We pulled 14 gems from the torrent of property news this week to keep you abreast of the most important insights affecting investors. 28 March-3 April 2020
In property news this week…
- Commercial real estate values, as a crisis unfolds
- Real estate agencies lose $135m in residential sales commissions due to lockdown
- Lockdown halted housing market recovery – what next?
- Economic outlook – the battle rages
- Why good businesses may fail in this crisis and why the Government should have prepared differently
- A bad start to Q2 for risk assets
- There will be regional differences reflecting varying economic bases
- Highly geared first-home buyers in for a rough ride
- As we commence Day 9 of lockdown…
- Covid-19 drives AirBnB rentals to long-term rental market
- Costco’s Westgate land purchase approved
- Augusta pulls Albany purchase
- Home building plans near 38,000 a year
Commercial real estate values, as a crisis unfolds
PWC’s COVID-19 update titled, “Commercial real estate values, as a crisis unfolds” endorses the defensive nature of industrial property…
“Industrial assets tend to exhibit, over the long term, the least value volatility, so this sector could be expected to be relatively less impacted by COVID-19.
“Interestingly, as at the date of this paper two of the industrial focused listed property entities on the New Zealand NZX are trading close to or at a premium to net tangible assets.”
Regarding sub markets, they say: “Tourism assets and student accommodation have borne the initial brunt of the crisis due to international travel restrictions, and the other more traditional retail, office and industrial sectors are now experiencing the consequences of the nationwide lockdown.”
“Expect a flight to quality and assets underpinned by strong cashflow, consistent with what was observed during the Global Financial Crisis (GFC).”
Real estate agencies lose $135m in residential sales commissions due to lockdown
Interest.co.nz estimates the real estate industry was on track to earn about $135 million in residential sales commissions over the four-week lockdown period, based on sales trends up until 22 March.
The lockdown, which has brought residential property sales to a virtual standstill, could not have come at worse time for the industry. The number of homes being sold has been declining on an annual basis since 2016, even though prices have remained firm, which has put the industry’s commission revenue stream under pressure.
Lockdown halted housing market recovery – what next?
The Auckland residential property market was in full recovery mode before being stopped in its tracks by the Covid-19 lockdown, says Peter Thompson, managing director of Barfoot & Thompson.
“Confidence in Auckland property was high in February and the first weeks of March, and new listings, sales numbers and prices were at their highest for a number of years. … Without the intervention of Covid-19 we could have anticipated the market’s momentum to have run through to late autumn,” he said.
“Although it is not possible to predict where the market will go in the short term, vendors and buyers might want to look to the past and take a medium term view of market prices. During the major economic downturns that occurred in 1987,1997 and 2007 house prices did not decline beyond 5% at most. And following the declines, prices recovered within 12 to 18 months.”
Economic outlook – the battle rages
ANZ’s Weekly Focus out today reports as follows:
The Government clarified this week that elimination of COVID-19, not just flattening the curve, is the goal of the current lockdown. It’s an ambitious aim and we hope they succeed – everyone playing their part will be key.
Eradication means greater disruption in the short term, and we are starting to see early signs of that in the economic data. But if successful, rigorous measures now increase the chances that we can get the economy going sooner, albeit in a more insulated fashion with tight border restrictions.
More broadly, the economic landscape is likely to look quite different on the other side of this, and the recovery will be protracted. Some industries will benefit; some will suffer greatly. Government debt will need to be repaid; firms and households will be cautious and may look to deleverage; inflation will likely be low for some time. Expansionary monetary policy may need to be amped up more, and will be needed for a long time, even once the war is over.
Long-lasting economic impacts are nonetheless inevitable – and the recovery will be gradual, after an initial bounce in activity once the economy starts moving again. There will certainly be queues outside hairdressers. We currently expect GDP will be 5-6% lower this year, with a slow recovery from there. GDP does not return to its previous level until the end of 2022. There is downside risk to this, and it could take longer.
Why good businesses may fail in this crisis and why the Government should have prepared differently
A very good piece by Andrew Coleman, a lecturer in the Department of Economics at the University of Otago, where he teaches public finance. He is currently in lockdown while visiting a university in Morocco.
A bad start to Q2 for risk assets
After share markets experienced one of their worst quarters ever, with the MSCI World Index down 20%, the June quarter has begun on a poor note. This is being attributed to some sombre comments from President Trump and companies slashing dividends, including a number of UK banks, which has seen Financials hit.
There will be regional differences reflecting varying economic bases
CoreLogic says the tourism-heavy recession will knock some parts of NZ more than others, with Queenstown standing out as a key vulnerability, given 15-20% of its economy is accommodation & food services.
By contrast, although nowhere is immune, places such as Invercargill (given importance of electricity/gas supply and healthcare to its economy) and Napier (healthcare, professional/technical services) could be less affected, both in terms of their economies and property markets.
Highly geared first-home buyers in for a rough ride
Lower interest rates have made it easier and easier for young first-home buyers with mountainous amounts of debt to service the mortgage.
Job losses are the game changer, though. The real crunch is when people lose their jobs and that mountain of debt still requires its monthly fix. Unfortunately that’s where we are now.
As we commence Day 9 of lockdown…
Barfoot & Thompson struck a positive note this morning when their agents emailed this message to their contacts…
“As we commence Day 9 of lockdown – there are many positive stories emerging.
“A community focus has become apparent – no doubt as a consequence of the necessity to stay local. Life has become much simpler with a “return to basics” feeling. Home cooking, a focus on family, less noise and pollution and more time to bring out old games like hopscotch!
“Though there is much being written about what may or may not happen with the real estate market in the short term, most would agree that long term, the value of our property will be remain strong.
“Given what is happening in the rest of the world, this international situation makes it all the more apparent that New Zealand is a great place to live.”
COMMENT: I couldn’t agree more.
Covid-19 drives AirBnB rentals to long-term rental market
CoreLogic says AirDNA.co, which tracks properties listed on AirBnB and the like, has seen a drop of roughly 20% in our largest markets, compared to the end of last year. Auckland is down 20%, Wellington and Christchurch are down 17% and Queenstown is down 18%. Usually listings increase in Q1.
The tourism downturn has seen many properties shift from the short-term/holiday rental market (e.g. Airbnb) into the traditional, long-term sector (or they’ll be sold). That rise in the supply of long-term rentals will dampen open market rental growth and could even see rents fall.
Costco’s Westgate land purchase approved
The Overseas Investment Office has granted Costco Wholesale NZ Ltd, local subsidiary of giant US retailer Costco Wholesale Corp, consent to buy 2.76ha at Westgate in north-west Auckland for its first New Zealand store.
The land price is $23,270,825, but Costco said in its application it expected to spend over $100 million before opening for business.
Augusta pulls Albany purchase
Augusta Property Fund’s long-settlement purchase of the Albany Lifestyle Centre from Argosy Property Ltd fell through last Friday, which was to have been settlement day.
The $89 million purchase of the Albany property was announced in May last year.
Troubled finance company FE Investments in receivership
Troubled finance company FE Investments has been put into receivership with $54.3 million of New Zealand investor deposits at risk.
The writing appeared to be on the wall for the company for some time, with signs of trouble on the ASX late last year, and the FMA’s director of regulation said: “This is terrible news for the investors in this troubled non-bank deposit taker.”
“FE Investments has been in difficulty for some time following a number of business setbacks. Its problems were not caused by COVID 19, but there’s no doubt the current economic conditions have made matters worse,” he said.
Late last years, the company, which had $64 million in term deposit investments from mum and dad investors, told the ASX sharemarket it may have to write down the value of major loans, and was in a “vulnerable” position.
COMMENT: I thought the GFC had got rid of all the dodgy finance companies. I guess COVID-19 is wiping out the cling-ons.
Home building plans near 38,000 a year
The annual number of new homes consented was 37,882 for the year ended February 2020, the highest since the mid-1970s, Stats NZ said today.
COMMENT: It should be noted that this is BC news – Before Coronavirus. BC news seems rather irrelevant now, don’t you think?