Rent holidays, nasty battles, mortgagee sales, economists who overestimated negatives and 9 other insights affecting investors in property news this week…
In property news this week…
- Commercial Bay offers its struggling businesses a rent holiday
- Cromwell Property Group takeover battle turns nasty
- Government drops commercial rent compulsory arbitration plans
- Office woes lead to mortgagee sale
- Environmental Defence Society’s proposed RMA overhaul
- Allow more housing or get sued
- How Covid-19 changed the hospo game permanently
- Residential rent price drops linked to AirBnB conversions
- Here’s why Government buying Tiwai Point is not such a crazy idea
- Kiwi small businesses recovering faster than those in Australia and UK
- Economists ‘might have to concede they overestimated negatives’
- Home loan affordability improves dramatically to “extremely affordable”
- Know someone who thinks we’re all destined for the breadline?
Grab a cuppa and enjoy our curated property news this week.
Commercial Bay offers its struggling businesses a rent holiday
One month since the country’s newest upmarket shopping mall opened its doors, Commercial Bay (pictured above) is giving some tenants a rent holiday to help soften Covid-19’s economic blow.
Commercial Bay – a $1 billion development with more than 120 shops – occupies a city block in downtown Auckland.
It opened last month – just as vacancy signs started appearing in shop windows along Queen Street.
But even in the city’s shiny new shopping precinct, business is tough.
Chris Monaghan owns Cali Press, a wholefoods cafe on the ground floor of the new shopping behemoth, Commercial Bay. His sales are half those expected.
“It’s just the way the perfect storm has developed where we’ve now got a global pandemic, a recession and significant construction and disruption around us and borders closed so it’s a pretty challenging environment,” he said.
“The revenues aren’t there, the sales aren’t there so it takes a collaborative approach from a landlord. Shops will close if you’ve landlords that take a shortsighted approach.”
Auckland’s main drag is not what it used to be, with vacant stores every few metres and fewer people in town.
Half way along Queen Street is one of the oldest thoroughfares, Strand Arcade, which has a dozen empty stores that realtors are advertising as affordable and price by negotiation.
COMMENT: Chris Monaghan is absolutely right and I applaud Precinct Properties for its collaborative approach.
Cromwell Property Group takeover battle turns nasty
The stoush between the board of Brisbane-based ASX-listed property investor Cromwell Property Group and Singaporean investor ARA Asset Management Pte Ltd continued this week.
ARA’s latest offer would take it and a supporter to majority ownership, against continuing efforts by the Cromwell board to denigrate the ARA tactics.
The Cromwell board argues ARA is trying to buy control on the cheap.
The scrap affects New Zealand – Cromwell is 50% owner of local funds manager Oyster Property Group Ltd.
RA’s bid for control at Cromwell comes with some curious aspects. The offer doesn’t have a closing date and, although ARA issued its bidder’s statement on 21 July, it hasn’t yet updated the ASX on any increase in its holding.
Government drops commercial rent compulsory arbitration plans
Attempts to force commercial landlords and tenants with rent disputes in the wake of Covid-19 into negotiation are being abandoned by Justice Minister Andrew Little.
The government had planned a temporary law change last month which would have compelled parties who could not come to an agreement to enter compulsory arbitration.
However, New Zealand First has pulled support for the legislation, claiming what it had agreed to and what the legislation said were two different things.
Little said it was frustrating NZ First had walked back on its “handshake” agreement.
“That’s for them to account for and I guess for voters to have a look at.”
“It is unfortunate that situations like this happen, but it is a product of politics and I suspect the kind of febrile atmosphere that builds up around election time, and maybe this is the cause of that,” Little said.
National finance spokesperson Paul Goldsmith said the move was “too little too late” and would be of little comfort to struggling businesses.
“Most landlords and tenants have resolved these issues a long time ago, so the time for the government to help, particularly in this space, was a long time ago and they missed the boat. They spent their time arguing amongst themselves.
“Businesses up and down the country have suffered as a result of government dysfunction over five months,” he said.
Office woes lead to mortgagee sale
In a sign of the times, a vacant Epsom office building has just sold at mortgagee sale.
The building at 5 Owens Road, Epsom was sold by BNZ as mortgagee to a local private investor for $6.7 million.
The 2-level office building has 1,635m² net lettable area, 45 parking spaces, and sits on a 3,111m² site.
The offices were previously occupied and owned by DigiPost, a film post-production and special effects company owned by Elizabeth Zhong. Zhong also owns Carrick Winery in Central Otago and, until recently, Kennedy Point Winery on Waiheke Island.
In February 2019 a Stuff article said that, “Auckland-based movie financier Elizabeth Zhong is selling Carrick Winery in Central Otago to help fund her movie-making career.”
Carrick Wines failed to sell and is still owned by Zhong.
But things obviously went downhill because a December 2019 article reported that Kennedy Point Vineyard, a property claiming to be the only certified organic vineyard on Waiheke Island, “is up for mortgagee sale”. It now has new owners.
Real estate agents are advertising for new tenants for the 5 Owens Road office building. Agents are also running ‘for-lease’ advertisements for vacant offices across the road at 2 Owens Road on the corner of Owens and Manukau Roads.
COMMENT: With many offices embracing the work-from-home trend and downsizing, and the smart money chasing industrial property, the new owner of 5 Owens Road either has deep pockets, big plans or big cahonas.
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Environmental Defence Society’s proposed RMA overhaul
The Environmental Defence Society released a report on Monday outlining the key points of phase 3 of its resource management system reform project.
The society’s chief executive, Gary Taylor, said the report looked at system reform through an urban lens – “how it would play out in the context of towns & cities. It calls for the creation of new legislation to replace the Resource Management Act.”
In the two previous phases, the society analysed the wider resource management system, outlined different options for change and presented an overall preferred model for reform.
These reports have informed the Government’s independent system reform panel whose final recommendations are yet to be released.
Outlining Monday’s report, senior Environmental Defence Society researcher Dr Greg Severinsen said: “The urban context of reform is crucial. Alongside problems of housing affordability, infrastructure failings and other pressures of high growth, our cities are not working well for the environment or the climate. Our frameworks are not working well together, and there is now a great deal of complexity to the system. Something’s got to give.
“The Resource Management Act needs an overhaul. In previous work we’ve explored a number of fundamental changes that are needed, but concluded that the basic framework could remain.
“On reflection, though, it’s become increasingly obvious that the extent of the change required really means this should be seen as something new, not just a deep round of amendments.
“We’ve got to rebuild our resource management system from the ground up.
“We’re calling this the Environmental Stewardship & Planning Act.
“The act would have a different philosophical foundation to the Resource Management Act, which would flow through in the approach to its purpose & principles, national direction and council planning & consenting processes.”
COMMENT: If you are interested in the Resource Management Act, I recommend this article. The Environmental Defence Society and Dr Greg Severinsen are solid and practical thinkers and, although the devil will be in the detail which I have not yet read, appear to have come up with a plausible framework for a replacement of the RMA.
Allow more housing or get sued
A new policy statement on urban development is about a lot more than cutting carparks. New rules mean councils will have to green-light a lot more high-density developments that come across their desk or face developers in court.
Voters won’t have to wait till next election to see the changes. They’re already here. Urban Development Minister Phil Twyford said the National Policy Statement on Urban Development (NPS-UD) would influence Resource Management Act consenting decisions almost immediately.
Now councils will have to change their district plans to align with a NPS-UD that prioritises housing over inconveniencing the neighbours.
Or, in the words of the NPS-UD itself: “[developments that] may detract from amenity values appreciated by some people but improve amenity values appreciated by other people, communities, and future generations.”
Councils operating in Auckland, Hamilton, Tauranga, Wellington and Christchurch (“tier 1” cities) will have to produce regional policy statements that enable building heights and density to accommodate the demand for housing and commerce in a particular area, or make it easier to access commercial activities and community services by public transport, on foot, or by bike.
“The council will be expected to apply good sense with regard to the spirit of the rules. And if they don’t they’ll get taken to court by some developer.”
COMMENT: There’s a lot more meat in this story. Follow the link above to find out more.
How Covid-19 changed the hospo game permanently
When Covid-19 forced restaurants to shut, they had to find new ways to feed their customers. At Auckland’s Cotto, their take-home service remained popular even after they opened their doors again.
Residential rent price drops linked to AirBnB conversions
What do you do if you own residential investment property and the Government, through its increasingly onerous legislation, declares war on you and your fellow “rich pricks”?
You seek greener pastures of course. For some that means selling down the residential portfolio and investing in commercial property.
For others it means changing the property’s use from long-term tenancies to short-term AirBnB rentals. Or at least it used to.
New Zealand rent prices recently dropped for the first time in a decade, leading some property experts to blame Airbnb owners for the drop.
Kiwi renters starting new rentals in May were offered marginally cheaper prices than renters starting new terms a year earlier, recent Government rent data showed.
Auckland and Queenstown renters got even better deals with prices down 0.5% and 9.5% respectively last month.
StatsNZ said the rent drops coincided with rumours AirBnB holiday homes were being converted into regular long-term rentals due to the lack of foreign tourists.
Experts argued this was increasing the supply of rentals, giving renters greater choice and helping push prices down.
Now exclusive data from analysts AirDNA showed the number of AirBnB and Vrbo holiday homes advertised in May and June did drop significantly compared to the same months last year.
But AirDNA said more than half of the world’s AirBnBs were not full time rentals, meaning the number advertised for rent always fluctuated and that they didn’t expect to see a long-term decline in supply of Kiwi holiday homes.
AirDNA believes many AirBnB hosts are simply taking a break. It said converting holiday homes into long term rentals was expensive, especially with new Healthy Homes Government regulations due to come into effect and which require all rentals to meet stringent health standards.
Read the full article here (paywalled)
Here’s why Government buying Tiwai Point is not such a crazy idea
Sam Stubbs, managing director at Simplicity, puts up a good case for the Government buying the aluminium smelter at Tiwai Point.
If Sinead Boucher can buy Stuff from Nine News for $1, maybe Rio Tinto would be keen to avoid the cost of closing the plant and restoring the land and offload Tiwai Point at low cost?
Stubbs says the special nature of the aluminium, and the environmentally friendly way it’s produced, is one reason for keeping it.
Tiwai Point is one of only two smelters globally producing ultra-high purity aluminium, and the only one using renewable power. It has the lowest carbon footprint of any smelter globally.
Would you rather aluminium be produced in China, with dirty coal supplying the power?
And aluminium is a long-lasting, infinitely recyclable, and very useful metal. Just ask anyone who flies anywhere, drives a Tesla, or has double-glazed windows.
Another reason is the irony in our bemoaning the shipment of logs to China without adding value, when the smelter ships in alumina from Australia and adds tremendous value. Is a closed smelter just one step backward in building an added-value economy?
And the impact to Southland, and New Zealand, will be dramatic. It employs almost 1,000 people in high paying jobs, and contributes $400 million every year to Southland’s economy. That’s 6.5% of Southland’s GDP, a huge sum.
The smelter provides over $1 billion of export revenue for New Zealand too, so Tiwai’s closure is not just a Southland problem, it’s a problem for our whole team of five million.
Kiwi small businesses recovering faster than those in Australia and UK
Cloud accounting firm Xero’s small business insights research shows that small businesses in New Zealand are recovering much faster from COVID-19 than small businesses in Australia and the UK.
“It appears that harder lockdowns resulted in large initial impacts on revenue, but the subsequent positive health impacts have allowed economies to start the recovery process more quickly. There is also evidence that the broader the wage subsidy program, the less the impact on employment.”
Some of the key findings from Xero’s June data are…
- New Zealand has experienced the strongest early rebuilding phase of the three countries so far, despite having the largest drop in revenue when lockdowns were introduced.
- Australia was less hard hit on revenue losses (down 10% at the trough), but has suffered the greatest loss of jobs (down 12% at the trough), including large numbers of casual workers in late March.
- The United Kingdom started to ease restrictions later than the other two countries, and is yet to hit the trough in employment outcomes, but had some modest improvement in revenue in June to still be 18% below year ago levels.
- Sector recovery: across all three countries the hospitality and arts & recreation sectors have been the hardest hit. In June manufacturing was the best performing sector in all three countries.
Economists ‘might have to concede they overestimated negatives’
As New Zealand closed its borders and prepared to go into level 4 lockdown, predictions of economic doom flew.
ANZ said it expected unemployment to reach 11% and house prices to drop 15%. Treasury suggested unemployment could get as high as 26% without Government intervention.
But four months on, economists say the situation is better than expected and many of those predictions have already been revised.
Mike Jones, an economist at ASB, said the economy had “bounced out of lockdown in a perkier state than most expected”.
“This reflects a combination of an earlier than expected shift down to alert level 1, the release of demand pent up during lockdown, and some well-timed Government support and stimulus measures, most notably the wage subsidy.”
NZIER principal economist Christina Leung said the recovery in heavy traffic flows, an indicator of freight activity and demand in the economy, had been stronger than expected since lockdown lifted.
Home loan affordability improves dramatically to “extremely affordable”
Mortgage payments on lower quartile-priced homes are now “extremely affordable” for younger people on median incomes.
Thanks to lower-quartile house prices that are no longer climbing stratospherically, and lower mortgage rates, home loan affordability has improved significantly.
The slight reduction in the national lower quartile selling price from $458,000 in March to $452,000 in June and, more importantly, the reduction in the average mortgage interest rate from 3.52% to 2.76%, has reduced the mortgage payments in this scenario from $380 a week to $340, a saving of $40 a week.
It gets even better when looking at mortgage payments as a percentage of income. For a couple who are both earning the median pay of people aged 25-29, the mortgage payments in the examples above would have gobbled up 22.5% of their after-tax pay in February.
But by June that had dropped to just 20.0%. That is the lowest the mortgage payment-to-income ratio for lower quartile-priced homes has been since October 2016.
A traditional financial planning measure of housing affordability has been that mortgage payments are considered affordable when they take up no more than 40% of the borrower’s net income.
By that measure, the current record low interest rates have made mortgage payments on lower quartile-priced homes extremely affordable for younger people on median incomes.
Know someone who thinks we’re all destined for the breadline?
There’s no need to be down in the dumps about the current situation and thinking we are all destined for the breadline, says Tony Alexander.
Here are some of his talking points to cheer up your despondent colleagues…
- There is some $10 billion that we Kiwis were going to spend on trips overseas which is now being spent instead on holidaying around New Zealand, spas, pergolas, new bathrooms and kitchens, etc.
- Borrowing costs for home buyers have fallen to record lows with most fixed rates now below 3%.
- Clearly, the despondency is not shared by the multitudes of home buyers attending Open Homes and perusing real estate websites, and the many owners feeling little pressure to sell.
- Businesses are getting less despondent by the day with their confidence about the outlook for their levels of activity lifting from a net 55% pessimistic to just 7% pessimistic this month.
- Consumer confidence has already shifted back into optimistic territory with a 105 reading in the ANZ Roy Morgan index from a low of 85 in April where 100 = neutral. My own Spending Plans Survey shows that a net 7% of near 3,500 respondents plan boosting their retail spending over the next 3-6 months.
- Many Kiwis are bringing forward their plans to return to New Zealand, and even before the borders were closed to foreigners or we had heard of Covid-19, a structural improvement was underway in Kiwi net migration flows from Brain Drain to Brain Gain.
- The NZ government, on our behalf, has one of the best fiscal tracks in the OECD and even at the pessimistic projection peak in the net debt to GDP ratio of 54% our numbers will be better than pre-Covid starting points for many other economies.
- Some sectors of the economy are doing very well including farming, fishing, forestry, horticulture, dairy, logistics, IT, medical equipment and supplies, warehouses, couriers, outer space.
- Ending of the second tranche of the wage subsidy scheme probably won’t much affect consumer spending as redundancies occur because most people to be laid off are likely already highly aware of that possibility and have accordingly already adjusted their spending.
- 10.The absence of house price declines and now switching in media commentary completely from dire discussion to a focus on first home buyers seeking homes means banks are highly likely to extend mortgage payment deferral for anyone needing it. Banks feel good about their mortgage security as long as house prices are holding up.
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