Good Times Ahead?

“People often say that, in a Democracy,
decisions are made by the majority of the people.
Of course, that is not true.
Decisions are made by the majority of those
who make themselves heard and who vote
– a very different thing”

Walter H Judd

Further to our last email, economic activity is showing positive signs due to the reduced OCR, with a further boost having come by way of a further rate reduction of 0.25%. The one negative of the past couple of months was the increased unemployment rate to 5.3% of eligible workers, which if further broken down has a rate of over 15% for the Country’s youth, being 15-24 year olds. Within this figure however there is still a large base of our youth who don’t want to work, and both figures are probably at their peak .

The next Election is now approximately 12 months away, and maybe it is time to assess whether our current MMP voting system is fit for purpose. As a Country we are carrying a large number of MP’s who are placed in Parliament not by Electoral support from voters, but by their ranking on the party list. The Country has to put up with extremist rhetoric from a couple of opposition parties who appear to contribute very little to the governance of New Zealand, with one party in particular refusing to abide by the rules of parliament, including attendance, but happy to accept tax payers money. The quality of some of the MP’s becomes apparent once they open their mouths, and the Labour party must be worried about the imploding of their potential coalition partner, the Maori Party.

Labour itself appear very disjointed, with the early announcement of a proposed limited Capital Gains Tax catching Chris Hipkins by surprise. The announcement of the targeting of investment property for a Capital Gains Tax came without a lot of specifics, and if you look at Australia it doesn’t appear to limit house price growth. The carrot proposed of providing 3 x free yearly Doctors visit’s for everyone, admitting at the same time that 5 out of 6 people can afford to pay for them, seems a rushed ill thought attempt to buy votes. Economists view a potential cost in the first year of $750m +, with set up & staffing costs, whilst any Revenue from taxable property sales takes years to build up and accrue. There was also no detail around how the value of the property was going to be calculated in July ’27, the handling of improvements or mention of the current brightline rules, which presumably will disappear, thereby reducing the tax take.

The Reserve Banks OCR reductions have seen our dollar depreciate significantly against our main trading partners, when can you last remember us at 86/87c to the Australian dollar. Interestingly our dollar jumped against all currencies on the latest OCR cut, due to the Reserve Bank commentary indicating that this could be the last of the cuts in this cycle. This is obviously good for exporters and presumably a boost for tourism, but not so positive for the importers and those looking to go overseas. The cross rate with the Australian dollar was eroded further when their Central Bank of Australia decided to maintain their base rate at 3.6%, and advised they were unlikely to be reducing rates until the 2nd half of next year, due to stubbornly high inflation. Australia’s economy looks to be entering the period we were in around 18 months ago, as the Albanese Government has continued to spend, fueling inflation, and now economic growth is starting to stall and unemployment rise. This Countries net migration statistics for September showed a slight net gain, and as Australia makes up the largest market for New Zealanders migrating, may be the attraction is dimming.

Recent statistics point to some sectors turning to the positive- the construction sector-particularly residential – has seen growth over the last quarter to September. Statistics show an upturn in the labour market, and residential house sales in most regions are experiencing a good uptick in sales. Interestingly the proportion of first home buyers as a percentage of total sales is now at it’s highest level since these statistics were recorded in 2005.

The increased optimism about 2026 is now flowing through to the finance markets, as funders are more prepared to take some risk around presales, increase gearing levels, and provide more flexibility around QS reports/valuations etc. The fact most non Bank funders are currently sitting on reasonable liquidity levels, with a desire to have this placed into a transaction over the Christmas period strengthens their motivation to make a deal work ,if they can. We have recently seen a number of the contributory/nominee funders increase the gearing they will go to on most property transactions supported by the view that values have now bottomed and in fact are tracking upwards. The non Bank market is competitive and certainly a lot quicker and more flexible than the Bank credit processes, so now is a good time to approach them regarding a transaction.

As this is our last newsletter for the year, we at Global Pacific Capital hope you have survived a year which started with a lot of hope and promise, but failed to deliver. The signs are there however that we have tuned the corner and with next year being an Election year one would think the economic shackles will be released some what. Hope you manage to enjoy a Happy Christmas and a great summers break.