PFI forks out $65m for big industrial estate. Should property investors should be reined in? And 9 more insights in property news this week…
Distilled property news for investors. Our aim is to glean the important economic and property insights affecting investors from the torrent of information filling our newsfeeds each week so you don’t have to. We then present them in digestible snack form – tasters, if you like, for the full article.
Read on and enjoy your economic and property news this week.
In property news this week…
- Property For Industry shells out $65.5m for big industrial estate
- Interest rate update
- Commercial rent collections strong
- Auckland retailers hope level 1 will bring back shoppers
- Will the elections have a meaningful impact on financial markets?
- ‘Remarkable’ return of business confidence
- RBNZ on whether property investors should be reined in
- We don’t want house prices to rise but we don’t want them to fall either
- Mortgage holidays halved
- Wellington tops NZ for mouldy, damp flats
- Why degrowth is the worst idea on the planet
Property For Industry shells out $65.5m for big industrial estate
Industrial property fund Property For Industry (PFI) is shelling out $65.5 million for a big industrial estate in Rosebank Road, Avondale, Auckland (pictured above), in a hot industrial market.
“Industrial’s definitely the flavour of the month so to speak. It’s pretty aggressively chased,” PFI chief executive Simon Woodhams said.
Seven parties bid for the estate which proved how strong the industrial property market was.
PFI shares closed yesterday at $2.76 and according to current NZX data have a gross dividend yield of 3.6%.
Interest rate update
There is very little to report on the interest rate front this week. The changes are reported on our NZ Interest Rates Forecast page, as are our predictions for where [and when] interest rates are headed.
Fixed-term mortgage interest rates are unchanged from last week, and there has only been one change to 1-year term deposit rates with ANZ dropping theirs to 1.0% to join ASB. BNZ remains at 1.05% while Kiwibank, TSB and Westpac all remain at 1.15%.
If you’re looking for reassurance, my prediction is for interest rates to creep lower still. Unless inflation shoots up for some [unlikely] reason, interest rates will remain subdued for years. We are in a low-inflation world and central banks have just about emptied their interest rates weapon.
The incomes of people who have been reliant on bank term deposits have been hammered over the last few years. This will heavily impact the quality of their retirements, especially if they were not diversified into equities or property.
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Commercial rent collections strong
Property management software company Re-Leased published September data for its CREDIA commercial real estate index yesterday.
The data provides insight into how the commercial real estate industry is tracking. Here are the highlights…
- September saw continued increases in commercial rent collection across the United Kingdom, New Zealand and Australia.
- The CREDIA Number for rent collection increased and landlord subsidies decreased compared to August.
- New Zealand landlords are crediting less rent than other countries.
- A higher proportion of industrial and office leases are entering a rolling basis as their fixed-term concludes.
The CREDIA Index is updated every month and draws on one of the most extensive and live datasets in the commercial property industry, consisting of over 50,000 leases and 20,000 properties.
Auckland retailers hope level 1 will bring back shoppers
Māngere in south Auckland was one of the neighbourhoods most affected by the second Covid-19 outbreak.
The owner of local clothing store Pacific Fashions, Vinod Kumar, said it was the worst trade he’s seen in 29 years.
“Since we opened up the lockdown, things were moving very slowly because most of the communities, big communities, the churches, they’ve not been operating, and that really hurts our business.”
Kumar said retailers had missed all the main selling times including Easter, Mother’s Day and Father’s Day. He is pinning his comeback hopes on Samoan White Sunday this weekend, a tradition celebrating childhood.
“We hope things should improve gradually… it will be maybe a slow start, but looking forward to the next few months towards Christmas.”
Town centre manager David Fearon said retailers had been suffering.
“Mostly we cater slightly to an older audience, and they’ve been staying home, and we’ve also seen the rise of online shopping.
“A lot more of the stores have launched their own websites and people have turned to the online – basically supermarkets and that kind of thing – as a first alternative now.”
Chief executive of Heart of the City, Viv Beck, said spending was down about $100 million since Auckland went into alert level 3 in August compared with the same time a year before.
Michael Barnett, chief executive of the Auckland Business Chamber, said businesses will be able to operate at a more optimal level.
“In level 2, 75 percent of businesses in Auckland were operating around 60 to 65 percent.
“But in level 1, the same group is more likely to be operating at about 85 percent, so that’s good for the economy and good for business.”
Will the elections have a meaningful impact on financial markets?
With two major election events taking place in the coming weeks – New Zealand’s general election later this month, followed by the US Presidential elections at the start of November – investors will be bracing themselves for the impact on share market performance.
Historically, elections are seen as a key risk event for market participants, and as campaigning ramps up, with parties battling it out in leadership debates and new policy announcements, we should certainly expect high levels of volatility in the short term. But do elections, and changes of Government, have a real and lasting effect on our markets?
Looking back at Trump’s surprise victory in 2016, economists almost unanimously predicted a total economic and share market collapse as a result. In reality, we saw the exact opposite – a multiyear rally – proving predictions from economists are only ever (at best) an educated guess.
A little closer to home, there’s the example of our 2017 election and the transition from “business friendly” National to our current Labour government. Despite many voicing concerns at the time, our share market has remained one of the best performers globally, and we’ve seen continued growth in house prices.
‘Remarkable’ return of business confidence
Businesses are optimistic about the future for the first time since Covid-19 emerged.
ANZ’s preliminary monthly survey for October, titled “Party like it’s 2019”, shows businesses have reported improving confidence in their markets.
And the more closely followed measure of how firms feel about their own future returned to the highest level since February, with a net 4% expecting business to improve in the next 12 months.
“A read of 4% still doesn’t count as strong, but it’s a remarkable turnaround from -55% in April, and higher than a year ago!” ANZ Chief Economist, Sharon Zollner said.
The preliminary result found investment intentions were unchanged, but employment intentions lifted by nearly nine points, with only a net 3% of firms saying they were planning to cut jobs over the next year.
RBNZ on whether property investors should be reined in
Asked at a media briefing on Thursday whether the Reserve Bank of New Zealand (RBNZ) would consider applying LVR restrictions to investor lending sooner, given the rapid growth in new (and higher-risk) lending to investors, senior RBNZ officials were unenthused by the suggestion.
Assistant Governor and General Manager of Economics, Financial Markets and Banking, Christian Hawkesby, said tighter LVR restrictions are designed to put grit in the wheels of a boom environment, which is not where we currently are.
“At the moment we’re in a different type of economic environment… There’s a big economic contraction and we’re trying to create an environment – by lowering interest rates and making the funding freely available – so we can actually have an economic and financial recovery.”
The RBNZ has been lowering interest rates in a bid to ease debt servicing costs, and encourage borrowing and spending to boost inflation and employment in line with its monetary policy mandate.
RBNZ Chief Economist and Head of Economics, Yuong Ha, wanted people to acknowledge the RBNZ’s view that while lower interest rates boost asset prices, this has a wealth effect, which boosts confidence, spending, economic activity and employment.
From a financial stability perspective, he said: “The worse situation we’d face right now is actually if we had house prices falling.
“That’s always the flipside. You’d be dealing with a Covid recovery and a disruption in wealth through lower house prices.”
Asked to explain how a small reduction in house prices would be bad, Ha said: “We’re conscious of what would be the downstream impact on household and firm behaviour in an environment where household wealth was declining.”
We don’t want house prices to rise but we don’t want them to fall either
There are concerns that the property market is increasingly unaffordable and unsustainable. Yet property continues to be the nation’s biggest source of wealth, and preferred investment class.
The housing market has defied expectations to rise during the Covid crisis, boosting the wealth of Kiwis lucky enough to own property assets and injecting confidence into the economy.
At last week’s pre-election debate, Prime Minister Jacinda Ardern and National’s Judith Collins froze as they were asked a “gotcha” question: would they like to see property prices drop?
The two politicians danced around the issue under the studio lights. After a moment of deliberation, the risk-averse Ardern stressed she did not want prices to keep “escalating”. Pressed for more detail, she said she wanted the market to “stabilise”.
Collins, meanwhile, responded that prices “are going to have to go down”, “in some cases”. “But you don’t want to have people who have borrowed up to the hilt to buy a house suddenly having negative equity.”
Mortgage holidays halved
Half of all households who cut or temporarily halted their mortgage repayments at the height of the Covid-19 economic crisis are back to making full repayments.
During the national lockdown in March and April, banks agreed to let households whose incomes had reduced to either temporarily stop, or reduce repayments on their home loans, a move that was commonly referred to as taking a repayments ‘holiday’.
At its peak in June around 7% of all home loans were on deferred or reduced payment plans with their banks, according to data from credit reporting bureau Centrix.
But Centrix CEO Mark Rowley said that by the end of September it was down to 3.5%.
Wellington tops NZ for mouldy, damp flats
Mouldy, damp flats are making Wellingtonians sick, miserable and unproductive according to this Stuff article.
Six months of living in a mouldy Wellington flat gave Charlotte Mebus-Leckie asthma. The 23-year-old had always been healthy, but now finds the most mundane tasks tiring. She started getting sick more often and suffered mental health issues while living in the mouldy, damp flat.
Her health has been a casualty of the city’s housing crisis, an issue laid bare by Infometrics senior economist Brad Olsen.
Using 2018 census data, he found Wellington tops national averages for mouldy, damp houses with no heating. It is an issue which impacts people’s health and wellbeing – and productivity levels.
Poor-quality housing impacts health and educational outcomes, ultimately dampening productivity, Olsen said.
Mental health, as well as respiratory health, is affected by damp and mouldy housing, said Julian Crane, a University of Otago professor who specialises in asthma and respiratory disease.
And finally, in not-property news this week something that is too good not to share…
Why degrowth is the worst idea on the planet
For half a century, we’ve been told that we had to embrace degrowth in order to save our planet. We haven’t listened.
Around the world, human populations and economies have continued to grow at rates that are virtually unprecedented in the history of our species.
Over that same span, an unexpected and encouraging pattern has emerged: The world’s richest countries have learned how to reduce their footprint on Earth. They’re polluting less, using less land and water, consuming smaller amounts of important natural resources, and doing better in many other ways.
Some of these trends are also now visible in less affluent countries.
“However, many in the degrowth movement seem to have trouble taking yes for an answer,” says Andrew McAfee, a principal research scientist at MIT and the author of More From Less: The Surprising Story of How We Learned to Prosper Using Fewer Resources – and What Happens Next.
McAfee says the claims he makes are “widely resisted or ignored. Some say they’ve been debunked.”
“Of course, debate over empirical claims like these is normal and healthy. Our impact on our planet is hugely important.
“But something less healthy is at work here. As Upton Sinclair put it, ‘It is difficult to get a man to understand something when his salary depends upon his not understanding it.’
Some voices in the conversation about the environment seem wedded to the idea that degrowth is necessary, and they are unwilling or unable to walk away from it, no matter the evidence.
A core idea of degrowth is that environmental harms must always rise as populations and economies do.
It’s natural to assume that, as this growth continued, every nation’s planetary footprint would only increase. After all, as people become more numerous and prosperous they consume more, and producing all the goods and services they consume uses up resources, takes over ecosystems, and generates pollution.
The logic seems ironclad that our gains have to be the environment’s losses.
In some important areas, however, a very different pattern emerged after 1970: Growth continued, but environmental harm decreased. This decoupling occurred first with pollution, and first in the rich world.
In the US, for example, aggregate levels of six common air pollutants have declined by 77%, even as gross domestic product increased by 285% and population by 60%.
In the UK, annual tonnage of particulate emissions dropped by more than 75% between 1970 and 2016, and of the main polluting chemicals by about 85%.
Similar gains are common across the highest-income countries.
The evidence is overwhelming that rich countries cleaned up their air pollution much more than they outsourced it.
The rich world’s success at decoupling growth from pollution is an inconvenient fact for degrowthers.
Even more inconvenient is China’s recent success at doing the same. China’s export-led, manufacturing-heavy economy has been growing at meteoric rates, but between 2013 and 2017 air pollution in densely populated areas declined by more than 30%.
Read the rest of the article to find out how prosperity bends the curve, and arm yourself with some useful factoids for your next encounter with a degrowth activist.
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