The global property market’s impact on New Zealand

The global property market’s impact on New Zealand

Total Property - Issue 8 2017

AUSTRALIA: RETAIL ON EDGE

Amazon is the biggest disruptor in Australia's commercial property market.

Retail sales are weakening across the board in Australia, with the latest figures showing a 0.6 percent decline in retail spending nationally in August, the biggest such decline in four and a half years.

Amazon's arrival in Australia has added to feelings of unease within the retail sector. Last month, the Commonwealth Bank released research that 78 percent of Australian retailers do not have a strategy in place to combat Amazon.

IMPACT ON NEW ZEALAND

Amazon has the ability to hit New Zealand retailers hard but the company’s arrival could benefit the industrial property sector as retailers focus on logistics to boost online business.

Australia’s biggest impact on New Zealand’s commercial property market, however, has been the tightening of credit by the country’s big banks, which together own New Zealand’s biggest lenders. The Australian banks have become more conservative amid concerns that the country’s residential property is cooling and investigative moves by the banking watchdogs. This has made financing developments in New Zealand more difficult.

ASIA: THE $11 TRILLION QUESTION

The Belt and Road initiative, set to cost US$8 trillion (NZ$11 trillion) is an immensely ambitious development campaign through which China wants to boost trade and stimulate economic growth across Asia and beyond.

It hopes to do so by building massive amounts of infrastructure connecting it to countries around the globe. There are plans for pipelines and a port in Pakistan, bridges in Bangladesh and railways to Russia - all aimed at creating what China calls a “modern Silk Road” trading route that will kick start “a new era of globalisation”.

More than US$1.1 trillion has been committed by China and its banks to development projects throughout the region. The Belt and Road initiative has two main prongs: one is called the “Silk Road Economic Belt” (the belt) and the other the “21st Century Maritime Silk Road” (the road). Bewilderingly, the “road” is not a road but a sea route linking China’s southern coast to east Africa and the Mediterranean. The “belt” is a series of overland corridors connecting China with Europe, via Central Asia and the Middle East.

IMPACT ON NEW ZEALAND

Economic growth in China, driven by the Belt and Road initiative will have a huge impact on New Zealand's already successful education and tourism industries.

More cashed-up tourists will lead to an increase in demand for more supportive infrastructure, such as new hotels. But in the short-term, the initiative will suck up investment in the region.

On the flipside, Singaporean, Hong Kong, Malaysian and Vietnamese investors have renewed focus on the region.

Various conglomerates are selling off non-core interests and putting the cash proceeds into higher returning real estate assets in Australia and New Zealand.

EUROPE: BREXIT STILL DOMINATES

After the Brexit vote, London’s commercial property market briefly fell into disarray. Yet more than a year on, prices for some of the city’s best-known buildings are hitting records. The controversial Walkie Talkie tower in the City of London commanded a record-breaking price for a single building in the UK – £1.3 billion (NZ$2.43 billion) in a sale to a Hong Kong manufacturer of oyster sauce. And the nearby “Cheesegrater” tower sold to Hong Kong-based CC Land Holdings for £1.15 billion.

Brexit still has the potential to cause economic and political chaos, not just in Britain but the whole of Europe.

IMPACT ON NEW ZEALAND

Fears of populist that could reverse globalisation and lead to reduced productivity and more isolationism and inflation still loom large in Europe.

Against this backdrop, New Zealand is seen as a haven – offering political and economic stability and a high quality of life. Several Australasian cities, notably Auckland, Perth, Brisbane and Adelaide, feature strongly on global investors’ target lists because they rank highly in quality of life.

NORTH AMERICA: THE TRUMP FACTOR

The election of Donald Trump to the White House had raised hopes that his “America First” stance would kickstart a massive infrastructure programme and that a promised restructuring of the US tax system would stimulate market growth. However, both goals seem a long way off. Despite this, confidence in the US economy and the commercial property market remains strong.

The Trump administration’s focus on “America first” has seen an uptick of inward investment, with more US commercial property buyers favouring domestic opportunities over international ones.

IMPACT ON NEW ZEALAND

Trump’s escalating war of words with North Korea has the potential to trigger a damaging conflict in the Asia Pacific region.


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