A Divided Nation

“We must learn to live together as brothers
or perish together as fools“

Martin Luther King Jr

As we are now under 2 months from an election New Zealand appears very divided. We have the 2 largest centres remaining in the economic doldrums, which can be evidenced by the latest unemployment figures showing Auckland at 6.8% and Wellington at 4.9 %, whilst the regions and other main centres are showing both economic growth and population growth. The nervousness around the outcome of November’s Election has flowed through to the property markets with activity having reduced whilst purchasers take a wait and see mentality.

I’d add the links naturally where readers are most likely to be interested in financing and development.

This divide will obviously be reflected in political polls, as ultimately an individual’s view on their current lot is the main driver of who they vote for.

This Country unfortunately is dominated from an economic activity perspective by one city, Auckland, who contribute over 38% to the Countries GDP and hold 34% of the Country’s population. If we include Northland in these figures it jumps to nearly 41% of GDP and nearly 38% of the Country’s population, whilst adding Wellington pushes it to around 54% and just under 50% respectively. One would suggest that if Auckland/North Auckland and Wellington were removed from polling the Coalition would look very strong. This is the issue for the current coalition, as our main centre has really struggled to reach the activity heights it had prior to the extensive Covid lockdowns. The larger the locomotive, the longer it takes to get it moving.

For those considering property development finance, the differing economic conditions across New Zealand’s regions continue to create varying opportunities and risks depending on location.

This Election is shaping up to show the faults of our MMP voting system, as more than ever we risk the tail wagging the dog. It is a struggle to see how a party that was created within the last 12 months, that has announced little in the way of policies, little in the way of MP’s, and most people don’t know where they sit within the Electoral spectrum, is polling, depending on the poll, at between 6% & 8%. Not many people know that The Opportunity Party (TOP) were promoting to increase the age for the Juvenile Court to 25 years of age. They are trying to promote themselves as a Centrist Party, assisted by the NZ press, however this looks like an illusion. Has it been reported that the GM of the party is an ex-Minister in Ardern’s Labour Government? I haven’t heard it. The effect of this and a possible overhang available to the left-leaning parties, via the Maori seats, makes the job of the current coalition harder, even before the National party leadership wobbles.

We can only hope that the Coalition start to educate the NZ public as to where this party stands – more than just a “we won’t work with them”. We are currently getting polls incessantly rammed down our throats, which seem to each paint a different picture of the November Election outcome, which indicates that what is asked, who is asked and where they reside effect the poll results. I have yet to find anybody who has been polled, maybe it is only landlines? Regardless of the political outcome, borrowers and investors will continue to require access to commercial property finance solutions that reflect changing economic conditions.

Economic indicators are starting to all trend in a positive direction, with signs that domestic driven inflation is not to far above the Reserve Banks 2% -3% band. There was general agreement that the OCR needed to increase at the most recent review, despite rhetoric that we are in the midst of a “Fragile Recovery”. As stated in previous newsletters a good portion of our Country’s inflation has more recently been driven by factors outside of the economy – oil, insurance, council rates, electricity/gas costs etc. There has not been mention of what has been political football previously, that being Residential Rents – which have year on year recorded a 1-1.5% drop in metro areas, the exception being Queenstown and Christchurch. Also, I seem to remember previous Elections had housing affordability as a hotly promoted campaign issue by opposition parties, yet this hasn’t been mentioned so far this campaign. Polls tend to show the majority of voters want house prices increasing rather than decreasing, with our Country showing a mixed bag, dependent on where you live.

These market conditions continue to influence borrowing decisions, particularly for those seeking property development finance as developers and investors adapt to changing economic conditions.

The silence from Labour around the removal of tax deductibility on rental investments would suggest that they won’t go down that route again, as it was shown to increase rents markedly. They also haven’t addressed how they will fund their various promises when currently their proposed income from Capital Gains tax would be minimal in a slow and flat property market. The Australian Government recently increased their Capital Gains Tax and removed a lot of the negative gearing tax savings, which has resulted in house prices in all the main centres dropping substantially. Sydney is in line for over a 10% drop for the current year if the trend continues for the last quarter. This has led to a dramatic slowing of the residential property market, which now looks like it is flowing through to the $2.5 trillion Private Credit market in Australia, as defaults in the non-bank market increase. This in turn will hit Australian Superannuation Funds, as they are major depositors in these markets, affecting most Australians due to their compulsory Super Scheme. This has every chance to also flow through to the various Australian non-bank lenders who are active here.

Financing markets are starting to show some green shoots as enquiry picks up, with Global now seeing and managing to settle a number of quality development transactions. We also have access to specialist second mortgage lending solutions that can fund up to $3 million for the right sort of transaction, generally where there is sufficient equity and a plausible exit strategy.

So, if you or your clients have a transaction to discuss, please contact us – it is free to talk.