This is where the smart money is going; Why it is near impossible to produce low-cost homes; & more insights affecting investors in property news this week.
Here are the headlines in our property news this week…
- This is where the smart money is going
- More evidence of industrial property booming
- AMI closes entire branch network to move services online
- Covid revaluations lead to $13.6m loss for Oceania
- NZ Herald says small biz confidence both rising & plummeting – WTF?
- ANZ pessimists slightly less pessimistic
- Doom or Boom? A post-lockdown housing stocktake
- Evidence of a strong housing market
- One reason the housing market remains strong
- Landlords say concerns ignored
- Why it is near impossible to produce low-cost homes
- How electricity demand tells the story of New Zealand’s lockdown
Grab a cuppa and I hope you enjoy catching up on our curated property news this week.
This is where the smart money is going
At Goodman Property Trust’s (GMT) AGM on Wednesday, Greg Goodman said the rise of e-commerce and the pandemic has prompted Goodman Group to expand its development base by A$1.5 billion in the last year.
A global chase is on now with the smart money going after one specific type of industrial property – warehouses and logistics facilities.
Read the full article here (paywalled)
COMMENT: GMT shares closed today at $2.18 with a resulting dividend yield of 3.5%. The shares were trading at $2.05 this time last year and at $2.18 are up 6% over the last 12 months.
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More evidence of industrial property booming
Further evidence of the strength of the industrial property segment is a sale on Wednesday. A Wairau Valley light industrial property was sold at auction on Wednesday for $1.615 million, representing a 4.08% yield.
The property at 92 Sunnybrae Rd (pictured above) features 425m² floor area on an 809m² site. The building’s seismic rating is 70% of new building standard and contains a ground-floor showroom, mezzanine office, and rear storage with amenities.
The property is leased to Patel Brothers Supermarket at $66,000 p.a. on a new 7-year lease with structured rental growth.
JLL industrial sales & leasing director Euan Stratton said the auction generated 94 inquiries and drew 8 bidders, selling for 60% above the council valuation of $1 million.
COMMENT: In addition to confirming the strength of small industrial properties, this deal also demonstrates how a strong lease can add significant value.
AMI closes entire branch network to move services online
Insurance giant IAG will close all of its 53 AMI Insurance branches and its one remaining State branch with the loss of up to 65 branch manager jobs.
IAG customer and consumer general manager, Kevin Hughes said another 350 jobs would be transferred to customer service and other departments to bolster online services.
Customers were increasingly interacting by phone, email and online, rather than visiting branches Hughes said.
Covid revaluations lead to $13.6m loss for Oceania
Listed property owner and retirement village developer Oceania Healthcare has posted a loss of $13.6 million largely because of a drop in the value of its properties due to Covid-19.
Oceania chief executive Earl Gasparich said CBRE, which values its retirement village properties and most of the other villages in the retirement sector, had included this year the expected impact of the pandemic on property values.
CBRE had been applying a 3% increase each year to its valuations, but for the coming year it considered retirement village property values would fall 2% and be flat the following year.
CBRE delivered the valuations with a lot of caveats and uncertainty over the impact of Covid-19 on the property market.
Oceania’s underlying earnings of $63.5m, which exclude property valuations, were in line with the previous year despite not being able to show and sell retirement units during the Government lockdown.
NZ Herald says small biz confidence both rising & plummeting – WTF?
On Monday and Tuesday this week, the NZ Herald published two articles by business reporter Aimee Shaw, both on the subject of small business confidence….
- Monday: “Small business confidence on rise despite expected downturn ahead“
- Tuesday: “Pessimism among small firms surges to all-time high“
Err, which one is it Aimee?
Monday’s introductory paragraph said, “Confidence among small businesses is improving and despite the expected downturn many firms forecast for growth over the next 12 months.”
Something terrible must have happened overnight because the lead-in to Aimee’s Tuesday article stated: “Confidence among small firms has fallen to an all-time low.”
And legacy media bosses wonder why we don’t buy their newspapers any more 🤦
ANZ pessimists slightly less pessimistic
ANZ economists say the housing market staged a comeback in June, partly driven by pent-up demand for sales and a post-lockdown bounce in spending.
Cash-flow relief has also been a big driver, supported by lower mortgage rates, mortgage deferment schemes, and wage subsidies (which have cushioned incomes and delayed job losses).
But their forward predictions are still quite pessimistic…
Tide will turn
“Housing is a bellwether of the domestic economic cycle. Company profits will be lower, partly reflecting a lack of international visitors and grim global outlook. These factors will weigh on house prices, sales, home building and spending.”
House prices may fall, but impact will be seen later
“We see house prices falling 5-10%, with brunt of the impact later in the year. This fall is later and a little smaller than previously assumed, but is subject to a lot of uncertainty. GDP outlook remains weak and uncertain.”
Government policies are providing support, cushioning and delaying the blow
“Wage subsidies, mortgage relief and low mortgage rates are supporting cash flow and the housing market. Impacts of the downturn on the labour market will bite later this year, with impacts delayed due to fiscal support.”
Cross-currents have shifted and the outlook hinges on how these evolve
“Net migration is weak. Unemployment is rising. Confidence is fragile. Appetite for credit has reduced. Banks are wary about risks. Expectations have shifted.”
Economic activity has bounced but outlook is uncertain and grim
“Although the bounce in spending and sentiment has been vigorous, the outlook for the economy is uncertain and grim. GDP could be 5-12% lower this year, depending on a range of factors. The economy still needs considerable support from the RBNZ and Government. A lower exchange rate would also help. The RBNZ needs to keep monetary conditions easy, and the Government needs a targeted, considered response. We continue to expect that QE will be expanded in August.”
COMMENT: Methinks the nation’s doom & gloom economists all work in ANZ’s ivory tower. I find ASB Bank’s and Tony Alexander’s pragmatic views more plausible…
Doom or Boom? A post-lockdown housing stocktake
Recent housing commentary appears to encapsulate everything from doom to boom. ASB economists stocktake the post-lockdown state of house prices, rents, turnover, and inventory to try and provide some clarity.
“We’re left happy occupying the less pessimistic end of the house price forecasting spectrum. In fact, if anything the recent run of data and anecdotes have come in on the stronger side of our view. Still, it’s early days and we suspect pent-up demand will fade in coming months.
“Our overall view remains unchanged. We continue to expect a modest 6% fall in NZ national house prices.
“We’ve been forecasting a 6% peak-to-trough decline in nationwide house prices ever since the COVID crisis took hold in March. The economic adjustment to date been less severe than most expected. But recessions almost always produce housing market corrections in NZ and we don’t expect this cycle to be any different.
“Rising unemployment and a sharp slowing in population growth are housing bugbears that will loom large over the second half of the year. Government and RBNZ stimulus will cushion the market to some degree, and we’re seeing more signs of it working. Activity amongst first-home buyers, for example, has ticked up.
“Over 2021, we expect house prices to stabilise, before gradually recovering as the unemployment rate begins to decline. Our forecasts are for a fairly gradual recovery, but if mortgage rates continue to fall and LVR restrictions are not restored the [likelihood] is probably for a brisker upturn.”
Evidence of a strong housing market
Each month Tony Alexander asks mortgage advisors what they are finding from their unique position in the housing market.
Alexander says, “I love the responses these professionals give because they’re completely unbiased with regard to where the market is headed and the closest to the mortgage availability coalface it is possible to get.”
Here’s his summary of their many comments…
- Banks are extremely slow to process requests and turnaround times seem to have got worse.
- Lending criteria have been tightened, though at the margins some very mild easing may be appearing. One bank will soon announce an easing of test interest rates used for calculating debt servicing ability.
- Demand for finance from first-home buyers and investors is very strong. But first-home buyers in particular are extremely frustrated with the lack of listings, some banks preferring investors, and extremely high hurdles needing to be climbed to qualify for a loan.
One reason the housing market remains strong
Tony Alexander looks at the surprise contained in recent net migration inflow data – namely that the net gain analysts expected for this year pre-Covid has already happened.
In the year to May there was a net addition to New Zealand’s population from permanent and long-term migration flows of 80,700 people. This compares with 51,000 a year earlier and is only slightly lower than the highest total on record of 84,900 in March.
In a nutshell, a lot more people have migrated to New Zealand than was thought just ahead of lockdown. “How many more? The original estimate for the net migration gain in the year to November 2019 was +41,500.
“Now the gain is estimated with reasonable certainty to have been 64,000. That means 22,500 more people than we thought back in January.
“But, most of us had been running on the view that from 41,500 in the year to November the numbers would trend down below 40,000 come the end of this year.
“But we already have those extra people in the country right now. So, all the earlier talk of net zero migration flows slashing demand for housing are completely wrong – for this year at least.
“There is not the downward pressure which many expected on house prices and that is likely to be one reason why the housing market remains strong.”
Alexander says a structural shift in net Kiwi flows was already in place before the virus from China invaded the world.
“We are no longer a country where we talk of a brain drain. We are a country providing plentiful job opportunities for people and a good lifestyle. We have an established record now of success (touch wood) in eliminating Covid-19 from the community (as long as returning Kiwis obey the quarantine rules). People want to be here and we need to start talking about brain gain.
“With one million people offshore eligible to return to NZ as citizens or residents, the opportunities for foreigners to get in will decline in coming years over and above the employment effects of Covid-19.”
Landlords say concerns ignored
An update to the Residential Tenancies Act will reduce rental supply and worsen the housing crisis, says the Property Investors Federation.
The Residential Tenancies Amendment Bill has been through the select committee stage, and is headed for its second reading in Parliament, but landlords say their feedback has not been acted on.
Sharon Cullwick, executive officer of the Property Investors Federation, said one of the main concerns was the end of 90-day no-cause evictions.
“We’ve worked out they’re protecting about 2% of tenants that cause the antisocial behaviour, rather than the majority of people,” she said.
Under the bill, a bid to remove a tenant would have to go through the Tenancy Tribunal.
The difficulty meant that tenants considered potentially risky, for example younger people with no rental history, would find it harder to get a place to rent, she said.
Evan Whetton, senior solicitor at Morrison Kent, said there had been a big shift in favour of tenants under the proposed legislation, which the select committee had further strengthened.
“Termination by 90 days’ notice without having to provide reasons has provided an important safeguard for small landlords to bring a consistently problematic tenancy to an end,” he said.
It would be hard for many landlords to give three notices within a 90-day period about a tenant’s anti-social behaviour.
“This is a significant obligation which may be difficult for landlords due to strict timeframes, a lack of resources, or fear of potential repercussions either on themselves, their property or on neighbours,” Whetton said.
Whetton said the changes reduced the landlord’s ability to carry out forward planning. The time, expense, and risk of taking a matter to the Tenancy Tribunal would not be matched by the value of the bond available.
The number of unlawful acts and fines for landlords also increased. The current maximum fine for unlawful behaviour of $4,000 would rise to a maximum of $50,000 that could be imposed on landlords.
Tenant penalties had not changed substantially, Whetton said.
The value of work that the Tenancy Tribunal could require a landlord to carry out to upgrade a property doubled to $100,000.
Cullwick said 20% of the association’s members said they would quit the rental market once the bill came into effect because they would have no control over their own assets and it would become too hard.
“Everyone says that that’s great because it means that first home buyers buy those houses, but every house that gets sold to a first home buyer leaves one spare person or people that were in that rental property that need to find a house, so you’re actually making the housing crisis worse.”
Why it is near impossible to produce low-cost homes
Building Today columnist and EasyBuild director Mike Fox says there is a massive disconnect between supply and demand for affordable housing.
So why, he asks, are we continuing to build larger homes on expensive land that are out of reach for the average home buyer?
Here are some excerpts from his excellent article…
“Over the past four decades, I’ve built hundreds of homes, and have watched the market progressively tilt towards larger homes on smaller, very expensive lots, with building time frames stretching out and productivity plummeting.
“Unfortunately, this is what our current system and market dictates, but it is woefully under-delivering on what we need to house everyone, especially in the dawning era where affordability will be paramount.
“The current Government’s worthy political aspirations to ramp up affordable housing by 10,000 units per annum under the guise of Kiwibuild crashed and burned in spectacular fashion.
“They soon realised what those of us in the industry have long known – the delivery system is broken.
“At huge political embarrassment, they learned that our underlying system is plagued with hurdles, delays, costs at every turn, and is inadvertently skewed to only create high-cost land and, subsequently, high-cost homes.
“It’s a pipe dream to think that the current system or market will produce affordable housing without intervention, especially in urban areas.
“The sad thing is that the Government’s response to fixing the broken system is to change the law so that government projects can sidestep the Resource Management Act (RMA) and leave the rest of the country stuck in the regulatory mire.
“Why not be brave and fix the problem for everyone, once and for all? Instead, it’s an opportunity lost, and the problem kicked down the road because it’s politically difficult.
“There are currently many hundreds of unsold new homes sitting in Auckland and other locations around the country because those that need the housing can’t afford them.
“If we want affordable housing, we need to produce affordable land free of inflationary minimum size and design-restrictive covenants.
“To solve this crisis, we need a different approach.
“The solution is relatively clear – we need fewer rules and political fortitude, as local authorities will need to be curbed and, in some cases, overruled – and not just for Government projects.
“I know of one private enterprise example where a smaller local authority has been sitting on its hands for more than 12 months like possums frozen in the headlights.
“It’s a $40 million project that will deliver 150 affordable homes to market for less than $400,000 each, including the land.
“Clients are crying out for the product, but what I refer to as two star-gazing planners just seem overwhelmed, and the project continues to sit in limbo. The planners’ strategy seems to be to go slow with the hope the project will eventually disappear.
“How unjust is that on society? Affordable new homes being kept out of the market on the whim of a planner. All the while, holding costs are pushing up prices by the day, and the clients remain unhoused in motels and cars.
“Another example is a transitional housing project, with a perfect site and location and the need overwhelming.
“This time, the neighbours got jittery, politicians circled, didn’t like the heat, and the project was canned, resulting in more motel rooms booked.
“God only knows what all this is costing the taxpayer. This is the crazy disconnected world the RMA creates.
“If they asked me, I would remove all smaller residential projects from the RMA as it is no longer fit for purpose, and the planning process too subjective. The process often gets highjacked by neighbours, anti-commercial practices, personal agendas and nimbism.
“More standardisation of design and modular building needs to be increased, and the consumer conditioned to not expect a bespoke home if they want affordability and value.
“Building companies create the expectation that you can have your home any way you want. However, if the consumer realised that building bespoke added at least 25% to the cost of their home, they may view things very differently.”
How electricity demand tells the story of New Zealand’s lockdown
It’s no secret that New Zealand’s Covid-19 response was one of the world’s most effective. But to get an idea of how eagerly parts of our economy have rebounded post lockdown, take a look at our electricity demand data.
Despite an impending wave of unemployment and looming fiscal challenges down the road, New Zealand’s economy has performed surprisingly well in the months following level four lockdown. June retail spending was up 8% on the year before, credit and debit card spending has surged, and our exports continue to trend near their 2019 levels.
It’s an uplift in activity that has impressed economists, even if much of it may be a sugar rush of pent-up demand that will eventually fizzle out. But to truly get an idea of the effectiveness of New Zealand’s lockdown and the zeal with which the economy has rebounded relative to other countries, our electricity consumption data paints a telling picture.
Aloys Nghiem, wholesale market analyst at Mercury, used data from electricity transmission operators from a dozen countries across Europe, America and the Asia Pacific region to graphically show how each country’s electricity demand changed after it hit 100 Covid-19 cases.
Across the board, it shows that the spread of Covid-19 precipitates a drop in electricity demand, as economies begin to shut down and enter various forms of lockdown.
While New Zealand’s drop is instant and severe – indicative of the totality of our response, which began even before 100 cases were reached.
What is surprising is the rate at which each country’s demand increases depending on its Covid-19 response.
Of all the countries, New Zealand’s electricity demand has surged back to pre-Covid levels the fastest.
While Australia’s demand is not far behind, the lockdown across the Tasman was not as restrictive so did not cause such a major fall in the first place.
Likewise in Taiwan, which had very low Covid-19 cases relative to other countries, the fluctuation in electricity demand was minimal and has sustained a normal level of demand.
France, on the other hand, took several days after registering 100 cases before anything happened. Electricity demand then plummeted and hovered around 65% over the following months.
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