantial number of well-financed rural buyers waiting in the wings ready to increase their holdings. Sensibly-priced dairy and dry stock farms are continuing to sell, albeit at lower volumes than at peak.
While caution, like cash, is now king in the rural property sector, I can tell you that there are still a substantial number of well-financed rural buyers waiting in the wings ready to increase their holdings. Sensibly-priced dairy and dry stock farms are continuing to sell, albeit at lower volumes than at peak.
So there are signals and indicators on numerous fronts that as a country, we are on the right path to recovery. May 2010
For those involved with New Zealand’s property market, the most influential event this month is the Government’s budget announcement.April 2010
February 2010
Then just days later came the news that New Zealand Retail Property Group was placing $75million of its property holdings on the market – selling 48 titles at both the Westgate Shopping Centre in Auckland and the Fraser Cove Shopping Centre in Tauranga, as covered by the article below in scoop.co.nz.
NZRPG is one of New Zealand’s biggest privately-owned property companies, and the Westgate and Fraser Cove offerings are sound commercial stock which will undoubtedly be snapped up by small to medium sized investors looking for steady returns over the long term.
