We pulled 9 gems from the torrent of property news this week to keep you abreast of the most important insights affecting investors. 18-24 January 2020
2020 Will Look like a Slower Version of 2018 and 2019
Financial expert and New York Times best-selling author John Mauldin of Mauldin Economics says, “We haven’t seen a lot of good news lately, though it does exist. We don’t see it because both regular media and social media usually focus on the bad.” [Ain’t that the truth!]
Mauldin recently gave his prediction for the year ahead. “I expect 2020 will look like a slower version of 2018 and 2019. My base case is for no recession this year, with all the usual caveats.”
Unlike Harry Dent, who says the NASDAQ could peak at 13,500 by late September 2020 before correcting, Mauldin says the calm may last into 2021 and even beyond.
“While 2020 could bring any of several potential crises to a boil, I think we will more likely have a lot of noise but little real change. I expect more of the same: slow but steady GDP growth in the 1.5% to 2% range, widespread dissatisfaction and polarised opinions on both the economy and politics.”
Harry Dent summarises: “So, strong sailing ahead, and definitely not time to be selling stocks yet, or even putting on hedges.”
Rents Rising at Fastest Pace in 11 Years
Rents rose at the fastest pace in more than a decade in 2019, according to Stats NZ. Rents in Auckland and Christchurch increased modestly, in line with inflation, but in the rest of the country rent prices rose at more than 2x inflation.
Statistics NZ senior manager Paul Pascoe pointed to strong demand as well as new rental standards for landlords as the main factors behind the rise in rent prices.
Solid Sales Activity Ahead, but No Boom
Greg Ninness of Interest.co.nz says the housing market this summer is buoyant and we should see some solid sales activity over the next few months, but those hoping it will bring a return of the boom in prices that was prevalent prior to 2017 will probably be disappointed.
“The threat of a collapse in the housing market, which had weighed on buying decisions over the last couple of years, has retreated considerably,” says Ninness.
There was a lift in buyer demand following the OCR ‘double-cut’ last August, which pushed overall stock levels down and prices edged up.
New mortgage lending data from the Reserve Bank show that most of the new lending was to first home buyers and investors. Lending to existing home owners moving up the property ladder, or downsizing, has been almost flat.
That suggests demand is greatest at the lower to middle end of the market, where price affordability is much more of an issue for buyers.
“So rather than a steady upward swing in prices, we are more likely to see a pattern where they briefly rise when mortgage interest rates are cut and then flatten out. And with further mortgage rate cuts far from certain, we are probably heading into the flattening out phase, particularly in Auckland.”
Westpac Economists Forecast 7% House Price Growth in 2020
Westpac economists say economic activity is turning up again, but “we’re still seeing mixed conditions across the economy, which suggests that the pick-up in growth could be gradual (at least in the near term).”
It’s a different story on the housing front though. “The boost to the economy from low interest rates is now undeniable and has been seen most clearly in the housing market. House prices have continued to push higher, with annual house price inflation rising to 6.6% in the year to December.”
They report that Auckland price gains are running at less than half the other regions, at 4% in Auckland versus 8.9% in the other regions. Overall, though, they think continued solid gains are on the cards in the early part of 2020 and we may well see 7% house price growth nationally (lower in Auckland; higher elsewhere).
ANZ Now Expect Flat OCR in 2020
ANZ economists have changed their OCR call to a flat track, removing the cut they had predicted for May.
“Our central projection is now for the OCR to remain unchanged over 2020 at 1%. Previously, we had expected that a deceleration in growth would see capacity pressures and inflation ease, and that it would be difficult for the economy to grow at a pace sufficient to keep inflation close to target – running the risk of inflation expectations slipping, against a backdrop of global uncertainty and downside risks.
“However, a lot has changed in a short time. Global risks have not gone away, but the domestic picture has turned. The RBNZ did cut the OCR three times last year, but our view that more cuts would come this year now appears too pessimistic.”
Bayleys Chief Sees 4 Trends to Shape Commercial Property This Year
In a thinkpiece on the year ahead, Mike Bayley covers 4 trends he believes will reshape commercial property in 2020 & beyond.
1. Transforming industrial
Industrial property was a star asset class over the last decade, and will be in 2020 and beyond, says Bayley. Out of 12 asset classes, secondary industrial property was ranked #1 in terms of forecast total returns over the next 5 years, and prime industrial was ranked #2. For secondary industrial property, the forecast is 11.5%. [Source: research cited by Property For Industry.]
Online sales are tipped to hit $US1 trillion globally by 2023, driving industrial property demand for warehousing and freight movement. As costs fall, picking and packing by logistics robots will become common. This, plus cost and scarcity of land, will result in warehouses expanding upwards – from a typical stud height of 9m now to as much as 30m.
2. Buildings are going green
With New Zealand’s shift to zero carbon by 2050, developers and landlords will face growing demands to cut their carbon footprints. Buildings will need to use more eco-friendly building materials like timber, and reduce the use of concrete and steel.
3. Infrastructure: build it and they will come
If you want to know where future hotspots will be, follow the big public works. Starting in 2020, the decade is set to bring a record boom in new infrastructure spend after decades of under-investment.
4. Attention turns to syndications & property funds
As the era of record-low interest rates stretches on, with the prospect of an even lower official cash rate in 2020, syndications and property funds will attract new attention as investors scour the markets for yield.
Commercial and industrial real estate still offers the potential for delivering solid capital growth and yield returns for first-time investors who don’t necessarily have the expertise or capital to invest in large property directly through purchasing assets.
Property funds and syndications offer a relatively simple and accessible way to take part in the ownership of prime commercial and industrial assets at entry-level prices.
These types of investments will become ever more attractive to new or smaller investors in particular, as after-tax returns from many interest-bearing bank accounts languish barely above inflation.
Some recent property fund and syndication products have offered more than double the returns available from term deposits with the major banks. Buying into these types of products can also give access to diversification in property types, locations and tenant profiles for a fraction of the up-front capital needed to achieve this through direct property investment.
Emergency Housing Grants up 7x in Two Years
The Government spent over 7 times more on Emergency Housing Grants in the December 2019 quarter ($48.1 million) than it did in the December 2017 quarter ($6.6 million).
Both the number and value of grants issued to people in desperate need of accommodation increased…
- December 2017 quarter
- 6,172 grants
- $1,064 average value per grant
- December 2019 quarter
- 30,941 grants (+400%)
- $1,555 average value (+46%)
Emergency Housing Grants are one-off payments made to those who have immediate or emergency needs and who have no other way of paying to meet those needs.
Demographia Housing Affordability
The latest annual Demographia International Housing Affordability Survey of 309 cities around the world shows Auckland has improved while Tauranga has become the least affordable city in New Zealand.
Christchurch, which has experienced a significant building program over recent years, is now the most affordable when incomes are compared to house prices. It’s basic supply and demand – affordability improves when supply is increased. Associate Minister of Housing Kris Faafoi should take note.
The average price of houses in Christchurch is equal to 5.4 years annual household income. In Tauranga, now our least affordable city, that multiple is 9.3 years.
Tauranga is now the world’s fifth most expensive housing market according to Demographia’s metric, worse than London and many major American cities.
One criticism of Demographia’s methodology is that they use whole-of-population median household income, which includes many households that don’t buy houses and results in a lower overall income and, therefore, higher ratio. Interest.co.nz has a better index here.
Provincia Has New Wiri Property Under Contract
Provincia Property Fund has another large industrial property under contract and is currently in the due diligence phase of the acquisition process.
The property is a large Wiri warehouse complex superbly located in very close proximity to major transport routes and the airport.
In fact, it is only a few hundred metres from Puhinui Road, which is one of the two main access routes to the airport, less than 800m from the South Western Motorway, and only 6km from Auckland International Airport.
This content is provided for general information only and should not be relied upon or used as a basis for making any investment or financial decision. To the extent that any information or recommendations in this content constitute financial advice, they do not take into account any person’s particular financial situation or goals. As individual circumstances differ, we strongly recommend you seek independent legal and/or financial advice prior to acting in relation to any of the matters discussed herein. Neither Newland Burling & Co Ltd nor Provincia Property Fund Management Ltd nor any person involved in this content accepts any liability for any loss or damage whatsoever may directly or indirectly result from any advice, opinion, information, representation or omission, whether negligent or otherwise, contained in this content.