Covid – One Year On!

To Richard,

This time in February last year we commented on the Coronavirus’ expansion around the World and questioned what affect it would have on 2020 and beyond, and at the time didn’t realise the level of disruption this was going to cause the World. I recently looked at some predictions for 2021 and must say that Nostradamus was full of doom and gloom with his predictions for the Human Race.

On a lighter note, I saw an article that detailed predictions 100 years on from people in 1921, bearing in mind that they had come out of World War 1, survived the Spanish Flu, and were witnessing a technological revolution through the invention of Electricity, commercial aviation, and the effect of faster communication through the Radio.

Some of the predictions were –

Charles Steinmetz, an electrical engineer, predicting that electrical heating in the home, will enable you to set a temperature, and the interior of the house will be maintained at that temperature, irrespective of the temperature outside.

He also predicted the demise of the music hall, as music will be supplied by a central station and distributed to subscribers by wire, similar to a telephone service, bringing a concert into your home.

He also went on to predict that the cellar, which at that time housed the heating furnace and coal supply would become redundant, and that the cellar would become the place to store a person’s electric automobile, bicycle and tricycle.

The effect of Covid and lockdowns, particularly in Auckland, has seen a real shift in peoples work habits, with a lot more people now working remotely on either a full time, or part time basis. This is noticeable in Auckland, with carpark buildings that were full 12 months ago, now less than 50% full, and we would presume is similar in other main centers around the Country. This must also flow onto to office space, and CBD retail space, and presumably rental returns. As Auckland Transport look to tinker further with the City’s main street, the effect of less workers in the CBD and no tourists is really started to bite. Commercial Agents we speak to advise the demand for Industrial property is still very strong, followed by office, then retail.

The jump into the unknown of early 2020, with even the optimists predicting a severe recession, is now being replaced by optimism across most of this Countries business sectors, with the exception being any industry reliant on offshore tourism. Our economic data has been a lot stronger than predicted. GDP was stronger than expected, and inflation is higher than predicted, at one stage de-flation was being spoken of, and then recently unemployment has dropped below 5.0%. The lack of immigration and strong employment demands across the construction, health care and public services sectors has led to the strong rebound. Economists have now moved away from the prediction of the Reserve Bank further reducing the OCR to below its current level of 0.25%, rather to when they may start to raise it. Most feel that the Reserve Bank will maintain it at this level for some time, to continue to stimulate the economy, and recognize, that we are still in a volatile situation, with us always being only 1 border leak away from further lockdowns. The scares here and in Australia look to be pushing any opening of our borders further away.

The financing markets have started the year on a buoyant note, with strong activity being experienced across all sectors. It will be interesting to see the effects of the 40% deposit rule for investors on a hot residential property market. We would suggest it will be more of the rich getting richer, and those who haven’t been in the market for long missing out, due to lower equity levels. The announcement of this has helped add further fuel to the fire, just as it did last time.

The developer’s Global deals with are all advising they are experiencing strong off the plans demand, and the issues are sourcing funding for projects and then getting materials to build the houses. We are suggesting that they factor the potential for material supplies to be delayed into their funding terms. As the Banks have all but left the development funding space, demand for non-Bank funding is strong, however with a good level of liquidity in the market and more lenders appearing, funding costs are easing back. We were talking to an offshore funder who is very bullish on NZ and keen to look at projects over the $10m range. Funding costs for development deals are now in the 9.0%-11.0% range, this being interest rate, financiers fee & any line fees. We also have private investors who will fund well located construction loans, without a QS & presale cover, provided there is good equity in the project. Non- Bank investment loans are now being priced at 6.5%-9.0%, with funders fees of around 1.0%, with plenty of investor demand for these. Global also has access to investors who will provide mezzanine or equity for the right type of projects.

There is generally a stable and positive feel about the property markets, however there are a lot of factors that could quickly change sentiment – Covid, offshore stability and a Government that are on a mandate of change, to name but a few.

We have funders chasing us for opportunities, so please feel free to contact us should you or your clients want to discuss something.