Promises, Promises!

“The ballot is stronger than the bullet”

Abraham Lincoln

As we enter the run up to the 2023 Elections, the promises and political commentary will ramp up. The economy, however, will not be Labour’s friend this time around as we have stubbornly high inflation, the corporate tax take has plummeted, and interest rates that look like staying higher for longer. Grant Robertson has been conspicuously quiet, with recently muted comments about Labour removing GST on fresh produce, as he now toes the party line, despite his previous vocal opposition to it. The Government has to open its books on September 14th, and the view is that these will look very poor. New Zealand’s rural sector will not be in a position to bail us out this time, as the Chinese economy has gone into reverse, with talks of stagflation, and high unemployment, and our reliance on them for the bulk of our primary produce exports will result in farmers shutting their wallets. There are some economists picking a further increase in the OCR before the end of 2023, whilst others are believing the Reserve Banks statements that they will sit on their hands, and a recent speech from a senior member of the Reserve Bank implied the OCR might start to drop sooner if our GDP position worsens. The strong immigration and low unemployment levels are drivers of inflation; however, the depressed state of our exporters should lead to the economy slowing further, thus removing the need for increases, and with inflation having come off it’s record high levels you would suggest that the OCR has reached its peak. The Reserve Bank will be watching house prices with some concern, as despite high mortgage rates, the latest REINZ monthly House Price Index indicates house prices are back on the rise, and 2 Banks recently announced their predictions that prices will rise Nationally 8-10% in 2024, with some economists predicting higher rises.

It is looking increasingly like there will be a change of Government in October, and the mess that the new coalition will inherit won’t take 5 minutes to fix, and according to National’s promises the list of passed, or partially passed legislation it will look to repeal is lengthy. What they do with Three Waters will be interesting, as the respective Regional organisations are formed, the CEO’s contracted and premises leased, even though the legislation has not fully passed through the House.

The financing markets are still active, with a number of the non-Bank lenders taking a more positive outlook to the medium term on the NZ property markets. This is starting to flow thru to their attitudes to the types of deals they will look at and particularly gearing levels. We are still seeing a reduced level of new construction loans getting across the line, due in the main to an inability to achieve presales and on sale prices not being able to achieve the necessary margins for developers to undertake the risk. This however is starting to show signs of changing, with property values looking like having stabilised and a number of the developers we have spoken to indicating reasonable price reductions on a lot of materials, particularly those sourced from China, and sub-contractors pricing coming back due to reduced workloads.

Global has been active over the past few months, with a mix of transactions, ranging from development funding, residual stock facilities, land bank facilities, and even been involved in structuring a distressed asset warehouse facility for a client. There are still business owners who aren’t proactive enough when their Bank initially puts pressure on them to reduce debt facilities, and as a result these business’ end up in Receivership or a forced sale position, where if the borrower had been more active earlier, they would have managed to preserve a lot of their equity.

The non-Bank market is still very active, with most of the funders we deal with are holding good levels of funds for transactions. Currently pricing for non-development deals range from 9.5%-11.5%, with fees of 1.0-2.5% dependent on term and funder. Development loans are still in the 11.5%-13.5%, with fees of 2.0%-3.0%, with strong appetite from the offshore investment funds to look at opportunities here. If you have a query regarding funding, please don’t hesitate to contact us.