“A Smooth Sea Never Made A Skilled Sailor”

Franklin D Roosevelt

What a difference 12 months can make, as a great summer and change of Government has delivered, what appears to be a much more positive attitude to the year ahead, as opposed to this time last year, where parts of the Country didn’t experience a summer and were being battered by a series of storms. The new coalition appears to be focused and organized, and in general agreement with each other, despite what is reported by our left leaning press. The January political poll has seen a jump in support for both Christopher Luxon and the National party, and they need to recognize that a strong majority support the coalitions proposed reforms, despite the vocal minorities’ protests. This Country desperately needs a stable government that follows through with what it has been voted in to do, and unlike the last Government follows through with action, rather than never ending rhetoric.

The recent quarterly inflation figure of 4.7%, though still high, is a large drop from where we were, and a continuation of the downward trend. The Reserve Bank is one of the few in the World who still only report quarterly, which as these numbers are to December ’23, are a bit out of date. Most other Countries will provide a monthly figure and then the average over a quarter to report an annualised inflation rate, providing a more regular update on where inflation is tracking. Interest rates and inflation around the World have retreated back, which does influence this Countries fixed term mortgage rates, however the Reserve Bank is putting the pressure on Banks maintaining current levels, thus providing large profit margins for our Australian owned Banks. It is our view that mortgage lending rates will start to retreat earlier than 2025, more likely the 2nd half of 2024, however there is now some disagreement between Banks economists, with ANZ announcing likely increases and the other Banks expecting a hold then reduction in the OCR.

This year the World has a large number of challenges to overcome, from the war in Ukraine & the Middle East, potential freight disruption, and an election in the US, that is looking more and more like a Biden/Trump showdown, unless Trump is prevented from standing by the Courts. The outcome of this could have a huge impact on Ukraine’s ability to continue to frustrate Russian aggression, and then whether the conflict expands to involve NATO. I read recently that this election has more international interest vested in the outcome, than any US Presidential Election, due to their divergent views on the United States’ involvement in World issues outside of the United States’. Trump’s statements that he would withdraw the Country from NATO, and his probable “less hands on “involvement in the Israel/Gaza conflict have major ramifications for the two regions.

The conflicts around the globe will make this Country more attractive as a destination to both visit and emigrate to, so we should see strong immigration growth throughout 2024. The construction down turn means existing housing stock will be in demand, and agents I have spoken to advise they have noticed a significant increase in open home visitors and general enquiry. Global Pacific Capital also deals with a number of the larger house building firms, and they are starting to move their surplus completed stock. However, developers are still struggling to attract strong enough levels of “off the plans “presales to get larger development projects off the ground, meaning those that are proceeding tend to have strong equity levels in them. The softness in the housing market has also meant most projects are currently uneconomic. There is also a concern that the decline in commercial property values internationally will adversely affect the financial strength of some Banks, and that this may spread to this Country. There are a number of property investors in this Country who would now be in default of their Banking covenants, due to their debt servicing costs having tripled in the last 18 months.

The non-Bank market has started 2024 strongly, with a good level of enquiry, and strong investor demand. We have noticed a number of borrowers expecting non-Bank rates to have reduced a bit, though they need to realise that this market is priced as a percentage over Bank lending rates, and more particularly what the competition is doing. There is generally some negotiability if the funder likes the transaction, which is also helped if they have a level of funds to lend out. This is where Global Pacific Capital can add value, as we are regularly in touch with all our funders as to their appetite for deals, the types and size of deals, and how location driven they are. We regularly see transactions sent to funders who have no appetite for that type of loan or asset, which doesn’t assist the client as the deal just gets known in the market. Non-Bank funders are like Banks, in that they aren’t as keen to fund a transaction that they know another funder has declined.

There is certainly a more positive vibe coming from funders, so if you or your clients have a transaction they are looking to fund, please don’t hesitate to contact us.