We pulled 11 gems from the torrent of property news this week to keep you abreast of the most important insights affecting investors. 2-8 May 2020
In property news this week…
- The Auckland Town Hall Rich List
- What’s up with New Zealand’s housing market?
- Demand for commercial property stalls in Q1
- National’s GST refund plan for economic recovery from lockdown
- Grim outlook for shopping mall owners, worse for suburban shops
- An opportunity for canny buyers
- House prices not likely to crash
- Low interest rates here to stay
- Kiwibank and ASB drop a key home loan rate below 3%
- Queenstown most vulnerable, Whangarei least
- ASB’s Budget 2020 preview
The Auckland Town Hall Rich List
On Monday the Auckland Ratepayers’ Alliance released its inaugural Auckland Town Hall Rich List, revealing the names and salaries of the highest-paid staff at Auckland Council and its subsidiaries. Key findings…
- 86 ratepayer-funded staff are paid more than $250,000.
- 48 staff are paid more than Mayor Phil Goff ($296,000) and 7 are paid more than the Prime Minister Jacinda Ardern ($471,000).
- 24 of the rich listers are employees of Auckland Transport, 11 are from Watercare, 6 are from Regional Facilities Auckland, 5 are from ATEED, and 5 are from Panuku Development.
The bureaucrats named in the list aren’t just well-paid – they have job security! Meanwhile, many Aucklanders have their livelihoods threatened and yet are still expected to swallow a rate hike of 2.5% or 3.5%.
Their message to the Mayor is to look at costs within the Council before squeezing ratepayers during an economic crisis.
What’s up with New Zealand’s housing market?
Economists warn that house prices are about to see a sharp correction. The NZIER public good team explains why this is happening, and how we can handle it.
Demand for commercial property stalls in Q1
Covid-19 has unsurprisingly led to demand for commercial property, from both occupiers and investors, stalling in the first quarter of 2020 according to the RICS New Zealand Commercial Property Monitor.
It’s a story of sectors, though, with the pullback in rents and capital values for retail properties expected to be more severe than those for industrial and office properties.
“The spread between primary and secondary assets is expected to widen significantly,” RICS said. However, the downturn does not appear to be as negative as it was during the GFC.
Their 12-month rent expectations for each sector are…
- Prime retail -5.1%
- Secondary retail -9.0%
- Prime office -0.6%
- Secondary office -5.0%
- Prime industrial +0.4%
- Secondary industrial -3.0%
- Total New Zealand -3.7%
National’s GST refund plan for economic recovery from lockdown
National would introduce a GST refund scheme for businesses badly affected by the Covid-19 crisis to help with cash flow, leader Simon Bridges said in a major pre-Budget speech on Tuesday.
“The Covid-19 curve is flattened, but we must not flatten the economy,” he said.
If the business could demonstrate that its revenue had fallen by more than 50 per cent across two successive months then it would be able to claim back the GST it had paid between July 2019 and January 2020, up to a maximum of $100,000.
Bridges said the main difference between National’s cash-flow scheme and the Government’s is that it was primarily a grant, not a loan.
“It is linked to pre-existing revenue levels, it is more generous and it is more targeted.”
Grim outlook for shopping mall owners, worse for suburban shops
Rents at large shopping malls have been slashed about 50% during the lockdown, according to a survey by the New Zealand Council of Retail Property.
The Council includes many of New Zealand’s largest owners of retail properties such as shopping malls and big box retail centres. Between them they have 5,000 retail tenants.
Council chair Campbell Barbour says that despite a vast majority of landlords in their membership not having contractual obligations to provide rental assistance, property owners have responded in good faith, offering to defer, reduce or manage rental payments over this time.
“Our survey shows that almost all tenants have sought some form of rental assistance directly with their landlord and to date around 75% have been presented with a formal offer of rental assistance, with property managers reporting they were working through remaining negotiations,” says Barbour.
“Less than a quarter of tenants have not been offered any rental assistance and in the majority of these cases these tenants have either traded through Alert Level 4 as essential services or are larger corporate organisations.”
“In general, where rental reductions have been agreed the figure negotiated generally sits at around 50% of monthly rental. This has taken the form of deferrals or abatements or a combination of both. We are also aware that arrangements have included other changes to contracts around matters such as rental reviews and lease term extensions.”
“We are concerned about any misperception that landlords are not supporting tenants at this time, particularly in the retail sector, this is simply not true. A majority of landlords and tenants are working through this to ensure that both businesses are well placed for recovery”, says Barbour.
An opportunity for canny buyers
Tony Alexander says builders are already going into liquidation in Christchurch and that will be the same in other places around NZ as well. It happens every cycle and partly reflects the fact that so many small operators build houses in NZ, he says.
Getting their projects restarted will be a difficult process not just because of the usual technical features of resubmitting plans to council etc. A new source of finance will need to be found and banks will have little to no interest in advancing funds to such a risky sector for the bulk of the remainder of this year.
So be prepared to see partly-completed residential building projects around the country sitting idle for the next couple of years.
If you have the capital yourself, then some could be a canny low-price purchase from the liquidator simply looking to maximise the % of each bill which winding up the company will be able to pay.
House prices not likely to crash
When asked whether house prices will crash, Tony Alexander asks…
“What do you reckon happens to house prices in a downturn when one-third of properties have no mortgage, the home ownership rate is a low 62%, mortgage rates are at record lows, investors buying these past four years have needed a 30% deposit, and the bulk of people likely to be made unemployed are young, do not own a house, and have not been able to buy because of a shortage of listings?”
COMMENT: We here at NBCO agree. They’ll drop a bit then slide sideways for a lot longer before finally returning to growth. But not crash. All bets are off in Queenstown, though.
Low interest rates here to stay
About 6 weeks ago the Reserve Bank of Australia announced that it would lend Australian banks money for three years at a fixed interest rate of 0.25%. That action has driven Tony Alexander’s view that borrowers will find interest rates at these currently very low levels for the next 3-5 years.
Now, he says, our central bank has done a much smaller version of the same. From 26 May it will lend to NZ banks for three years at the OCR which is currently 0.25%, fixed. Lending to banks will only be used to fund lending under the government’s Business Finance Guarantee Scheme as opposed to normal business of housing lending. The lending window will be open for just six months.
If you’re worried about mortgage rates rising in the near future, Alexander says, “I cannot see where the surge in economic activity will come from over the next two years to drive inflation, and that post-GFC improving economies and those pumped up slightly with money printing still struggled to get inflation rates up.
“So, the chances of mortgage rates rising over the next 1-3 years are not high, and I wouldn’t be surprised if rates stay near current levels for 3-5 years.”
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Kiwibank and ASB drop a key home loan rate below 3%
On Thursday Kiwibank launched a 1-year fixed mortgage ‘special’ of 2.99% and is the first major lender to offer a home loan rate below 3%. This new rate will be available from Monday 11 May 2020.
And on Friday morning ASB announced it too will offer 2.99% for a fixed 2-year term. ASB has cut its 2-year “special” by 40 basis points to 2.99%, and its 18-month “special” by 50 basis points to 3.25%.
Queenstown most vulnerable, Whangarei least
Queenstown’s property market looks the shakiest by a big margin, while Whangarei, Hamilton and Invercargill appear to be least at risk of a downturn, according to property data company CoreLogic.
They ranked 16 areas of the country across 4 indicators, and applied a weighting system, to give an indicative guide to how vulnerable each area’s property market might be to a sales and/or price downturn.
The 4 risk factors were the contribution of accommodation and food services to each centre’s economy, investors’ share of recent property purchases in each area compared to the long term average, the percentage of dwellings listed on Airbnb, and international vs domestic guest nights in each area.
The ‘safer’ areas were less reliant on tourism and had lower levels of recent property investor activity.
Most at risk: Queenstown.
At risk to a lesser extent: Christchurch, Auckland, Dunedin, Palmerston North, Rotorua.
Moderately at risk: Tauranga, Kapiti Coast, Wellington, Nelson, New Plymouth, Napier.
Most resilient: Invercargill, Hamilton, Whangarei.
ASB’s Budget 2020 preview
ASB economists expect the Government to announce a Budget spending package of circa $15 to $20 billion, representing a doubling of the initial COVID-19 economic response package.
Extra fiscal policy support and the weak economy are expected to culminate into sizeable fiscal deficits over the next few years.
They subsequently expect net core crown debt to lift to over 60% of GDP and for a massive lift in the NZ Government bond programme. However, they say NZ should stack up well relative to our global peers.
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