09 Feb From the rooster to the dog!
This time last year we wrote the “Year of the Rooster” heralding in a worldwide era of political change, whether it be Brexit or Trump, and that Bill English and the National Party should be wary of this. February 16th is the Chinese New Year, and 2018 is the year of the Dog-actually the “Earth Dog”, with predictions of a year marked by security concerns- what is new – and the rise of social conservative movements.
We have now ticked over 12 months of Trumps Presidency, which is showing economic stimulus within the United States , but a public lurching from 1 twitter comment to the next, and the Russian Election tampering investigations gather pace in the background- a real life Soap Opera .At least there appears to be some cooling of tension between the US/ South Korea and North Korea, even though the “ Doomsday Clock “ sits at 2 minutes to midnight.
The expectations by Economists in the 2nd half of 2017 were that inflation was showing a strengthening trend, which would be further boosted by upwards wages pressure. However, the last quarter of 2017 saw inflation at lower levels, than predicted, with consumer price increases coming in at just 0.1 %. Probably a hangover of the Election result and a resurgent NZ dollar against the US. This has led to predictions that the Reserve Bank will hold off on an increase in the OCR until the 2nd half of 2019. The Reserve Bank will also be satisfied that housing inflation has cooled considerably from a year ago, and as a result of this, coupled with the offshore buyer restrictions, we expect to see them easing lending restrictions. The fact remains that we are short of houses, particularly in Auckland and Wellington, and the lending restrictions coupled with new government initiatives to require landlords to meet certain rental property guidelines means the mum and dad investor is not finding this type of investment as appealing. Housing New Zealand are more active, as both a tenant and owner, but this Country has relied heavily on the small private investor to provide the bulk of the Countries rental stock. The ratio of property owners to renters will move further towards larger numbers renting, and demand for rentals versus supply must see rents increase.
It is interesting that the Commercial /Industrial property syndicators seem to have little trouble attracting investment to their investment schemes, offering 7.0%-8.0%, pretax, investment return, whilst a residential property owner in Auckland is lucky if they can get much over 5.0% return.
Investors in the world sharemarket’s have experienced a sustained period of strong growth but are now being reminded that what goes up can and probably will come down, at some point. The computer driven selling, that reminds us of the 87 crash shows that world markets are still at the whim of the Dow Jones.
The availability of bank funding for projects was a big talking point last year, and this resulted in a number of projects being shelved, as the lead time between achieving presale targets, locking down a construction contract and funding the project meant the project margins were too tight. We don’t expect NZ Banks to open the flood gates in 2018, as they just don’t have the capacity too. However as more and more nonbank financiers enter the market here competition should see lending rates and fees trimmed, for this segment of the market. Global is already being contacted by a number of these lenders who are sitting on good liquidity and looking for projects to fund.
It was also announced recently that China Construction Bank had received accreditation from the Reserve Bank, thus enabling it to leverage off the Balance Sheet of the Global Bank. This means it goes from funding against its locally held Balance Sheet of $200 million, to the Balance Sheet of the Group at $4 trillion- the 2nd largest in the World. This has given them the ability to compete with the major players in the NZ Banking system and may also lead to the 3 other Chinese Bank subsidiaries following suit.
Global is already being approached by Bank and non-Bank lenders with an appetite for transactions, so if you or your clients have a project or transaction they need assistance with, please don’t hesitate to contact us, remember we can generally give you a quick idea of options in the market.