Escaping The Hole We Are In

“The most important thing to do
if you find yourself in a hole
is to stop digging.”

Warren Buffett

New Zealand’s economic recovery appears to have almost stalled, as we wait for the impact of lower mortgage rates to flow through to the economy. We are also suffering from low levels of immigration, with most of this being lower paid workers, whilst our educated youth still stream overseas. There are bright lights though, with our rural exports still attracting strong prices, and the income from tourism now exceeding pre-covid levels despite the fact numbers of visitors is still only at 85% of pre-covid numbers.

This Country is being portrayed by our politicians as being open for business and seeking offshore investment, and with the turmoil happening around the globe, be it from wars, immigration concerns or Government prejudices and trading policies, now is the time that we should be promoting New Zealand as a safe haven to move to and invest in. It is all well in good that the coalition approaches global investment funds to support infrastructure investment, but we have a window to also attract high net worth individuals. We need to relax our laws around offshore investor’s ability to purchase property, if we are truly going to attract high net worth parties to invest in New Zealand. The pre-election proposal of offshore purchasers being able to buy upper end residential properties, and being charged an overseas investment tax, was stymied by NZ First, as coalition partner.

A policy like this needs to be put in place, there are already cases we know of where a university student, who has NZ residency, is the proud owner of an expensive house or landbank holding. The excuse we hear for this not being put in place is that it will make housing affordability here worse, however if the pricing is set at, say $5m, this affects only around 1.0% of the current residential housing market. We would suggest that there is a large pool of high-net-worth parties offshore who would invest in this Country, provided they could buy a house, just as they did when these restrictions were not in place. We only need to look at what the likes of Julian Robertson, prior to his death in 2022, did with Cape Kidnappers and Kauri Cliffs, or Rick Kayne is currently doing with Tara Iti, The Hills etc, or even Bill Foley with his investment in Auckland FC to see the value these people can add to this Country and our way of life.

Unfortunately, the Country is still suffering from existing restrictive investment policies that were introduced by the previous Government, and a lack of clarity as to whether a change of Government in late 2026 would see another about face, making it hard to attract investment. New Zealand now finds it is running short of supplies of Natural Gas, and as a result we are seeing a number of business’ talking of closing or switching to coal and/or electricity. How do you attract the large investment to explore new deposits in the knowledge that the licence may be cancelled in 2 years time.

The budget, while producing little of significance, was fiscally responsible. Government debt is currently at around $42 % of GDP, with this forecast to peak at $46% of GDP by 2027/28, before starting to creep back. This is significantly higher than the John Key Government years at under 20%, before doubling over the Labour Coalition/Labour Government years. At least you get the feeling that the current coalition are trying to live within our means, despite the numerous demands being placed on them.

The start of this calendar year exuded a positive vibe, with the general feeling that interest rates would drop and confidence would return by mid-year. However, the property market recovery appears to have stalled, and consumers have put their wallets away, this is driven by Global economic nervousness and our local concerns around security of employment. Farmers and growers are experiencing strong returns, which should lead to stronger economic conditions in rural areas, however with stagnant population growth the urban areas will lag behind.

Financiers are also a bit more cautious, with the need to demonstrate a proposed exit now being an important part of most funding applications, coupled with a robust valuation to provide comfort to a funder. A borrower should be conscious that transactions can quickly become stale in the market if they are shopped around to a mix of brokers and lenders, meaning in most cases you won’t get them progressing applications.

We are now seeing quality transactions being able to achieve borrowing rates of 8.5-9.5% and fees in the 1.0 % -2.0% range, a considerable reduction from 12 months ago, as the OCR reductions flow through to the 2nd tier financing markets. There are good levels of liquidity in the non-Bank markets with sensible well-located transactions sort after. So, if you or your clients have an opportunity, please contact us.