16 September, 2010
We started the last GLOBAL VIEW with a video of one of the funniest commentaries on the current state of the U.S. economy we’ve seen. It’s called Quantitative Easing explained.
The link has the highest click through rate of all the newsletters I’ve ever written. It features what the U.S. Fed is doing to get us all out of the Global Financial Crisis, so if you didn’t see it click here
Well at Christmas time we all tend to look back on the year about to end, and what lies ahead, so we thought it appropriate to feature another video which was recorded a couple of years ago as the GFC was just starting. It’s good English humour. To see it click here
2011 – A subdued economic recovery?
Each quarter the New Zealand Institute of Economic Research compiles an average of New Zealand economic forecasts from a survey of financial and economic agencies. The latest shows economic forecasters expect a slowing recovery before conditions strengthen in the March 2012 year. This leads to the conclusion that interest rate increases will be later and less than previous forecast. To see the research click here
Meanwhile Finance Minister Bill English has announced the cash deficit for the current fiscal year is now expected to be $15.6 billion, up from the Budget’s $13.3 billion. This represents a borrowing requirement of $300 million a week and will force the government to keep the lid on spending.
Bernard Hickey from Interest.co.nz reports on this and quotes Business Roundtable executive director Roger Kerr as saying “The underlying problem is excessive government spending, which risks putting unnecessary pressure on monetary policy and the exchange rate. A striking point is that the projected path of core Crown expenses as a share of the economy is higher in each year out to 2014 than in any year under the previous government. This calls for stronger legislated spending disciplines and a willingness to re-examine major spending programmes.” To read Bernard’s article click here
So what does all this mean? In our view in 2011 expect more of what 2010 was like – which was at least better than 2009.
Statistics show the housing market is better that it seems – well certainly in the main centres. The November REINZ report reveals a late spring surge in residential property has lifted the level of sales back above 5,000 and the national median price up to $360,000.
“The indications of a lot more listings noted at the beginning of last month have led to a late flush of spring activity,” says REINZ spokesman Bryan Thomson “With pent-up levels of people now in the market who need to buy or sell homes, we can expect the increased activity to continue through December and the summer without the usual slowdown over Christmas.”
They say increasing buyer interest has meant the national median number of days to sell has shortened again to 40 from 41 in October and 43 in September and August. Not much, but in the right direction. To read the report click here
Rodney Dickens, in the 3rd of an excellent series of articles entitled The Real Housing Market Story, discusses whether housing is a good investment option. It’s an experienced economist’s view filled with excellent backup graphs and statistics. Content includes a valuation approach based on interest rates and rental returns, how valuations based on previous sale prices may not be relevant in the current economic environment, when it is better to buy or rent, and a section on housing affordability and how people behave.
In the first two articles Rodney talked about the importance of real (inflation adjusted) house prices and whether it is time in the market or market timing that matters most. In the second he shows how house and section prices behave after the speculative boom we experienced between 2002 and 2007. To read all these 3 articles click here
But this is an “economic” point of view and I’m sure Rodney will agree that people buying and selling owner occupier homes on the same market in which they are seeking a location they like, it’s entirely an “emotional” decision and all the economic consideration go out the door.
All the above is borne out by talking to residential real estate agents I know – admittedly dealing in the higher bracket Auckland market – many of whom haven’t even seen a glitch in sales over the last year.
Money still hard to get but looking better
In our industry the availability of loan finance continues to be a huge obstacle for property and business. Finance for property development is almost nonexistent and small businesses are relying on residential property security to obtain loans.
In the commercial property sector banks are reluctantly lending to borrowers with good tenants with longer term leases that can show consistent well covered debt servicing.
But through all this we’ve been able to obtain loan finance from banks and non-bank sources that are gradually replacing the finance companies and lenders that are no longer in business or are closing down. New sources include private lenders we have access to with interest rates varying according to the security and debt servicing ability offered.
The majority of these deals are refinancing loans from existing sources that want repayment. But they also include borrowers seeking to escape the clutches of a bank wanting debt reduction that has collateral security over a number of their assets and is threatening pressure on well performing assets as well as those that are not.
Another need to refinance is lenders wishing to limit or reduce their total exposure to the one borrower. An example I’ve recently arranged, is a $3.7 million dollar first mortgage over commercial property from a private source at competitive interest rates. And if you’re interested there’s more available at this sort of level.
So there is money out there – it’s a matter of knowing where to access it and putting up a good proposal.
In 2011 we’ll be expanding into more equity related transactions which are clearly becoming more popular and viable as the world deleverages and investors seek better returns than the continuing low interest investment environment provides. If you’re interested in this – as an investor or someone seeking funds – just reply to this email or give me a call and I’ll put you on the list.
Have a great Christmas and New Year – and here’s to a prosperous 2011.
From the team at Global Pacific.
Global Pacific Corporation Limited
112 Gladstone Road, Parnell,
P O Box 3229, Auckland, New Zealand
September 2013 - Aotearoa- First to get the sun, an OCR increase and possibly an “artificial bubble” ! Read more...
February 2012 - Optimism or Pessimism – Is it time to move forward and “make things happen”? Read more...
February 2011 - “It is important to learn from history – not dwell on it” – JK Read more...
January 2011 - Inflation, interest rates and opportunities Read more...
September 2010 - Looking back – and forward Read more...